Cost reduction -- How and where to apply it;

              Cost Reduction - How And Where To Apply It
THE year 1957 ushered in, and the year 1958 continues, the most serious drop in the level of business activity and the greatest rise in unemployment that has occurred since World War II. This condition was largely the result of over expansion of facilities and significant price increases needed to cover the equally sizeable in­creases
in production costs that had occurred in recent years.
The drop in the level of sales activity acted to change the already slim profit margins of many companies to more-than-slim operating losses. Faced with this prospect, many company executives, having already found price increases and increased sales efforts of little avail in increasing their company's revenue, have turned their thoughts to the subject of cost reduction.
Here in the Islands, where recent years have witnessed the continuous "slenderizing" of profit margins, and where increased wages to sugar workers are forcing some sugar plantations seriously to examine their ability to continue to make even small profits, the subject of cost reduction seems particularly appropriate at this time. For these reasons I have chosen it for my subject tonight.
In speaking on cost reduction, I will tell you what it is, what it includes, what types there are, and how it differs from cost control. I will also tell of the need for cost reduction, to what areas it should extend, who should do it, and how it should be done. I will indicate whether it should be done horizontally, that is, by expense element, or vertically, by function; and whether it should be done on a spas­modic
or a continuous basis. I will point out how to organize for it— whether on an inter-organizational basis or on a task-force basis. Finally, I will tell you how to keep costs down once they have been reduced. Is it done on the basis of future cost-reduction programs, or on the basis of operational controls?
First, let us talk a little about what cost reduction is. Cost reduction is in many senses like taking weight off a fat man. In that case the object is to eliminate the excess without in any way im­pairing
the health of the man. Cost reduction is a process used to bring costs to a level lower than they presently are, or are expected to be, without seriously impairing the future profitability of the company.
BY ALFRED L. HUNT Principal, Honolulu Office
Presented before the monthly meeting of the Society for Advanced Management, Honolulu—May 1958
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