Cost Cutting: A Short-Term Gain For Long-Term Pain?

Date posted: March 30, 2016

To survive in today’s competitive market, companies must carefully manage a range of competing priorities, with cost control high on the list. No company has ever survived over the long term by allowing its costs to exceed its income. However, just like a government trying to manage its budget by slashing spending, cost cutting measures must be undertaken carefully to avoid causing bigger problems from the flow-on effects.

Our company, Reay Services Group, provides equipment and services to the resources sector where large projects costing hundreds of millions of dollars are the normal way of doing business. In our industry, monitoring costs effectively is crucial to bringing contracts in on budget, but that does not mean cutting corners in quality, productivity and especially safety.

Short-Term Actions have Long-Term Consequences

There is an often quoted saying that the bitterness of poor quality remains long after the sweetness of low price is forgotten. In the race to boost profits, some company officials succumb to the temptation of accepting the lowest quotes for critical equipment. They are often rewarded with performance bonuses as this short-term action shows up almost immediately in the accounts, but what are the long-term costs?

Accepting the Cheapest Quote? Will you Get the Best Equipment or Labour?

They may choose a supplier of labour and equipment whose rates are lower than their competitors. This supplier achieves these lower rates by supplying old, outdated equipment and personnel who have not been reference checked or required to produce their operating licences. The consequences can be a project that is running behind schedule because of frequent equipment breakdowns, inferior work needing correction or both.

Cutting Costs on Safety Causes Injury and Damage

There is no doubt that maintaining industry safety standards comes at a cost to business, and some operators will take shortcuts like not providing their workers with proper training or safety equipment. This reduces their costs so they can undercut their competitors. Mining is a dangerous industry when proven safety procedures are ignored and flagrant disregard for laws and industry standards can easily result in injury to personnel and damage to expensive equipment.

Avoid Financial Penalties for Lost Productivity

Any one of these scenarios will result in significant loss of productivity. Most large contracts have a financial penalty for work that is not delivered on time or is of inferior quality. These penalties are significant and for companies that have chosen quick profits over quality, they are often punishing enough to bring about their demise, leaving their clients with warranties that are worthless.

Our approach is to maintain our high standards while monitoring our costs. We look for opportunities to be more efficient without compromising our reputation for reliability, quality and service to our clients. Reay Services Group** **is known throughout the industry for these qualities and they are the keys to our success.