Cost Crackdown
When profits are down or business is slow, managers are often tempted to cut “expensive” items such as IT budgets or staff. But they should be careful because doing so can put a dampener on growth. For many companies, the greatest savings are found by examining the smaller, less obvious costs. This can add 15-20 per cent to a company’s bottom line without impacting the success of the business.
Cutting the small costs lifts profits, improves productivity, keeps business-critical projects on the rails and saves jobs. Expert management means you can achieve high savings, receive better products and services yet not compromise one inch on the value and quality of what your business delivers to market.
So how do you go about controlling costs? The first stage is to highlight areas where savings can be made and drill down into current spending to examine potential profit leaks, usage patterns and market prices. Telecommunications, business travel, energy, freight, couriers, mail, office supplies, reprographics and stationery as well as cleaning, merchant card services, maintenance contracts and document storage are categories where overspending is common. Telecommunications - mainly through mobile phones - make up the highest overspending category. These costs can easily be cut by negotiating on contracts, switching carriers and putting fair usage policies in place.
Cutting costs is only one part of the equation. Implementing and sustaining savings requires companies to have systems, procedures and policies that actively foster a profit culture. Improved inventory management, cost analysis and management tools, better compliance with corporate contracts and keeping staff focused on strategic tasks are just some of the measures used by highly profitable companies.
To sustain cost reductions, companies must establish new buying and monitoring systems, otherwise costs will creep up again and no process improvements will be made long term. Diligent day-to-day management helps take advantage of rapid changes in market conditions, such as a dramatic drop in the cost of insurance or air travel. Rolling three-yearly reviews are recommended as a minimum measure to keep costs in check and make necessary adjustments where needed.
Cost-Cutting Essentials
Don’t be complacent: Executives must find the time to take an interest in reviewing expenses and reducing costs – lead by example.
Think long-term: Remain motivated to keep costs in check on a regular basis. If a cost-management culture is not established, employees will quickly fall back into old habits.
Over-confidence is a killer: Many organisations overspend through sheer arrogance. Don’t assume your costs are under control based on historical data. You are likely to find that your competitors are paying less for the same products. Never assume you know the market as well as your suppliers.
Understand what you are buying: Look at the fine print on contracts and understand what you are getting for your money. Do you really need the add-ons or maintenance agreements?
Talk to your suppliers
Supplies will price their offerings according to what the market will bear. Inform suppliers that you are reviewing your costs, which have to be reduced. Then be prepared to negotiate and comparison shop.
Keep vigilant
Monitoring your cost-management is vital. You need to watch that staff members don’t slip back into old habits, suppliers charge correct prices and service matches the agreed specification.
Denis Stevens is managing director of Expense Reduction Analysts - the largest business service franchise in the world. He also has experience as a successful franchisee. 05.12.2007
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