Short report

Multibrands: Proposal for reduction in operating costs

Author: Yarbekov Xojiakbarxon
Summary
A recent fall in profits and share price at Multibrands necessitates a reduction of
15% in total operating costs. This report aims to demonstrate how this saving may
be achieved.
Introduction
The report summarises how, following extensive consultation, changes may be
made over three areas:
• Human resources
• Production
• Sales and marketing.
Human resources
As can be seen in the chart below, total external recruitment fees currently total
€400,000. Given the freeze on recruitment, the services of a recruitment agency are
no longer needed, resulting in the saving of this complete amount. We also
recommend reducing bonuses to €100,000, saving €300,000 until company
performance picks up. Moreover, by choosing not to replace any staff leaving the
company, we can expect salaries to fall by €200,000. These measures result in a
total saving of €900,000 from the human resources budget.
Production operating costs
The chart below shows the proportion of high quality local materials to lower
quality imported materials over last year and the previous year. We recommend
returning to the previous year's proportions and volumes in order to improve
quality. However, we believe that some reduction in running costs is possible and
suggest returning to the previous year's figure of €600,000. These measures
achieve no overall savings; the total production budget should remain at €3m.
Sales and marketing costs
Total costs amount to €1m, as shown in the chart below. We suggest cutting
€400,000 of the budget for advertising new products and supporting current
successful brands by re-investing €100,000 of that saving into the budget for
existing products. In order to support future product development, we would
recommend no changes to the market research budget. These actions will generate
a total saving of €300,000 on sales and marketing.
Conclusion
It appears clear that significant savings can be made in the areas of HR and sales
and matketing. Therefore, we recommend that the company carries out the
measures described above in order to generate the required saving of €1.2 m (15 %
of current budget).