Question

You are part of the board of directors of H&M based in the Philippines. Revenue is dropping in the first quarter of the year due to high production costs. Your task is to come up with a solution to lower the cost of production while simultaneously maintaining the same price point and expanding other markets all over the country

You may want to take into consideration the following theme:

- Branch Location:

- Worker compensation:

- Consumer location:

Answer 1

As known, the production is the result of the interaction between the factors of production or the inputs i.e. land, labour, capital and enterpreneur. The main objective or goal of any producer is to maximise his production at minimum costs.

In the following case, the revenue is falling due to high production costs.

So, in order to cut the costs, the following measures could be taken :

• The most basic inputs that are used in production and that makes all the difference is labour and capital. When these two inputs are used to their full potential, it affects the quality and quantity of output.

• Efficient use of labour would lead to lesser wasteful activities. Employing the right labour will save the additional employment costs. It would increase the marginal productivity of labour. Keep an eye on each labour's work growth. If found any labour not using his full potential, we might want to reach out to them and try to get best out of him to reach efficient level use and maximise the marginal productivity.

• We here also want to keep on expanding our business across market. For that we would need to get a control over our capital distribution. We should invest our capital in the right place. Invest the available capital where needed and where it could be used with its full potential.

• For best results and better revenues, we need to attract more consumer base to our brand. We need to reach out to majority customer base by giving them access to our stores physically and virtually. Chose the branch location wisely. Access the target consumer population and know about their living locations. Then invest in the new branches in those locations.

• Reduce the quantity of raw materials being used. Access the manufacturing situations and see if the raw materials are being wasteful. If yes, input cost could be saved from this section.

• Examine the available inputs. Examine lands with the company, machineries available. If the available inputs are in excess, and are not being used to full potential, they could be sold to get access to better locations of land and better machineries.

• Get access to the latest technology and get the existing technologies upgraded to have efficient levels of output. This will lead to higher output with the existing inputs.

All of these above measures will lead to fall in production costs and would eventually lead to higher revenues increasing the profits.