The previous posts on this blog contain advice how to reduce costs. These tips on cost reduction are mainly long term oriented and allow companies to cut costs in an intelligent manner.

Reducing a company’s cost can also be done in a less sustainable manner. Here are some tips how NOT to cut costs:

Low-bidding. Low-bidding saves costs on a particular domain, but increases the overall (hidden) costs on other domains. When buying decisions are focused on purchasing costs, there is a chance that quality will deteriorate. Another negative consequence could be that delivery becomes suboptimal.

Offshore manufacturing. In most cases, cheap labor costs are the main reason to move production abroad. However, when the labor costs are lowered by 50%, but also the production output is lowered by the same number, this severely impacts your margins. Low wages rarely stay that way. For example, manufacturing salaries in China are expected to keep growing 15 to 20% each year, for the next 5 years. Add up the transportation costs to retrieve the manufactured products and you’ll notice your original offshore production cost savings program just lost a part of its attractiveness.

Superficial cost reduction. When topmanagement advises to decrease costs across the entire company by 10%, chances are divisions will take a bit off each post until they reach this 10% objective. In this way, sustainable cost cutting opportunities are lost.

Categories : Advices | Tags : General expenses | 1 commentaire associé