Cost Optimisation & Loss Recovery

1

Executive Summary

the playbook in brief

In an economic crisis, revenue contracts while fixed costs — salaries, rent, loan repayments — continue. Recovery therefore depends on disciplined cost optimisation rather than blunt cost cutting. The strongest levers are a granular analysis of the four cost components, deliberate preparation and planning, technology that controls inventory and finance, purchasing discipline that avoids speculative contracts, continuous market awareness, an uncompromising stance on quality, and optimised logistics. Done together, these reduce cost per unit, preserve competitiveness, and position the business to rebound.

The principle

Optimise cost — never quality

Cut waste, raise efficiency and protect the product. Competing by sacrificing quality erodes the very capacity you need to recover.

Fixed costs persist even with no sales — plan for it.
Use the downturn to plan, not panic.
Always hold a Plan‑B.

2

Visual Knowledge Map — the 7 levers

recover from losses

1

Cost Analysis

Dissect raw material, labour, variable & indirect cost.

2

Prepare & Plan

Recovery plans, workforce, morale, Plan‑B, communication.

3

Technology

ERP to control inventory, BOM, finance & production.

4

Avoid Forward Buying

Skip speculative contracts; sign long-term at lower price.

5

Track the Market

Stay current via journals & industry seminars.

6

Cut Cost, Not Quality

Stay quality-conscious while lowering cost.

7

Optimise Logistics

Time, damage, mishandling & re-quoted freight rates.

★

Outcome

Lower unit cost, preserved quality, restored profitability.

3

Core Concepts

key definitions

Concept

Cost analysis

Breaking total cost into its components so each can be reduced deliberately.

Concept

BOM consumption

The cost of materials in the Bill of Materials; lowered via source, order quantity and negotiation.

Concept

Economic order quantity

The order size that minimises combined ordering and holding cost.

Concept

Labour optimisation

Raising output per worker (not headcount cuts) to lower per-unit labour cost.

Concept

Variable cost

Utilities that move with activity — electricity, fuel and freight.

Concept

Indirect cost

Spend on up-keeping inventory already held.

Concept

Forward purchase

Buying ahead at a fixed price — speculative, capital-heavy and risky.

Concept

Quality-conscious cutting

Reducing cost without sacrificing components or material quality.

4

Frameworks & Models

cost structure, recovery levers, cost-vs-quality

Model 1

The four cost components (Tip 1)

A

Raw material

Find alternate vendor sources
Negotiate cost constantly
Right order quantity (EOQ)
Improve quality & reduce cost

B

Labour

Optimise — don't just cut
Raise productivity
Redeploy to new products
Lower per-unit labour cost

C

Variable

Cut electricity consumption
Improve generator fuel efficiency
Optimise freight cost

D

Indirect

Reduce cost of up-keeping existing inventory
Shrink inventory size

Model 2

Recovery levers

↓ Operational cost

↑ Production & marketing efficiency

↓ Inventory size

Optimise labour use

Introduce new technology

Create a new business line

Model 3

Cost vs Quality trade-off

Why undercutting on price signals a quality compromise
Producer	Unit cost	Implication
Producer A	Rs 100	Genuinely lower cost base — efficient at quality
Producer B	Rs 110 → cuts to 100	Lacks the capacity to make it at 100, so matches price by compromising quality

Rule: compete on efficiency, never by sacrificing components or material quality.

5

Process Flow

how to run the recovery

1

Analyse cost

Break cost into raw material, labour, variable & indirect.

→

2

Prepare & plan

Build recovery & Plan‑B; align staff via regular communication.

→

3

Deploy ERP

Control inventory, BOM, finance & production.

→

4

Fix purchasing

Avoid forward buying; sign long-term deals at lower price.

→

5

Track market

Stay current via journals & seminars.

→

6

Protect quality

Reduce cost without lowering quality.

→

7

Optimise logistics

Re-quote freight; cut time, damage & mishandling.

6

Relationship Diagram

how the levers connect

Cost analysis→ Targeted savings+ ERP control+ Purchasing discipline+ Logistics efficiency→ Lower unit cost→ Recovery

Quality gate: every saving must pass through a quality check — cost falls, quality holds. Preparation, morale and Plan‑B wrap the whole system so execution survives shocks.

7

Dependencies & Interactions

what depends on what

Recovery depends on cost discipline — reductions must be deliberate, not panic cuts.

