Value Drugs will initiate an aggressive cost-control system as a means of limiting spending excesses from the start.  Given it’s position as a new entry into the industry it is wise to control spending while the business gains market share and gradually increases it’s competitive position.  

Based on his business background, Joe Formulary has been able to map out a cost containment program and a timetable for implementation. The table (Cost Containment) is a basic version of that timetable.

The self-directed cost audit containment will be comprised of several programs to be used for internal cost control purposes. The Cost Reduction Reward Program is designed to enable employees to earn bonuses based on the projected cost savings of the suggestions they provide for improving business operations.  Mr. Formulary believes that there is always room to improve and he would like to encourage his employees to think about efficiency gains and potential reductions in the cost of such things as the production processes, packaging, and advertising. 

Further, an internal cost audit will be performed annually to evaluate the management structure and financial operations of the company.  However, at this point, given the designs for a relatively flat organization structure and small-scale of operations, he feels the company will be organized for maximum efficiency.

Additionally, a materials cost tracking program will be implemented in order to periodically evaluate the sourcing of raw materials, equipment, packaging supplies, and the like to see if there is room for economic improvement or efficiency gains in terms of channels or processes.

Finally, he has planned a fairly rigid employee wage and training budget for the first year. Nonetheless, employees will be rewarded for their hard work in helping the business become successful through incentives programs, bonuses and other compensation.  Further, considerable investment in training has been budgeted for in order to educate employees from the start, as well as to upgrade their skills over time.