Cost Reduction Part One

Cost Reduction Programs for Increased Profitability By Steven C. Martin 1. ABSTRACT: This paper summarizes the proven benefits of cost reduction programs as proactive means to enhance profitability and enhance cash flow. Evaluations are provided for the reader to assess existing programs or determine if a program might be useful. It also presents the key elements, some of the myths, and factors to consider in program design and implementation. The importance of structure of a Cost Reduction/Profit Enhancement Program to ensuring results consistent with the goals and values of the organization is discussed.

2. SUMMARY: Most organizations cannot afford not to have an effective Cost Reduction Program (CRP) of some type. Business is under ever increasing competitive pressure. Markets are more global than they have ever been and your competition may be overseas whether you know it or not. Consumers are demanding more and more. Those organizations that do adapt and grow, survive; those that do not, don't. Programs are most readily installed when business is good and resources are available. It is cheap insurance against lean times and a great way to influence the future productivity and profitability of your organization. Use the evaluations to evaluate your existing program or to see if your organization is suited for one. The quickest and surest way to improve profitability is to effectively reduce costs. Each dollar removed from expenses reports to the bottom line profit. The most difficult approach is to increase sales. While the best corporate strategic and operating plans focus on both, one cannot deny the power of an effective Cost Reduction Program. CRP's are easy to install and can guarantee you results. CRP's are not a fad. The fact that they have been with us for decades is proof of their value and effectiveness. They may be seen as standalone programs or elements of Reengineering, TQM, Value Engineering, Industrial Effectiveness Programs, Continuous Improvement, or the like. One Fortune 500 company we worked with

reported that 30% of their profits derived directly from their long standing CRP. A smaller company we know reports that 100% of their current profits derive from their CRP.

3. My organization already has a program - How good is it?

Take the 10-question evaluation now if you haven't yet. It will quickly measure your program against the protocols that have been found to be most effective.

4. We don't have a program - Is my organization a candidate?

Take the 10-question evaluation now if you haven't yet. Take the 10question evaluation now if you haven't yet. It will help you quickly evaluate whether or not your organization is a candidate for a CRP.

5. Here is the structure of an effective program.

Program Structure Effective Cost Reduction Programs have a simple structure. The ability to create new option ideas before they are evaluated prevents good ideas from getting lost. Well-structured evaluation and implementation ensure that good ideas are harvested.

Continuing the process ensures that the process stays alive and contributing to the success of the organization. 6. Why should we use a Cost Reduction Program?
1. 2. 3. 4. 5. Desire to improve profit margins or increase services per expense dollar. Need enhanced stability Must meet & beat competitive challenge Combat obsolescence - find new opportunities & products Overcome stagnation or inadequate growth

7. What are the benefits?

1. 2. 3. 4. 5. 6. 7. 8. Higher profits from lower costs and higher margins Improved balance sheet Larger market share from price reductions after cost reductions Greater organizational stability - fewer layoff's Better morale The organization develops a stronger future focus Improved quality & service Focus on quality, service, and other process elements is revealing & enabling 9. Employee participation builds focus and teamwork 10. Enhanced competitive position 11. As a change mechanism it prevents obsolescence 12. It's a way of keeping track of improvements to show your stakeholders 13. A CRP can usually produce bottom line results faster than revenue enhancement programs.

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Abstract
Background Strategies adopted by health administrations and directed towards drug cost control in primary care (PC) can, according to earlier studies, generate tension between health administrators and healthcare professionals. This study collects and analyzes the opinions of general practitioners (GPs) regarding current cost control measures as well as their proposals for improving the effectiveness of these measures.

Methods A qualitative exploratory study was carried out using 11 focus groups composed of GPs from the Spanish regions of Aragon, Catalonia and the Balearic Islands. A semi-structured guide was applied in obtaining the GPs' opinions. The transcripts of the dialogues were analyzed by two investigators who independently considered categorical and thematic content. The results were supervised by other members of the team, with overall responsibility assigned to the team leader. Results GPs are conscious of their public responsibility with respect to pharmaceutical cost, but highlight the need to spread responsibility for cost control among the different actors of the health system. They insist on implementing measures to improve the quality of prescriptions, avoiding mere quantitative evaluations of prescription costs. They also suggest moving towards the self-management of the pharmaceutical budget by each health centre itself, as a means to design personalized incentives to improve their outcomes. These proposals need to be considered by the health administration in order to pre-empt the feelings of injustice, impotence, frustration and lack of motivation that currently exist among GPs as a result of the implemented measures. Conclusion Future investigations should be oriented toward strategies that involve GPs in the planning and management of drug cost control mechanisms. The proposals in this study may be considered by the health administration as a means to move toward the rational use of drugs while avoiding concerns about injustice and feelings of impotence on the part of the GPs, which can lead to lack of interest in and disaffection with the current measures.