The Sunday Mail
OFTEN times businesses want to cut costs more than anything else. It is a good thing to cut costs, but at the same time it can be very costly if not done diligently.
Sometimes we buy low cost goods because of the size of our budget. At times managers acquire sub-standard material simply because they want to meet the short-term objective of achieving a quarterly profit, which at the time might seem to be a more urgent goal than investing in the long term.
An international example is that of General Motors (GM), an American company. In February 2014, they recalled over 800 000 vehicles simply because of faulty starters. From several reports and documentaries, it is said because the then CEO wanted to cut costs so much, they approved the switches in 2002, even though they knew they would not meet safety standards. Some people even lost their lives as the engines could just cut off during a drive.
This decision has resulted in the company losing a lot of money due to lawsuits. The recalls themselves are costly. And then to make matters worse, each time the company recalls any of its products, its reputation is put at stake.
This is a classic example of how cheap can become expensive.
I still remember that in Zimbabwe, between 2 000 and 2004, there was a certain fleet of Zupco buses that once prowled our streets. They did not stick around for long as they vanished after only two years on the road.
There was nothing amiss about the buses: they looked nice and had colourful plastic. However, they were not compatible with the local roads.
It is easy to sympathise with the one who made the decision to purchase this fleet simply because they looked the part, but with hindsight it is clear that a wrong decision was made.
I am sure that acquiring the buses created a huge hole on Zupco’s balance sheet.
A visit to Mbare Musika bus terminus will reveal buses that were bought in the 1980s. They are still plying some of our local routes even though they are no longer in perfect shape.
There are countless examples of how companies end up messing up while trying to cut corners. It is not worth it.
The issue at hand is not about pointing fingers at anyone but about learning from such incidences as companies and as a nation. From all the above examples, it is evident that we need to tighten our internal controls and improve on corporate governance.
A minimum of at least three quotations from the best suppliers must be sourced before purchasing decisions are made. At times it is not always about the cost of the product but the quality. There are instances were short-term conveniences are not worth it.
For example, plastic forks are cheaper than aluminium forks, yet you cannot purchase plastic forks for long term use. This is why plastic forks are only ideal for events such as weddings.
Therefore, before management makes a decision on big purchases, always consider several factors before you buy.
Some purchases are characterised by influence. For instance, a supplier may bribe the company’s decision maker to win a deal. This is corruption that might result in the company losing a lot of money in the long run as compromises might be made in selecting a product.
To some, it has become the norm that this is “the African way of doing business”. No doubt, many have made a lot of money by such acts but what benefit is it to the company or future generation?
It is about time we start being both ethical and moral in the way we conduct our business. As we procure supplies for our companies, let us ensure that we get the best quality products. Let us not be a dustbin for cheap products and services. We need durable products or else we will continuously lose money on repairs and maintenance.
I am sure that if you buy a car, you want to spend more time inside it rather than under it. The same with our companies, we cannot continue to buy assets before the estimated useful life of available assets is complete.
On a lighter side, the practice of buying quality is not only applicable to business, it is also a social remedy. Take for instance, some people, especially football fans, have since found it more reasonable and cheaper to subscribe for digital satellite television buoquets that screen soccer matches rather than watching them in pubs.
The rationale is that when one is at the pub, he or she becomes susceptible to unbudgeted expenses.
Well, at times it is terrible being an accountant because all costs are scrutinised to the last cent.
However, such decisions helps one acquire the best services and products. Always remember, it is not always about the cost but about the quality.
◆ Taurai Changwa is an Articled Accountant and ACCA finalist. He is managing director of SAFIC Consultancy. He writes in his personal capacity and can be contacted at [email protected] or visit our Facebook page SAFIC Consultancy or whatsapp on 0772374784.
