Sub: Business Management Topic:
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.
, 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.
,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.
, 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.
, 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.
, 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
, 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.