A Rational Look at Cost Reduction
A one time hit to selling, general and administrative (SG&A) expenses may result in 7 percent decline in operating expense that lasts as few as three months. Is this really is likely not result any company intends to achieve, yet many of us consider tactics that purport to yield such temporary results. Considering the fact that 54 percent of companies that downsize do not achieve desired results in reducing expenses and 68 percent do not achieve the desired increase in profits, results are far from guaranteed. In addition, cutting workforce and operating costs andor centralizing capabilities may have rious implications for market positioning and meeting strategic objectives. Let us propose that potential cost reduction actions should meet the following hree requirements Deliver reliable short-term results 2. Deliver sustainable long-term efficiencies Sirpport or at least avoid compromising strategic positioning 3. What would you say to a reduction in costsf goods sold that starts at 3 percent month two and then increases to 10 percent into perpetuity and leads to more demand red production? These kinds of results are exactly why the supply chain should be at the forefront of every cost reduction strategy. Perhaps supply chain should be the first line of defense when it comes to realizing cost reduction.