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Actions to Reduce Fixed Costs

Actions to Reduce Fixed Costs

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Published by ClassOf1.com
"• Increase volume such that the fixed costs become a smaller proportion of the cost base.
• Derive value from sweating the assets by working them as much as is safely and practically possible. For example, airlines plan their schedules to maximize night-time flying between 11pm and 6am when there are often legal restrictions on landings and take-offs.
"
"• Increase volume such that the fixed costs become a smaller proportion of the cost base.
• Derive value from sweating the assets by working them as much as is safely and practically possible. For example, airlines plan their schedules to maximize night-time flying between 11pm and 6am when there are often legal restrictions on landings and take-offs.
"

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Published by: ClassOf1.com on Jul 03, 2013
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07/03/2013

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BusinessManagement 
LEARN TO EXCEL
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Sub: Business Management Topic:
 
Fixed cost
*
Actions to Reduce Fixed Costs
 
Increase volume such that the fixed costs become a smaller proportion of the cost base.
Derive value from sweating the assets
by working them as much as is safely and practicallypossible.
For example
, airlines plan their schedules to maximize night-time flying between11pm and 6am when there are often legal restrictions on landings and take-offs.
Outsource on a unit cost basis
, thus making the cost variable rather than fixed.
For example
,buying in a component at a cost per unit rather than paying for a machine and staff to makethem yourself.
Use standard platforms
(such as one type of asset), thus minimizing the amounts of sparesthat need to be held.
For example
, logistics companies generally have only one manufacturerof trucks, and airlines select either Boeing or Airbus.
Use temporary staff 
to manage peaks in demand and thus avoid carrying the cost of staff throughout the year when demand is lower.
For example
, hotels often call in temporarybanqueting staff for large functions.
Use an element of profit-related pay rather than a fixed salary, thus aligning theemployment cost to the performance of the business
. Similarly, sales commission not onlyprovides a sales incentive but also makes the cost variable.
Assess the full life-cycle cost of an asset
. A cheaper asset may over its useful life involvehigher maintenance and ultimately faster replacement than a more expensive version.
Forexample
, a cheap printer may do the job, but soon its quality deteriorates and within a shortwhile a new one is required.
Develop products that can use the waste from manufacturing the primary product
.
Forexample
, Marmite, a yeast extract spread, is made from the residue from brewing beer, thusmaking the
 
brewing waste a revenue earner rather than a disposal cost.
 
 
Sub: Business Management Topic:
 
Fixed cost
*
Employ staff with accountable hour
’s contracts rather than standard hours and overtime
.The process is that the staff works the hours they are required, but only 1,600 hours in a year.Operationally, this requires one-twelfth of the staff to have their accountable hours yearending each month. This makes sure that all the staffs do not run out of hours at the sametime.
Simplify the product or service
. Cut out a stage in the process that reduces costs but does notresult in customers perceiving any loss in quality.
For example
, Kit Kat, a chocolate bar, usedto be wrapped in foil with a paper sleeve. The packaging now is just a single outer wrapper.Some organizations des
cribe this action as “squeeze”,
which is the process of reducing theunit cost of production with no discernible loss in quality.

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