Friday, April 30, 2010

Shut up! Cost Control initiatives are in progress.

I visited at the company where my friend works in Pimpri, Pune area to understand the cost control initiatives they have implemented in the organization.

All lights & Air conditioners were off. People were working very silently putting their head in either some registers or on screen of computer. The climate was so silent. I asked my friend, “It seems that there is power shutdown, but you must have generator back up” He replied back,”We have taken the target of energy saving. From 8.30 am to 1.00 pm & 3.30 pm onwards, air conditioners are not allowed.”

I went in wash room. I struggle to get the switch to light. You must be aware about the fish like soap normally used in washrooms. Only the head of the fish was tied. I asked the officeboy why only the head of fish soap is tied. “Sir, this is cost cutting, boss told us to cut the soap in two part and use. Cost control sir!”

Officeboy brought snacks to eat. He brought it in piece of newspaper. “What is this?” I asked.

“Sir Pohe, “

“Poha? On newspaper?”

Friend smiled, “We have decided not to use plates as it required washing and also unnecessary manpower, water and detergent.”

“Then why not paper dishes?” I asked.

“We are not increasing unnecessary overheads; hence we decided to use newspaper or used drawing papers for this purpose. We have strict policy for paper usage, accordingly to the policy any paper should be used at least five times.”

“What will you do with these oily newspapers afterwards?” I sarcastically asked.

“Office boy collects it. Once in a day, all the collected papers are put in boiler for burning for heating water. The water is supplied to canteen for washing their utensils.” This can be best example of environmental aspects in EMS certification. What a great use of sources? Great contributions!!

I decided to spend some more time to understand the terrific cost saving ideas. When I was interacting with the friend, one customer came. He had a discussion with vendor development guy seating just behind us. He wrote minutes of meeting. As meeting completed, my friend ask me to follow them. I went. The customer was so happy to know that the officer was accompanying him to see off. Vendor development officer gave the minutes copy to the customer and pointed towards photocopying shop in front of the gate of the company. I asked my friend, “What he did?”

“We do not take Xerox in our company. We get it from customer.” He replied.

“Why? don‎‎’t you not have Xerox machines?” I asked.

“We have the Xerox machine, but taking one Xerox is an altogether different project. Lot of approvals is required. There are two machines. One is in the cabin of our HR head and another is in plant in plant in-charge cabin. If we ask to take the Xerox in morning to the office boy, he brings it in afternoon. Not his fault.”

“I will introduce you to our internal audit officer, who checks all the bills, vouchers and without his recommendations nobody gets money.” Friend

He introduced me with internal audit officer. The big maps of Pune, Maharashtra were put on the wall behind him. He had also the scale for measurement.

I asked him how he supports the cost control initiatives.

“When somebody claims local conveyance expenses, I just check the distance in map, from his home to the visited customer or company. I measure the distance on map, converts to km and pay as per the KM.” He explained me.

“What’s about lodging and boarding?” I asked.

“We have a policy, if somebody goes out for official purpose in and around Pune; lunch allowance is Rs. 15 per person. Outside is Rs. 30/-. In fact we are trying to reduce it. For lodging we encourage people to stay at their family or friends house.”

“Your efforts for controlling costs are fantastic.” I smiled and commented.

“After my recommendations all the vouchers goes to MD for sanction.” He told.

“Does he object on the amount recommended by you?” I again sarcastically asked.

“Sometime.” He innocently replied.

After meeting this great internal audit officer, I thought that there is no point to see another cost control measures.

“Vinod, I will forward my CV, please check if you have something for me in your organizations or references.” My friend told me.

“Why? Are you looking for a change?” I asked, “

“Yes, Management may go for downsizing and I do not know what will happen to me.” He replied back.


Anonymous said...

I am surprised to know how can any orgnisation act on cost control.

This is done at the cost of loosing employee morale and motivation.

This is one of the best example of negative control

Raj Gawade

Rajiv Bharatwal said...

I hope this company is lacking in cost control initiatives.Most of the time company think to reduce manpower or to reduce facility provided to employees which is not a right approach and it is noway going to increase productivity of company.As statistics says 60-70% of the cost lie in inventory which requires major focus where Japanese people like to work.I hope there is long way to go to understand Cost reduction initiatives.

Mahavir Deosale said...

