The Management was aware that growth of the animal feed business actually began to slow down in the 90s and continued on to the next decade. The declining growth rate has resulted in the shrinking of the company's gross margins which was a consequence of the price wars given the heightened competition. Hence,cutting down on costs was the only option, primarily the fixed costs.

The Management set out to review the company's financial reports, its organizational structure, the functions of each of the units, the nutrition and technical services, marketing, finance, sales, manufacturing, including the number of personnel in each of the units. She had an idea on how to proceed but she felt that she needed to conduct consultations as the measures she had in mind would certainly affect the entire organization and its people.

Taking calculated steps, the Management briefed management on how they could turn the company around - and that is to reduce fixed costs. She explained that based on her initial review, the company could afford to reduce further the fixed costs by looking at the structure, the functions of each unit, and possibly by retaining only the crucial functions and personnel of the company. In other words, the company had to take a closer look at labor costs as fixed costs should be reduced to 7-8% of sales revenue. Management also agreed that it would be willing to support any major move including declaring early retirement if this would result in considerable reduction of costs.

With the Management's review, they noted the following:

1. The functions of each of the units could be classified into core and non-core functions:

• Sales: (Core: Actual selling; non-core: follow-up services, order-taking)
• Marketing: (Core: Brand strategy; Non-core: corporate events, and surveys)
• Manufacturing: (Core: Pelleting technology; Non-core: equipment handling, repairs and maintenance, warehouse management and labor, forklift operations)
• Nutrition (Core: Feed ingredient database, feed formulation, R&D Interpretation; Non-core: Quality control laboratory and labor)

1. Each of the heads of the units had administrative assistants, in addition to a secretary.
2. An inventory of the personnel shows an "aging" workforce receiving high salaries
3. The company's structure showed several hierarchical levels.
4. Over the years the company has found that regional groupings of activities especially in Sales were more effective than the area groupings. Characteristics were more distinct by region rather than by area. For example, the market in Northwest Luzon is distinct from the market in Northeast Luzon. Moreover, each of the regions has different strategies that worked in their particular locations.
5. Manufacturing was crucial and the General Manager paid particular attention to this function. Comparing the scope and responsibility of the Luzon, Visayas, and Mindanao Manufacturing Heads, the Luzon Head 's job was enormous and was the equivalent of the combined scope and responsibility of the Visayas and Mindanao Heads. The General Manager connected directly and regularly with the Area Heads.
6. In Finance, the National Finance Manager found it more expeditious to deal directly with the regional heads than going through the Area Heads.
7. In Nutrition and Technical Services, Management felt that laboratory services can best be done outside the company. All they needed was a quality control person who will interpret the results. Moreover, because quality control was considered crucial, the General Manager should be on top of the situation where quality control is concerned. Dr. Estrella is keen on attending to this function.
8. The company did not really engage in regional marketing. However, Management believes attention should be given to brand management and trade promotion.
9. The report of the external consulting firm concluding that instructions from top management seemed clear only up to the second level immediately below top management. Down the line, there seemed to be a "disconnect" in communication between those levels and top management. In fact, those at the frontlines seemed unaware of what was going on at the top.

Questions:

1. Given the above information, what measures should the Management do to reduce fixed costs?
2. How should the proposals be implemented?