María Alcaraz

How to reduce costs?

One of the most important elements in a business is cost reduction; however, on many occasions this is not given the importance in deserves. This is not a matter of reducing the quality of the product or service or the customer service: both are a deal breaker.

This is a matter of finding out what the expenses are and how to eliminate them or at least reduce them in some way.

Work may be done on several areas, depending on the sectors or the product features, and some are more suitable than others. However, in general terms most companies have a great opportunity to reduce costs when it comes to efficiency.

We will list three large groups below as an example:

Collections and payments

One of the first elements to consider is the collections and payments flow. Conditions for buying and selling are fundamental.

Several remarkable statistics have shown that many companies, even if they have an appropriate sales volume, find themselves compelled to leave business because of a lack of ready cash.

Cash management is an essential financial function, with a goal to manage cash flow, cash forecasts, the need for funds, the optimization of temporary surplusses and the management of their relationship with financial institutions in the best possible way.

Many times, being unaware of financial concepts and services make dealing with banks a hindrance to the financial management of the company, because it involves unnecessary costs or missing out on some benefits.

From our suppliers’ point of view, not planning the purchase process correctly and the interruptions in stocks supplies may bring along extra costs in terms of emergency purchases (that have special payment conditions, as well as special conditions in terms of pricing and transport).

Besides, we may create a bad impression on the client due to us not being able to stick to a delivery deadline. Properly choosing our financial ways to deal with collections and payments is fundamental, and we should also make sure they are tailored to the needs of our clients and suppliers.

Product or service cycle

Secondly, we should consider the product/service cycle, which includes all necessary processes from supplies (buying the materials we need for our business) to the client (the elements involved in the sales including transport and temporary storage as necessary).

Reducing these processes is necessary for productivity and competitiveness, even if redesigning and questioning all that has been done up to a point is necessary.

We should make sure our suppliers stick to delivery times and provide optimum service conditions without that increasing the costs that have already been agreed upon.

From the client’s point of view, untimely, incorrect or faulty deliveries involve an improductive cost: having to do the work twice in stock management, paying for emergency shipping for the products, and of course suffering the damage inflicted to the public image of the company.

Surplusses of stock goods that are not often sold should also be avoided, as they involve several problems: “locked” money, the risk of stockpiles being broken or deteriorated, obsolescence and difficulties in evaluation.

General expenses

This is the most troublesome area to consider, as many different elements are pulled together, but it generally has to do with the corporate culture of the manager or owner and the way things are done in the company. Simple tasks such as using the phone, office supplies, lighting, schedules... may be substantially improved in terms of costs.

Specially, in those companies with an external commercial network, keeping work and commercial activity under control is a must, as well as evaluating productivity. Many sales teams have shown to make little profit, either because they are not properly trained, because they don’t know the product or service well enough or because they don’t manage the undertaken actions properly.

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