HideShow resource information

Cost minimisation approaches and benefits:

Strategic approach - Based on the business model. e.g. locating production overseas or core activities vs outsourced.

Tactical approach - Focused on the detailed business functions. e.g. choice of suppliers or the approach to stock holding.

Cost minimisation leads to - Lower unit costs, higher gross profit margin, higher operating profits, improved cashflows and a higher rate on capital employed (ROCE)

Key sources of cost reductions:

  • Eliminating waste and avoiding cuplication - Lean production
  • Simplifying processes and procedures
  • Outsourcing non core activities. e.g. transaction processing, payroll and call handling
  • Negotiating better prices from suppliers
  • Pruning product ranges and customer accounts to eliminate unprofitable business
  • Introducing flexiable working practices

Profit centres - separately-identifiable part of a business for which it is possible to identify revenues and costs (e.g. calculate profit)


  • Shows where the profit is being earnt within the business
  • Supports setting profit


No comments have yet been made

Similar Business Studies resources:

See all Business Studies resources »See all SELECTING FINANCIAL STRATEGIES resources »