Mumbai, May 31: An internal cost saving initiative undertaken a year back has paid off well for Godrej HI Care Ltd which has led to a saving of upto Rs 4 crore for the company. The company had benchmarked fiscal 1994-95 -- the year in which it posted its best performance -- for the cost-cutting exercise, taking into account fixed and variable costs.Godrej HI Care posted a net profit of Rs 8.3 crore in 1994-95 on a turnover of Rs 84.2 crore. In the subsequent years, however, the company's performance was not as impressive as that in 1994-95. For the fiscal 1998-99, the net profit is targeted at Rs 24 crore on a turnover of Rs 224 crore.
Flagged off in February 1998, the cost saving initiative has helped Godrej HI Care in recovering lost ground. ``Costs were rolled back to the 1994-95 levels after analysing the entire profit and loss balance sheet of that year,'' says Godrej HI Care general manager (HR) S Anand. The result: a straight cut in operational costs from Rs 32 crore last year to Rs 28 crore. Thetarget for the fiscal year 2000: to cut operational costs further to Rs 23 crore. Having successfully completed the cost cutting exercise in the first year, the company has decided to continue with the initiative in the current fiscal, and to take it up as a continuous process.
``The idea to kick off a cost-saving initiative conceptualised after the company finalised its budget last year when iterations were done. A team of financial analysts worked on the project and every issue was drilled to the core. Broadly, the issues looked into were: the company as a whole, product supply, and marketing and sales,''said Anand.
As a first step, task forces were set up to analyse the divisional operations. Product category wise analysis, which is the contribution of each product to sales, was then evaluated and benchmarked against 1994-95. A geographical divisionalisation was also conducted. ``In all these, activity-based management principle was used,'' said Anand. Small group activity (SGA) from TQM was one of thetools undertaken to implement the cost cutting initiative.
Moreover, senior managers were appointed as mentors to take care of different regions to give a corporate direction, thus enabling a grassroot implementation of the processes. Factories for which internal targets on these lines were set include Pondicherry, Daman and Goa.
The company broadly identified five areas to unleash the cost cutting attack. These were: employee cost, distribution cost, working capital cost, inventory cost and freight. Besides, costs were also reduced in areas like insurance, overhead and back office costs, rents, asset-related departments and administration.
Employee cost: For bringing down the employee cost, the company set up a task force to quantify the excess manpower. As a preventive measure to avoid employee cost from shooting up, the company put a stop to replacements for those who had left the organisation. The TQM tool of problem solving analysis was adopted to deal with the cost reduction. As a result ofthis, the company was able to achieve a 6-7 per cent reduction in employee cost. Distribution cost: Rationalisation and restructuring brought the distribution cost down by around 15 per cent. This was done through a two-pronged approach. First, the company reduced the number of C&F agents. Then, within the existing C&F agents, the area was reduced, and within the area itself the costs were reduced. Working capital: Working capital costs have been brought down by 60 per cent. The target set for the current fiscal is to bring down costs by another 60 per cent. One of the ways to reach this end was by bringing down the layers through which cheques travel from C&F agents to regional departments and then to the headquarters. By omitting the regional departments in this case, a direct contact was established between the C&FAs and the headquarters. The company also managed to reduce borrowings by 45 per cent and the same target has been set for the current fiscal. Inventory: Inventory wasbrought down by 33 per cent. This was mainly by focusing on standardisation and reduction in scrap generation. Standardisation was done in products, for instance, in the EMD (electronic mosquito destroyer) product of the company which used to earlier come in different colours of wiring. The company decided to standardise thecolour into one type. Scrap generation was reduced through redesigning and such other initiatives. Freight: Freight cost was reduced by about 10 per cent. This was scientifically (in consultation with the R&D department) done by increasing stacking capacity in trucks by 10 per cent, and re-negotiations on the cost front.Besides, the company froze all purchases of new assets so as to reduce the costs in the asset related department. Godrej HI Care is a leader in the household insecticides business in India and manufactures insect repellent mats, coils and sprays under brands like `Good Knight', `Hit', `Jet', and `Banish'. The company is a joint venture between the Godrej groupand the US-based Sara Lee Corporation.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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