HOW ANALYSIS OF BUSINESS PROBLEM COURSE HELPED ME SAVE COST

I remember watching the introductory lecture on Analysis of Business Problem during our first week at LBS and immediately called my manager to tell him that I’ve found gold. He never understood that statement until I used the critical thinking patterns I learnt from the course to solve some of our business problems.

Today, I want to share one of the problems I solved using the systematic problem solving method I learnt from the course- Analysis of Business Problems.

Kay is a small clothing manufacturing company that requires stable power to run its daily operations. With an average of 4-5 hours on electricity, we switch to a generator during downtime which is also approximately 4/5 hours considering our daily 10 working hours.

Our monthly PHCN electricity estimated bill has always been between N5,000- N10,000 but for a while now, it’s been a fixed sum of N10,000. We got a bill of N30,000 in February and N50,000 in March i.e a whopping 400% increase within 2 months. This was considered significant and it was time to act on controlling our power cost as the constant increase by PHCN could worsen if we don’t act now. We consume N1,000 fuel daily for 4/5 hours during electricity power shortage this sums up to N25,000 for 25 working days. Since we use both electricity and generator daily, our March total Energy cost was N75,000(25,000 fuel cost plus 50,000 Electricity Cost). Compared to January and February costs of 35,000 and 55,000 respectively. The big question is. ” How do we control these costs and what alternatives are available?

We had the following Alternatives to consider

– Apply for a prepaid meter and manage our consumption internally.

– Disconnect the PHCN POWER supply and run the entire operations on generator only.

– Discuss with the PHCN Management team to negotiate a monthly fixed tariff.

– Find out about other Alternatives like Solar Energy.

We clearly outlined the criteria for assessing all these alternatives to aid in decision making:- Availability, accessibility, affordability, cost-effectiveness and sustainability.

The Prepaid Meter Application was declined as these meters were for residential buildings only. This option wasn’t available, therefore it can’t be considered.

Running the company operation fully on a generator was cost-effective. We will need to spend only N2,000 daily on fuel for 10 working hours, for 25 working days i.e N50,000 and a cost reduction of N25,000. The Generator was also available and accessible. We needed to consider overheating due to the long operating hours. We agreed we observe a downtime during our 30-mins lunch break time since the machines are inactive during these periods. Also, another 1-hour downtime during the cutting time as we do not need electricity to cut fabrics, we will have to cut all designs at this time. For machine breakdown, we considered buying a backup generator but before we conclude we needed to consider other options.

Speaking with the PHCN management team, they disapproved of our fixed tariff proposal. This alternative was futile also as it is not available and accessible.

Finally, the Solar power Alternative is our only option left to be compared to the full generator power supply. it was a reliable and sustainable power alternative but It wasn’t easily accessible and available as the engineer said it was going to take about six months to install and we need to do some infrastructural changes in the

building which wasn’t cost-effective. Also compared to buying a backup generator the cost was 80% higher.

We concluded on disconnecting the PHCN Power Supply, running our operation on a generator and buying a new backup generator in the future since our generator is still new and in good shape, We also restructured our production process and observe 1.30 mins downtime. We kept hearing the ridiculous estimated increase in PHCN every month and we were glad we acted fast.