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1 CHAPTER I

2 THE PROBLEM AND ITS SETTING

3 Introduction

4 The objective of every manufacturer is to minimize the resources invested

5 in achieving the desired benefit, for profit-oriented companies this benefit is to

6 maximize its profit and enhancing its performance. Thus, a company should be

7 devising ways and strategies on how to minimize the costs in achieving the

8 specified goal. It is a need that a company should make attempts in minimizing

9 costs without sacrificing the quality of products it offers to the market and still

10 conforming to the standards. At these times in the Philippine market where

11 according to tradingeconomics.com and Philippine Statistics Authority inflation

12 rate spiked to a high time 5.2% on the month of June 2018 and is still rising every

13 month, where a new reform in the tax system affects almost every aspect of the

14 market sector, it is high time to heed the call of the economy for a speedy

15 recovery.1 One way to be of help is the adoption of cost minimization strategies

16 aimed at improving the efficiency of the company.

17 Cost minimization is the process of reducing expenditures or unnecessary

18 or inefficient processes. Cost minimization strategy and efforts can occur in any

19 area of a business including manufacturing, freight and packaging, finance and

20 accounting, human resources, legal, marketing, direct selling, and more.2 The

21 goal of cost minimization strategy is to identify the areas in which a business can

22 effectively reduce costs through analyzation of operations and production,

23 especially for a manufacturing company. The efficiency of these strategies if

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24 applied properly would be of significant help in the enhancement of the

25 performance of the company and the maximization of its profit.

26 The abaca industry in the Philippines provide livelihood to abaca farmers

27 and manufacturers, generates employment in the abaca manufacturing industry

28 and contributes foreign exchange earnings to the country's economy. In 2006,

29 total export earnings from abaca fibers and manufactures reached US$ 90.68

30 million. The country trades five types of Philippine abaca products in the world,

31 namely: fiber, pulp, cordage, yarns and fabrics, and fiber craft. For the period

32 1995-2006, the introduction of synthetic and other cheaper natural materials,

33 trade liberalization and global crisis have changed the demand structure of abaca

34 fiber and other products in the domestic and export markets.3

35 One of the manufacturing firms in the Philippines which uses abaca fiber

36 as their main material and is proudly Bicolano made since 1974 is the Albay

37 Agro-Industrial Development Corporation located in Brgy. Balading, Malinao

38 Albay. The company is engaged in manufacturing abaca pulp sheets which is

39 used in currency and bank notes, legal papers, tracing papers, stencil papers,

40 tea bags, meat casings, filter papers, adhesives and tapes, capacitors, insulation,

41 electrolytic condenser papers and many more.4

42 With the various use of abaca pulp sheets, the researchers believe that it

43 is appropriate to study how costing strategies in the production of these sheets

44 are done and minimized by the firm. Also, the researchers would like to know the

45 benefits of using these strategies.

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47 Statement of the problem:

48 This study will determine the efficiency of the cost minimization strategies

49 implemented in the company. The study aims to find solution to the enumerated

50 problems:

51 1. What are the competitive strategies adapted in ALINDECO along with:

52 a. Differentiation

53 b. Niche

54 c. Cost leadership aspects?

55 2. What are the cost minimization practices used by ALNDECO in terms of:

56 a. Asset utilization?

57 b. Direct cost incurrence?

58 3. What are the benefits of cost minimization strategies adapted to the firm’s:

59 a. Profitability?

60 b. Liquidity?

61 c. Efficiency?

62

63 Scope and delimitation:

64 This research is mainly focusing in the cost minimization strategies of

65 Albay Agro – Industrial Development Corporation (ALINDECO), as far as asset

66 utilization and directs cost incurrence is concerned. This is influenced by the fact

67 that ALINDECO is the only manufacturing plant in Malinao, Albay having been

68 operating since 1974.

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69 Firstly, this research will be carried out to ensure whether ALINDECO has

70 efficiently implemented ways in minimizing the cost on the asset utilization and

71 direct costs incurrence.

72 Secondly, the analysis will be based on questionnaire results given by the

73 relevant respondents specifically engaged in the production management of the

74 firm that have the knowledge regarding the research topic.

75 Finally, it will showcase the manufacturing scheme of abaca pulp sheets in

76 the rural community to foster locally made but globally competitive products.

77 The research will also include the benefits of adapting cost minimization

78 strategies through its profitability, liquidity and efficiency.

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80 Significance of the study

81 The findings of the study will provide well – researched information which

82 can be useful to the following:

83 ALINDECO’s management. This study may enable them to design cost

84 minimization strategies to improve smooth running of the firm, thereby meeting

85 their goal in lowering production costs without sacrificing the quality of the output.

86 Employees. This research will allow them to have a better understanding

87 of the strategies employed by the management in the production process. And

88 eventually will help them to continuously work with enthusiasm for the benefit of

89 the organization as a whole.

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90 Government agencies, such as LGU, DTI, DENR, etc. This study will

91 raise awareness as to regulating the business activities of those firms they ought

92 to regulate and thereby protecting the interest of the public.

93 Academe. This may bring further knowledge on the familiarization in the

94 manufacturing industry as to production process.

95 Present and future researchers. This research will be of help in

96 acquainting them with knowledge relevant to their future endeavors and will

97 useful reference for those who will plan to make any related study. Also, this will

98 eventually help some local and foreign researchers in making future study on the

99 local industry.

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113 Notes

1 Rida, Inflation Rate; sourced at https://tradingeconomics.com/philippines/

inflation-cpi; accessed on July 5, 2018.
2
Cost Minimization; retrieved from http://competitiveanalytics.com/12-
advanced- analytics/cost-minimization; accessed on August 01, 2018.
3 Lantican, Flordeliza (2008), The Philippine Abaca Industry: Status,
Market Potential, Priority Issues and Directions; retrieved from
https://journals.uplb.edu.ph/index.php/AAERB/article/view/50; accessed on July
30, 2018.
4
Production Profile; retrieved from http://www.alindeco.com/prodprofile;
accessed on July 30, 2018.