Cost and expense reduction

Today, we discussed cost  with Rezhelle, EB, and Melanie cost reduction

1.  Cost refers to the expenditures, that goes to the manufacture, and making of the product;  expenses get out of the working capital cycle;  Once spent, they are gone.

     Thus labor, electricity in a manufacturing plant is cost;   electricity for offices not involved in manufacturing is expense

2.  There  are two major ways of cost/expense reduction:

      1.  Eliminate the item entirely.  The item will be not be ordered, reimbursed.  Sometimes, the cost of controlling an expenditure is greater than the cost being controlled.  Thus DIY shops and self service resto are attempts to eliminate cost of restaurant service.  Water is not served when not ordered.

         In budget airlines there are no inflight service like snacks or newspapers

     

      2.  Reduce:

           1.  Automation  -  computerization, automatic switch off device; computer devices to reduce unit cost per transaction. Thus bar code, MICR in checks reduces cost processing.  Factories use machines to assemble products, reducing cost of reworks, labor wages and benefits.

          2.  Methods -  cost reduction methods;  how to save with manuals, team building, training, Kaizen, TPM etc.

         3.  New technology FFE  -  we use more energy efficient aircon, light bulbs, refs, and other appliances.  There are aircon and refs with higher EER from Bureau of Standards.   LED lamps consume 80% less power.

Solar aircon use 40% less electricity;  inverter aircon use 30% less power.

          Solar panel reduce home electricity consumption by 30%.  operating cost is zero. Thus in Calamba we bought solar panels to reduce energy consumption. 

3.  Why we are buying new LED lamps:

    1.  LED bulbs      9 watts    vs.      20 watts CFL  savings of 11 watts or 55%

    2.  LED street lamps   120 watts with 13,500 lumens vs.  450 Metal Halide or 73% savings.

Cost benefit analysis:  

1.  LED light bulbs cap ex is P589.00 vs CFL 120.00 php ( 11 hours a day usage for 30 days)

Savings:   11 watts x  11 hours x 30 days  =  3.63 kwh per month x 13  = P47.19 

ROI -  12.48 months ( slightly over one year)  = 100% ROI

2. LED street lamps:

Metal Halide cost  450 watts - P3,500

LED 120 watts, 13,000 luments -  P17,000.00

Assumption 1  4 hours of usage:

450 - 120 watts =  330 watts x 4 hours x 30 days  = 39.6 kw x 13/kwh = P514.80

P17,000/514.80   = 33 months.  =  26%

Assumption 2   =  6 hours of usage

330 x 6 x 30 x 13 php/kwh    =   P772.00 savings per month

 ROI P17,000/772.00   = 22 months

Thus it makes a great sense in investing in  energy savings devices

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