April 16, 2025 l Business Mirror
Any sane person, particularly businessmen and managers, would want to reduce costs in the hope of improving their bottom line. Essentially, there are three ways or approaches to reduce costs, namely through reduction, substitution and efficiency, but there is really only one way to reduce cost properly without having to face the negative consequences of your actions.
Cutting down cost through a reduction of service or product always have an adverse effect. Anyone who has queued up on the tollway, bank teller, supermarket check-out counter, government office, waiting on the phone for customer service or anything with a long line, will soon realize that there is a lack of people to service the needs of their customers. The same thing also happens even if you are not in line, such as sitting at your table in a restaurant waiting for someone to take your order or bring your food and drinks. Typically, you would see closed booths or tellers in spite of the long queue, indicating that the facility did not provide for enough personnel. In some cases, there would not be enough workstations to accommodate customers, which indicate a shortfall in the available facilities.
Sometimes, this is also manifested in run down or improperly maintained facilities, where the owners or managers do not spend for the proper upkeep and maintenance for their operations. This type of cost reduction results in unfavorable customer satisfaction which would result in a backlash of looking for another hotel with newer rooms, restaurant with better service or a different bank with shorter lines. You might think that the people in line have no choice but to swallow that, but even in government offices, those people can protest or vote them out of office.
Substitution of an ingredient, spare parts, or the use of generics are typically done because of lower costs or lack of availability of what was needed. This can also happen in service situations where your regular barber or caddie is not available and you have to make do with whoever is. Chances are you will not be happy. Typically, a cheaper substitute will not be better that the more expensive original, resulting in a shorter life span, lower quality and perhaps a catastrophic failure leading to horrific accidents such as a car crash.
A cheaper substitute may actually cost you more in the long term. The replacement part may cost 20 percent less but if it only lasts 50 percent of the original, it actually costs more. There are other considerations that needs to be taken into account with an inferior substitute such as safety, installation costs and effect on other systems. A substitute part that causes a short circuit could affect the whole system leading to extensive damage and higher costs.
The only true way to reduce cost is through efficiency, doing something more and better at less cost. There are many examples of this such as the use of LED lights where you have less power consumption while producing a brighter white light with practically no heat! Inverter air conditioners are another example of an effective way to reduce cost. You can easily reduce your electric bill by half, while having a quieter air-conditioner that is more reliable and cooler!
Similarly, there are fuel conditioners that will work on gasoline, diesel, bunker and even coal to improve combustion, reduce fuel consumption, increase power, reduce emissions and allow for a longer maintenance cycle. These fuel enhancers will typically reduce your fuel cost by 10 percent to 20 percent or even more, while increasing your power output and reducing emissions. Finding ways to reduce cost is always important in an increasingly competitive world, but it has to be done properly.
***The views expressed herein are his own and do not necessarily reflect the opinion of his office as well as FINEX. For comments, email gschua@up.edu.ph. Photo is from Pinterest.