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Yes you are right; cost reduction sometimes leads to reduction of quality as well
Cost optimization is a wonderful concept and it relies on optimizing the resources for ensuring right product or service is delivered with respect to customer's needs. However, in today's global scenario, cost optimization has become relative term with respect to the region of manufacturing. An High cost country can have a different cost proposition for same service than a Low cost country. This has led HCC companies to ensure sourcing of the products or parts from LCC countries in selective manner to bring down cost of products and this Cost reduction has become a buzz word. Many companies can term this as a Productivity improvement. Rather optimizing the resources, selective cost reduction has become very familiar in today's market sceanario which is highly competitve. Not all cost reduction projects can be Cost optimization projects.
I fully agree that companies should focus on cost optimization; however, most companies choose the option of cost reduction once they have realized that they are unable to optimize their costs anymore. Also, in other cases, many companies have no choice but to downsize and be restrictive with their spending, especially in cases when the economy isn't as responsive.
That what needs to be a best business practice, but unfortunately that science is least understood in the market.
Well waste will always lead to more costs and customer wont pay for the waste he will always pay for the Value in the offering.
As its a well known fact that whatever resources we have its scarce whether raw material, money humans etc so we have to manage our resources thats what economics teaches us. As many companies didnt find the right kind of approach to deal with the uncertain enviornment they feel the best solution is cost reduction but its true that until or unless optimal utilisation of resources doesnt take place they wont be able to ahieve their goals.
To reduce the costs there are many new concepts Like Lean Manufacturing, TPS,6 sigma etc which current organisation are using for optimal utilisation of resources. I would like to site an example As my organisation deals in Lean Maufacturing slutions we have seen that our solutions can lead to better utilisation of space, which helps the organisation to either start a new assembly lline in the same plant or can use it for some other purpose. Which helps in saving millions of dollars as they wont need to buy new land or set up a new facility.
Key to achieve goals and face the uncertain enviornment is optimal utilisation of resources.
