Cost Cut - Why only during difficult times?
One thing the last couple of years have taught us is that the world economic order has changed for good. Gone are those days when retailers and distributors were able to pass on the increasing cost of supply chain to the end customers. Brand loyalty drove consumers to shell out extra money to get the products they desired
I don't think we are going to see those days again. Manufactures, retailers and distributors are finding it increasingly difficult to operate in the new environment - increasing cost of operations, shrinking consumer demand, price-sensitive customers, etc. They feel they are sandwiched from both sides. This has become a total buyer's market.
The truth is that most of the large corporations have lot of fluff in their system. In good times, nobody bothered to look at reducing cost, when the going gets tougher, knives are out. Several examples come to my mind when I look around
Research In Motion (RIM), once the power house in smart phone industry is struggling to survive. They reported a $235 million loss in the 2nd quarter and that was much better than the previous several quarters and of course exceeded the market expectations. Almost 95 million out of the loss is due to severance cost that they had to pay when the down sized their work force.
Austerity measures in financial sector have become a regular feature. When BoFA announced that they will lay off 27000 employees over the next 3 years, it didn't surprise many analysts
American Airlines is looking to reduce their aircraft maintenance workforce by 8000 employees and the reaction from its employees has put them in a bad light. AA flight delays is forcing customers to opt for other airlines. This industry has been crippled for a very long time. I have always wondered how these airlines can continue to show losses when the air fares have only increased significantly over the years
These are just few examples. But the common thread across these is that there is so much fluff in their system and these large companies had slackened so much in the past that they didn't bother to have a better tab on the operations cost. Now the knives are out to control cost and that is not going very well with their employees
All of us are very tired with the longest recession we have seen in our life time and hope we don't see another one. While the pundits say that the downward trend has been corrected and the economy is on a recovery mode, there are still doubts about that statement. What is happening in Spain and Greece is not good news not only for European Union, but also for the global economy. The murmurs of double dip are back and hope they don't become a reality