Vinod, It's a extreme example of cost cutting, which is initiated by wrong way. If companies want to reduce unwanted cost it can be called 'WASTAGE REDUCTION'. It can be done through deep study of existing costs and their utilisation. Then someone can conclude where to reduce the wastages.

Mahavir Deosale said...

Vinod, It's a extreme example of cost cutting, which is initiated by wrong way. If companies want to reduce unwanted cost it can be called 'WASTAGE REDUCTION'. It can be done through deep study of existing costs and their utilisation. Then someone can conclude where to reduce the wastages.

bhor said...

cost cutting is good.but the way is not correct.Like this company can reduce their expenses but cant increase company profit...
I suggest :
1. Sublet unused office space to appraisers or non-appraisers. Or, move out of your larger office space to a smaller sublet office.

2. Get rid of excess stored stuff, such as old office furniture. Sell it or give it away. Don't pay storage costs for things you really don't need. Don't be a packrat.

3. Don't offer lower prices to a client that isn't price sensitive. Why give away your profits? Not everyone gives assignments to the low bidder. Some don't even do competitive bidding.

4. Review the publications you subscribe to. If a publication doesn't really help you in your business, consider not renewing.

5. Cut back principals' salaries. Pay yourself last, after paying all other expenses. Although this may seem obvious, many companies have developed serious financial problems because the owners kept taking out large salaries.

6. Use temporary help whenever possible when your business substantially increases. That's how the mortgage lending industry handled the 1991 to 1993 substantial increases in lending volumes. They first let go the temps, then the permanent employees.

7.Use part-time support staff. They don't require benefits and usually have more flexible hours. Laying off a part-timer, or cutting back their hours, is much easier than a long-term loyal, full-time employee.

8. Use an outside payroll service such as Paychex or ADP to cut bookkeeping payroll costs. Or, do it yourself by using a simple software program like Quickbooks. Don't use a CPA to do your bookkeeping.

9. Cut your FICA and FUTA by setting up non-cash compensation, such as a "cafeteria" benefits plan with such benefits as health insurance and paid time off.

10. Use college interns or co-op students for research, setting up databases, etc. They work for credit or a low salary on a short term basis and can work on specific projects, or on general research.

11. Be sure you're not overpaying for workers compensation. How are your appraisers classified?

12. Raise deductibles on such coverage as auto collision, disability, property/casualty, and liability insurance. For example, have disability insurance "kick in" after 90 days instead of 30 days.

13. Evaluate all your insurance policies for their risk/benefit, and decide which ones you think you will really need. Don't overinsure.

14.Don't overpay your income tax quarterlies. If you anticipate that your taxable income will drop this year, don't pay taxes based on last year's income. Work with your accountant to pay quarterlies based on a more accurate estimate. If you've already overpaid your quarterlies, ask your accountant about a quick refund, using Forms 4466 and 1138.

15. Close to year-end, schedule a tax-planning meeting with your accountant to shift income and expenses. For example, shift income into the next year to decrease this year's taxes.

16. Shop for the best prices. Don't pay too much attention to percent discount. Look at the bottom line. No one pays full retail. Purchasing supplies in bulk may be worthwhile.

17. Sell or donate excess office furniture and equipment. Storage space is expensive. You can sell it to employees, the public, or the vendor (on consignment).

18. Reduce phone lines. If you have fewer staff, you need fewer phone lines. Cancel some of the optional features you don't really need.

19. Adopt teamwork, cooperation, and collaboration approaches.

20. Opt for videoconferencing or teleconferencing, instead of flying.

. Remember Cutting salaries, providing non-friendly environment to the employees will actually LOSE the BUSINESS. As there will be ZERO PRODUCTIVITY.

JHAZZY said...

It's indeed funny!!! My few cents here for those who might be interested in cost cutting. Most companies with canteen facility spend decent amount every month for a noble cause "Employee Motivation". However, most of the time you see it being mis-used. It's a no-brainer that if all transactions are monitored electronically, various ills in administration would be sorted out and lead to significant savings for the company. I being the founder of Camp Card Solutions (p) Ltd. have developed an electronic method for monitoring canteen usage and fair payment to caterer and equitable deduction (if any) from employee. We have been serving some of the largest companies in India with an unthinkable proposition 1 - Don't pay us if you don't save 2- No CAPEX from your company. We invest, you just share a percentage of your savings. THOSE WHO MIGHT BE INTERESTED CAN EMAIL ME ON OR call me on 9820666573

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