The cost reduction of Pakistan Telecommunication Corporation Limited

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Pakistan telecommunication Corporation Limited is the biggest telecom service provider company in Pakistan. As now the world is becoming a global village, so it is important to get connected to everybody.

PTCL is providing their products and services for the millions of people across Pakistan. They are setting free the spirit of innovation. PTCL is the choice of most of the customers as it is for past six decades.

Here in this report we will analyse PTCL with respect to cost reduction. We will try to minimise the cost of production of goods and services by using tools like value analysis and value engineering. In addition we will also discuss the management process.

Cost reduction can significantly reduce the cost of a product or services. We can also analyse and evaluate cost reduction techniques in terms of impact on the company or organization. We can implement the strategies appropriately by prioritizing the goals of cost cutting program. There are various reasons that cost reduction techniques are important for an organization. Cost reduction techniques can show the way to a company to be economical, by imposing a regular review of what they are spending at every level of the organization. It can keep a company dynamic and efficient.

In many markets, firms compete over time by expending resources with the purpose of reducing their costs. Sometimes the cost reducing investments operate directly on costs. In many occasions, they take the form of developing new products that deliver what customers need more cheaply. Therefore product development can have the same ultimate effect as direct cost reduction. In fact if on thinks of the product as the services it delivers to the customer then product development often is just cost reduction.

In this report we will discuss some of the cost reduction strategies and we will try to apply those strategies on the company selected.

Cost Reduction Strategy

We can reduce the cost of product or service by implementing different strategies. There are different techniques and ways to implement these strategies. We can reduce cost by employing the strategies mentioned below.

Cost reduction by design

Overhead cost reduction

Lean production cost reduction

Standardisation cost reduction

Quality cost reduction

Value Analysis /Value Engineering

Through improved problem solving, creativity and decision making we can increase the value of our product or services either by holding our quality while reducing cost, holding our costs while increasing quality or when needed both (D.Miles, 1993).

Value Engineering highlights the application of value methodology to streamline current day operations, strategic planning in company or business segments, and everyday business decisions in the private sector (Younker, 2003).

What is value?

Value is a personal perspective of your willingness to pay for the output given by a product, process or project.

Good value is achieved when the required output can be accurately defined and delivered at the lowest life cycle cost.

Value Engineering

Value Engineering improves value. For example on highway projects, improvements to value might include reducing the life cycle cost of an interchange, enhancing safety in a design, or reducing impacts to the public by shortening the duration of a construction project.

Value Engineering uses a combination of creative and analytical techniques to identify alternative ways to achieve objectives.

The use of Function Analysis differentiates Value Engineering from other problem solving approaches.

Value engineering focuses on delivering the product or service at the best price by integrating those value characteristics considered most important by the customer.

Function Analysis

Function Analysis is an active verb and a measurable noun which describe a function. Basically it explains the working of anything.

Working Analysis of Value Engineering

Value engineering trails an organized thought process to gage options. Every session of value engineering has a number of steps:

Gather information

What should be done now?

Measure Performance

How will the alternatives be measured?

Analyse Functions

What to do?

How much will be the cost?

Brainstorming

Alternatives

Evaluation and Ranking of Ideas

Taking out the best idea

Develop and Expand Ideas

What will be the impacts?

What is the cost?

What is the performance?

Presenting the idea

Sell Alternatives

Benefits of Value Engineering

Value Engineering is a tool that we can employ it to improve our ability to manage different projects, innovation, problem solving and communicate.

A value engineering program in an organization will provide staff with a decisive tool to develop and improve value in any project, product or process.

If we talk about the outcomes of value engineering, there is a long list of the outcome but I will share few of them in this report. The major outcomes of value engineering are cost savings, schedule improvements, risk reduction, better collaboration and improved designs.

Let’s take an example of a telephone which PTCL is making in its factory.

Function of Phone

Receive Calls

Dial Calls

Internet

Fax

Total Value of function

Components

Cost

Value

70

60

80

30

Receiver

70

40\40

30\20

70

Keypad

50

30\30

20\10

50

Body

30

30\10

30

Circuit board

90

20\20

30\10

20\80

20\20

90

Total cost of function

70

60

80

30

Table 1, Analysis of Components and Functions

As we can see in the table above the analysis of the function of the phone and its components, that is called value analysis and we give a certain value to all the components and its functions to figure out the least effective component with respect to the function. This method is use to reduce cost of the components which are less important or we can reduce investing more money on those components.

Total Quality Management

Total Quality Management is a wide-ranging and organized approach towards the management of organization that want to improve the quality of services and products through on going enhancements in response to continuous feedback. Every organisation has their own total quality management requirements or the organisation may have affiliation with the other standards, such as the ISO (International Organization for Standardization's 9000 series). Total Quality Management has application on all kind of organisation; its origin is manufacturing but it has been adopted in almost every sector of organisation, including road maintenance, schools, hotel management, mosques and churches. In the modern era, e-business is growing rapidly, now total quality management is based on the management of quality from the customer side.

Total Quality Management processes are divided into four categories

Plan

Do

Check

Act

In the planning phase, we identify the problem, the second step is to define the problem which we need to address, collect all the relevant information and figure out the root cause of the problem.

In the doing phase, we have to develop and then implement a solution for the above mentioned problem and we have to also measure that how effective it will be.

During checking phase we compare the results before and after the solution was implemented.

In the acting phase, we have to document result, convey this info to others about the change in process and we have to also make recommendations for the problem which we have to discuss in next cycle.

Activity Base Costing

Today, ABC is the emerging basis of performance management. If you study performance management system in depth, you will find ABC powering performance measures for scorecards, providing rates for customer profitability analytics, helping devise human resource plans, modelling sustainability, and supporting budget development and planning (Turney).

In a cost based activity, costs are divided into units and non-units based categories. Activity based costing admits that some costs vary with units produced and some costs do not ( Hansen, Mowen, & Liming, 2007 ).

Benefits of Activity Base Costing

It provides a deep understanding of the least growing and fastest growing element of cost overhead.

Activity base costing helps us to improve budgeting by identifying the relationship between cost and performance at different service levels.

Because planning and control are directed at process level, ABC encourages improvement on continuous basis and also total quality control.

By monitoring the total life cycle cost and performance it improves the profitability.

Activity base costing acts like and bridge and links corporate strategy to decision making at operational level.

By identifying the non-value added activities, it basically help us to dispose off or eliminate waste.

It helps us to improve our procurement process, estimating, and pricing decisions that are based on the cost of the product, which reflects the manufacturing process.

Conclusion

As we have discussed different methods and strategies to reduce cost and do value analysis/value engineering. In the case of PTCL, they can also use these methods to reduce their manufacturing cost. The best way to do it by using value analysis, As PTCL is the biggest service provider of telecom service provider, they should look into cost reduction seriously to reduce the cost of production.

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