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In today’s fast-paced and competitive business world, companies constantly seek ways to cut costs and increase their bottom line.
From reducing employee benefits to outsourcing production to cheaper countries, companies use countless strategies to save money.
However, it’s often the case that these cost-cutting measures end up costing the company more money in the long run.
In fact, some companies have found that their attempts to save money have led to unexpected and costly consequences, such as poor product quality, increased employee turnover, and even legal troubles.
Recently, a person online was curious about the saving fails various companies were part of. Here are the most popular responses.
Table of Contents
#1. Turning Off HVAC To Save Money
This is an example of not thinking through the long-term impact of your decisions. One person commented that his company wanted to lower its electric costs. They knew that heating and cooling the office was their largest expense, so they decided to focus on that.
While the company did save money in the short term, it was a costly mistake. Running the air conditioner in the summer helps to remove humidity from the air.
Without it running, mold can form. And this is what happened. The company had to pay over $1.5 million for mold remediation.
#2. Saving Money On Cheap Labor
Another significant expense businesses face is labor costs. It’s well known that companies will force out older workers who are earning a high salary and replace them with younger workers who they can pay less.
But this plan backfired on one company.
“One department in my company decided to lay off a bunch of veteran people so they can bring in newer workers for cheaper. But they found they couldn’t bring in newer people for cheaper, so they hired newer people at close to the same price as the veteran workers. The veteran workers were mad they had to train somebody making almost the same as they are with no experience and started leaving. The company had to pay the few remaining veteran workers even more to get them to stay while paying inexperienced workers close to what the worker’s they just laid off were making.”
#3. Saving Money By Cutting Corners
When repairs are needed, the temptation is to cut corners to save money. This is what happened at one person’s place of employment.
“The roof of our building was leaking badly. The company got quotes for doing just a third of the roof and for doing a whole new roof. They choose to do a third of the roof. All it did was move the leak. A month later they did the whole roof. They would have paid a lot less had they done it right the first time.”
Another person added, “I’ve seen commercial kitchens use duct tape and prayers instead of doing routine maintenance on equipment. Then the equipment fails at a critical time and new equipment has to be ordered and paid for as a top priority.”
#4. Cutting Incentives For Workers
For some reason, management often thinks removing incentives is a simple way to save money and won’t impact worker output. But this is usually not the case.
This played out at a distribution warehouse.
An incentive was in place for workers to work fast and accurately. They were great at doing this. But then, someone had the idea to remove the incentive. The performance quickly declined. Instead of reinstating the bonus, they tried to make an example out of some workers by writing them up with warnings. Some of the workers, furious with what was happening, quit and went to a competitor.
Many others followed suit, so now orders were delayed because of a lack of staff in the warehouse. Management tried to resolve the issue by hiring temp workers, but they didn’t care about the job, were slow, and made many mistakes. Long story short, the company lost millions of dollars and was on the verge of bankruptcy.
#5. Reducing Travel Expenses
The cost of travel for employees can be a large part of a company’s budget, so it makes sense to figure out ways to reduce this cost. But sometimes, what seems like a good idea ends up costing more.
One person shared a story about how their company made a deal with a hotel chain to get rates at a discount. This sounds great, but sometimes that hotel was farther away from where the client was, so there were added costs for car rentals and, in some cases, flights.
Another time, a company required salespeople to fly into the closest airport, presumably to cut down on car rental costs. But they should have taken into account that some of the time, the cost of the flight was twice as expensive to fly to the closest airport.
Related: Find out how to travel cheaply
#6. Cutting Maintenance Costs
Warehouses are full of inventory, and for some people in management, this is wasted money, especially if the inventory is spare parts for repairing machines.
But something breaks whenever you reduce the inventory, and now you don’t have the parts to make timely repairs.
As one person shared, “My company ran a campaign for’ outside the box’ ideas in cost cutting, with stock awards for proven savings. Our facility maintenance manager claimed a $300k savings by eliminating unnecessary capital spare parts in the warehouse and received a $30k award. Six months later a critical compressor failed resulting in the plant reducing to half capacity at a $500k per day profit loss. It would only take two days to repair, however, the parts were no longer in the warehouse. They were among those eliminated and sold for scrap. It took 90 days to receive replacements. Total loss to our company was just over $50 million.”
#7. Refusing Raises
I’m not sure what management thinks will happen when they refuse to give raises to their staff. Even if the business finances are poor, you can at least explain this to your workers and promise to give raises when able to. Of course, you must follow through on this promise. Otherwise, you have a bigger issue.
Still, many companies flat-out refuse raises, and it ends up costing them money.
“At my company, a guy was a hard worker, did the job of three people. He asked for a raise and the president instead gave him spending advice. ‘Instead of going to the movies with your family, go to the beach, it’s free!’. He ended up quitting for a better job and they had to hire 4 people to do the same job he did, each one of them were paid more than he was.”
Another person shared, “My company stopped giving lower level staff pay rises. All of the staff were very specifically trained on our product. Years of tenure and experience behind them to help customers with. Most of the tenured staff left, and they now have a constantly revolving door of staff, which they pay a fortune to train, only to see them leave 6 months later.”
#8. Outsourcing Call Centers
One of the biggest pet peeves of most people is calling customer service and getting someone on the line who is not fluent in English, and as a result, getting help is nearly impossible. Yet even with this frustration, this cost-cutting move is a management favorite.
“We were one of the only companies in our line of work that only operated in the US, and customers loved us for it. Their customer base cut down by 1/3 within 2 years of outsourcing, and now they are hanging on by a thread. I wouldn’t be surprised if they went under within the next 5 years.”
This thread inspired this article.
I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
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