Your business needs

An improved fixed cost leverage over the variable costs and revenues. Frequently, fixed cost productivity needs improvement if the volume/revenues of the business is falling or profitability has to improve in general.

Our answer

Fixed cost productivity is all about aligning your cost structure with your demand/revenues. First, it is necessary to determine over what period costs will be fixed. A typical split is short-term fixed costs (< 2 years) and long-term fixed costs (> 2 years). Typically the short-term fixed costs relate to labour costs. The key to adjust your cost levels can be found by eliminating waste from processes which are executed by your overhead/support staff. The long-term fixed costs are costs associated with asset management (depreciation, insurance, rent). The key to improvement typically lies in better asset utilization, less capex and any sort of rationalisation program that consolidates operations. The effect will become visible over a period of 3 – 5 years./p>