How they control cost: 23-August-08
Sourav Mitra -
Saturday, August 23, 2008 10:09 PM
Reliance Industries, India's largest private sector company that is highly profitable but still under increasing cost pressures:
1. It has always been very prudent about costs. It has set world records in low project execution costs.
2. It has taken up high costs as a major issue, especially in its subsidiary Reliance Retail to cut down avoidable costs
3. It has issued strict guidelines on unnecessary travel, mode of travel, courier despatches, use of stationery in office, use of cabs and type of accommodation while on tour, and even on the number of times employees can have tea and coffee.
4. It is seeking to reduce travel through video-conferencing.
5. It will issue only blue and black ball pens. It will not give calculators, tissue boxes, gel pens and uniball pens. It is encouraging employees to opt for pen refills and not to print in hurry to avoid unnecessary wastage of paper.
6. It will serve tea and coffee only in meeting rooms and visitor's rooms. The rest will be on self-service. Water bottles will be filled only once in the morning
7. It is seeking joint ventures with foreign retail companies to stabilize the supply chain
8. It is extending the austerity measures to the oil and gas business.
[Click here for full story at Businessweek.com]
Real intention is the seed of real cost savings.
(But sometimes it augurs a sense of depression.)
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Office of Government Commerce, the British government's buying body:
It resorted to reverse e-auctions for 5,000 laptops and 5,000 PCs (for all public sector customers) and achieved savings of 50 per cent on the laptops and 20 per cent on the PCs. And there will also be a range of upgrades available, which will be offered at discount prices.
[Reverse auctions force suppliers to bid decreasing prices for the contract offered, in response to competitors' bids. Only the buyer can see who is offering each price.]
[Click here for full story at Businessweek.com]
Is this more efficient and dynamic than sealed tender procedures?
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AnnTaylor Stores Corp., the clothing retailer that targets women 25 to 55:
1. It is embarking on a restructuring program that will save $20 million to $25 million this year and at least $50 million before taxes by 2010.
2. It cut inventory
3. It will reduce the number of products offered
4. It closed unprofitable locations and close more under-performing stores
5. It repurchased shares.
[Click here for full story at Bloomberg.com]
Restructuring + cutting inventory + reducing the number of products offered + closing unprofitable locations = cost savings
Repurchase of shares = lower cost of finance if idle funds in the business cannot be more profitable invested
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