Raw-material cost depends on source + order quantity + constant negotiation.

Efficiency depends on labour optimisation, not headcount reduction.

Competitiveness depends on quality held steady while cost falls.

Purchasing risk depends on avoiding forward contracts in volatile markets.

Logistics cost depends on annual re-quoting, not last year's rates.

8

Key Takeaways

remember these

Analyse before you cut — know your four cost components.
Optimise labour, don't slash it — lower cost per unit by raising productivity.
Technology controls cost — ERP for inventory, BOM, finance, production.
Avoid speculative forward buying — prefer long-term contracts at lower price.

Never trade quality for price — it destroys recovery capacity.
Stay market-aware via journals and seminars.
Re-quote logistics yearly; cut time, damage and mishandling.
Always hold a Plan‑B and plan during the lull, not after.

9

Revision Sheet

layered recall

60 seccore idea

Recover by optimising cost, not cutting quality.
Seven levers: analyse cost, prepare, technology, purchasing, market, quality, logistics.
Fixed costs persist — plan and hold a Plan‑B.

5 minthe detail

Four cost components: raw material (source/EOQ/negotiation), labour (productivity, redeploy), variable (electricity/fuel/freight), indirect (inventory upkeep).
Technology: ERP controls inventory, BOM, finance, production — small firms use lighter packages, large firms use enterprise systems.
Purchasing: avoid forward buying; negotiate long-term at reduced price.
Logistics: protect quality in transit; call fresh quotations annually and negotiate by volume.

10

Quick Reference Table

tip → action → benefit

The seven levers at a glance
#	Lever	Core action	Benefit
1	Cost analysis	Break cost into 4 components & attack each	Targeted, deliberate savings
2	Prepare & plan	Recovery plan, Plan‑B, staff communication, morale	Resilient execution
3	Technology	Implement ERP across operations	Control of inventory, BOM, finance, production
4	Avoid forward purchase	Long-term contracts at reduced price	Lower risk & capital lock-up
5	Market trends	Journals, seminars, monitoring	Timely, informed decisions
6	Cost, not quality	Reduce cost while staying quality-conscious	Sustained competitiveness
7	Logistics	Re-quote freight; cut time, damage, mishandling	Lower delivered cost

11

Frequently Asked Questions

common doubts

Should I cut staff to reduce labour cost?

No — optimise instead. Raise productivity and redeploy people to new or alternate products to lower cost per unit, rather than simply removing headcount.

Does cutting cost mean cutting quality?

No. Reductions must be quality-conscious. Competing by sacrificing components or material quality undermines the capability you need to recover.

How do I lower raw-material cost?

Through three levers together: the source of material, the economic order quantity, and constant negotiation with suppliers.

Is forward purchasing a good way to lock in price?

Rarely in volatile markets. It ties up capital and carries speculative risk; a long-term contract at a negotiated lower price is safer.

Which technology helps control cost?

ERP — it gives control over inventory, BOM/consumption, finance and production. Smaller firms use lighter ERP packages; larger firms use enterprise-grade systems.

How should logistics cost be reviewed?

Never default to last year's rates. Annually call fresh quotations, check prevailing transport rates, and negotiate discounts based on the volume you offer.

12

Memory Hooks

make it stick

R·L·V·I

Four cost components

Raw material · Labour · Variable · Indirect.

Cut cost, not corners

The golden rule

Lower cost while holding quality steady.

Always have a Plan-B

Preparation

An alternate plan beats watching the business collapse — even if less profitable.

Optimise, don't amputate

Labour

Raise output per worker instead of cutting headcount.

13

Practical Applications

where to act first

Procurement

Material & purchasing

Qualify alternate vendors, right-size order quantity, negotiate constantly, and convert forward bets into long-term contracts at lower price.

Operations

Labour & utilities

Redeploy labour to raise per-unit productivity; cut electricity consumption, improve generator efficiency and optimise freight.

Systems

ERP by company size

Adopt an ERP scaled to the business to control inventory, BOM, finance and production — lighter packages for small firms, enterprise systems for large ones.

Planning

Crisis preparation

Use the slow period to build recovery and Plan‑B, set an annual plan, and keep sales, production, marketing and finance aligned through regular communication.

Quality

Protect the product

Hold material and component standards while cost falls, so competitiveness survives the recovery.

Distribution

Logistics review

Re-quote transport annually, benchmark prevailing rates, and reduce transit time, damage and mishandling.