One of the major problems in manufacturing is obviously to reduce cost. In order to do so, various activities such as TQM, TPM and JIT, etc. are often carried out. But many companies recognize that these activities do not necessarily guarantee cost reduction even if they have successfully been implemented. In the worst case, manufacturing cost rises with the introduction of such activities. This is such an important issue in manufacturing, but strangely in the literature, there have been no papers which have addressed themselves directly to the methodology of manufacturing cost reduction. The purpose of this paper is to develop a good method that establishes a cost reduction program scientifically and systematically, first, by investigating various production losses and classifying them into causal losses and resultant losses, secondly, by looking for the relationship among the losses, processes generating cost and the cost factors and finding connection between various kinds of loss reduction and their possible cost reduction, thirdly, by clarifying if the know-how on each loss reduction is available and obtaining it if not available, and finally by estimating the cost of reducing or eliminating each identified loss and putting priority to the loss items for total cost reduction from the viewpoint of cost and benefit. This method has been coined as cost deployment. This is a very powerful tool to identify right losses to reduce cost. A simple algorithm to establish a cost reduction program based on the cost deployment is presented and one case study is given at the end of the paper.