Short report Multibrands: Proposal for reduction in operating costs

Short report Multibrands: Proposal for reduction in operating costs

Author: Mirzayev Akmal

Summary

A recent fall in profits and share price at Multibrands necessitates a reduction of 15% in total operating costs. This report aims to demonstrate how this saving may be achieved.

Introduction

The report summaries how, following extensive consultation, changes may be made over three areas:

• 
  Human resources
  
• 
  Production
  
• 
  Sales and marketing.
  

Human resources

As can be seen in the chart below, total external recruitment fees currently total €400,000. Given the freeze on recruitment, the services of a recruitment agency are no longer needed, resulting in the saving of this complete amount. We also recommend reducing bonuses to €100,000, saving €300,000 until company performance picks up. Moreover, by choosing not to replace any staff leaving the company, we can expect salaries to fall by €200,000. These measures result in a total saving of €900,000 from the human resources budget.

Production operating costs

The chart below shows the proportion of high quality local materials to lower quality imported materials over last year and the previous year. We recommend returning to the previous year's proportions and volumes in order to improve quality. However, we believe that some reduction in running costs is possible and suggest returning to the previous year's figure of €600,000. These measures achieve no overall savings; the total production budget should remain at €3m.

Sales and marketing costs

Total costs amount to €1m, as shown in the chart below. We suggest cutting €400,000 of the budget for advertising new products and supporting current successful brands by re-investing €100,000 of that saving into the budget for existing products. In order to support future product development, we would recommend no changes to the market research budget. These actions will generate a total saving of €300,000 on sales and marketing.

Conclusion

It appears clear that significant savings can be made in the areas of HR and sales and matketing. Therefore, we recommend that the company carries out the measures described above in order to generate the required saving of €1.2 m (15 % of current budget).