End piece

Fighting the recession -

Here are two views on what attention should be paid reducing costs in a period of economic decline.

View One has it that when there are real pressures on margins and profits, cost reduction should be at the top of the agenda, and to be able to cut costs quickly. It is the cutting the costs of assets, processes and the organisation and then take steps to realise the savings that have the greatest impact on survival. This provides the chance to set new goals and acquire new abilities throughout the company.

But as well as quickly, this must be done carefully; all the main risks need to be assessed and managed out. This is best done by applying systems that keep track of transactions throughout the business and by adhering to the following touchstones:

• profit should always be the first charge against sales – this sets the costs that the firm can afford.
• any business that does not keep its eye trained on profit will end up making a loss
• any business, system, procedure or person left undisturbed for three years will have become inefficient
• all overheads are variables- if volumes fall, overheads should be cut even faster
• costs should be regarded as core – adding value to services, products and customers
• structure mainly determines the overhead costs of a company
• people tend to elaborate rather than simplify their work resulting in tasks that have only a slight impact on profitability
• any activity managed on technical criteria will make a loss
• the optional extras that people demand can double the cost and timescale for any development.

View Two, while agreeing that costs are the key economic focus in a time of recession, posits that there is a serious danger that cutting costs might also result in cutting corners. There is no sense, it is argued, in mapping out management changes and infrastructure rationalisations if, on the road and at the interface with the customer, things remain as they were or worse, decline. Also, simple cost cutting may chop off some other, unanticipated corners, like safety. The harsh reality is that much logistics and supply chain work lives in a world where risks are more tangible and more likely than in other parts of the parent company.

And finally, this View worries about the impact of cost cutting on customer service. A famous online seller which promises next-day delivery recently had a certain amount of customer grief when it fell down on its pledge due to cuts and had to send letter to regular clients apologising for the problems, a process that in itself contained costs that hadn’t been budgeted.

So, to quote Peter Bartram, a noted business writer and journalist working in the logistics industry:

“…the message is clear: cut costs –but think of the implications. Our old friend, the law of unintended consequences, might be lurking in the economic shadows waiting to bit you on the bum.”