Every growing company is faced with cost optimization. Especially such a measure is relevant during a crisis. But reducing costs is important not to reduce the effectiveness of the activity. Decisions on how to correctly allocate the resources of your business will be discussed below.
Before lowering costs, it is necessary to audit them. Thus unreasonable expenses are revealed. Conditionally expenses can be divided into two groups:
Direct - directly affect the profitability of the company, production, services
Indirect - total expenses, which include payment of utilities, Internet, other production costs
Then it is necessary to determine the important expenses on which the efficiency of the business depends, and which in no case should be reduced. Examples of such costs include:
Material Procurement Budget
Social deductions for the salaries of workers and administrative employees
There can be many more such items, depending on the type of activity of the company and its volume. Some of the items are subject to adjustment, especially important ones affecting business performance remain unchanged. For example, technological losses have a high degree of significance, but there is no rental space.
When expenditures that can be adjusted are identified, a strategy to reduce them must be developed. Let's look at some examples:
Purchase of manufacturing materials. To reduce the cost of finished products, it is necessary to carry out price monitoring to find similar raw materials at better prices
Incentive payments to employees. Only payable for specific indicators - when resources are saved, the plan is exceeded etc. Such a measure will adjust the budget and improve product quality, reduce the amount of rejects
Utilities. We use LED lamps, install heat meters to pay after the fact, and not according to the standards, we use a touch mixer to reduce water consumption
Packaging. We use cheaper packaging material
Advertising. We remove ads that do not work or give poor results
Communication Limit Internet traffic for employees, use a network gateway
Having reduced a substantial part of the costs, one can bypass such a painful stage as optimization of personnel, which implies the dismissal of employees. However, if your staff has employees who do not affect the company's effectiveness, they should be reduced.
The first step is to build a management system. Having done such work, at the same time, you can reduce costs without harming the enterprise. The basis of the management system is planning and budgeting.
One tool to increase efficiency is to reduce fixed costs. This procedure was mentioned above. However, it should be added that there are other methods to reduce fixed costs:
Preservation of a part of production sites
Expansion of missing capacities and reduction of excess
The next step is the outsourcing of support functions, that is, use the services of specialized companies. For example, instead of maintaining a legal department and having a full-time lawyer who needs to pay a monthly salary, it is more profitable to use outsourcing. But you should also take into account the specifics of the company. If during the course of business you often need legal services, outsourcing can be more expensive than your own lawyer.
Pay attention to the optimization of purchases. Proper procurement management will reduce working capital. It is also necessary to plan purchases correctly so that the purchased goods or raw materials do not turn into dead cargo. We have already talked about the monitoring of raw material prices above.
One way to reduce the cost of storing materials (goods) is to use the supplier’s warehouses. Thus, you will also get rid of responsibility for the availability of necessary materials in the warehouse at the right time by shifting her to the supplier.
Automation of business processes will save time, resources and increase business efficiency. However, you need to clearly understand which processes you need to automate. It is important to choose the right tools and platforms, as they differ in purpose. Some are for budgeting, others for production management or customer service.
Thus, cost reduction and increased efficiency should be used not only at the time of crisis, but also in everyday life. This will bypass competitors and increase income. Such decisions also contribute to the growth of the company and its expansion.