Cost Reduction Strategies
Growth strategies are fundamental as if you are not growing your business you are in fact in decline (consider the cost of inflation). But one very crucial strategy that all businesses should review on a regular basis is how they can reduce their costs.
Cost reduction can be as small as sourcing your regular coffee from a cheaper supplier or more substantial like pulling resources from a non-productive department. Importantly the trick is to know how to reduce costs without adversely affecting quality, client satisfaction or staff morale.
To get the process started consider getting advice from the whole team, possibly through a brainstorming session. Have the answers typed up and use to formulate an action plan for delivering cost savings.
Far too often businesses look at layoffs before other less obvious strategies. This is often reactionary and is often a flawed approach as layoffs have many consequences that can cause extraordinary long-term complications. Thus, it is often best for a company to explore other expense reductions first.
Another cost reduction initiative that is often overlooked is the purchase of technology to drive efficiency. Spending money is often required to save money and although it might sound strange when you are focusing on cost reduction but the long term benefits need to be considered as part of your overall strategy. And remember there is always leasing options to spread the costs!
Below is a checklist that can be used to help identify areas where costs can be cut.
- Optimizing Labour Costs
- Controlling Overtime
- Controlling Staff Growth
- Developing and Implementing Time Standards
- Finding and Reducing Lost Time
- Measuring and Using Efficiency
- Reducing Material Costs
- Inventory Minimization
- Make-versus-Buy Determinations
- Material Utilization
- Minimizing Supplier Costs
- Supplier Negotiation
- Process Improvement
- Material-Handling Improvements
- Scrap and Rework Reduction
- Setup Time Reduction
- Workflow Optimization
- Controlling Overhead Costs
- General Overhead Expenses
- Sales Expenses
- Measuring Progress, and Sustaining the Effort
- Measuring Progress
- Suggestion Programs (Brainstorming)
If you need any assistance, advice or want to take your cost reduction analysis to the next level through cash flow forecasts or ‘what if analysis’ with Profit Optimiser call the team at Watts Price Accountants today (03) 5382 3001.
Richard Kemp – Watts Price Accountants
The advice provided on this Article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs.