Recently, the stock market has had an explosive rally. A key reason is that Corporate America has aggressively cut costs, resulting in stronger profitability.

However, cost-cutting can be dangerous. Are long-term investments being starved? Is there a sacrifice in quality by moving to another vendor?

Well, the good news is that it's possible to cut costs without reducing quality. If anything, these efforts may mean more cash flows for other projects, which will position a company for growth when the economy makes a comeback.

While the federal government is trying hard to resuscitate the economy, it's still far from clear when things will improve. In the meantime, businesses really need to prepare for the worst. And this means keeping costs low.

To this end, it's probably a good idea to do an extensive inventory of your expense items. What do you need? What can you live without? No doubt, it can be an eye-opening exercise.

You might want to annualize the expense items. It can be surprising to see how seemingly small expenses can add up.

Once you have this put together, you can then reach out to your suppliers and vendors to see if you can get better rates. "It should be no surprise for them," said Devin Jopp, who is the Chief Operating Officer of SCORE (Counselors to America's Small Business). "Suppliers and vendors have spent a lot of time getting customers and it's expensive to let them go. So, they should be willing to renegotiate."

Circuit City Stores, Inc. (NYSE: CC) has really crossed the line with its latest cost cutting move. By chopping 3,400 of its most highly paid retail staffers, the country's second-biggest electronics retailer is making a losing bet that the drop in sales resulting from canning its best sales people will be more than offset by the lower pay that it gives to the less capable replacements.

Comments I received on yesterday's post suggest that Circuit City made the wrong call. Here's an example:

"I was one of the people laid off and I can guarantee that the service will decline by leaps and bounds. The seven of us that were laid off at the CC I worked at, ran the store. All of us had been there 5+ years. Circuit City states they gave us severance- 4-8 weeks pay doesn't go very far. One of the guys that was laid off had been with CC for 20+ years and was number one in the company in selling warranty. They laid off the best people!!! It just doesn't make sense. It is crazy that they think a 5 or 10 year employee could be replaced with an untrained $8 hour employee. Good Luck with that CC. I'll be at Best Buy....with all of my former Circuit City customers!"