Frequently reducing costs ends up becoming a necessity for a manager. However, it’s extremely important to know how to do it, because it will, after all, affect your company’s strategies. Contrary to what many think, reducing costs isn’t something bad and doesn’t always involve laying off employees – and it can, even, serve to stimulate greater efficiency in your company.
Want to know how you can reduce costs without having a negative effect on your company, your employees and your working environment? Then read our tips!
The first step is identifying where your company is wasting resources. Small expenses, considered insignificant, can represent great savings for your company.
Electricity is a good example of this concept. That’s why you should verify the efficiency of the equipment that you use in your company. Exchanging them for more economic models could be a good investment.
Companies need targets, not just to encourage growth, but also to measure the assertiveness of the decisions taken. When entrepreneurs have to decide how to reduce costs, they need to maintain the strategies that have worked in the past, rather than those that have proved to be mistaken.
A good source of information is evaluating the targets that have (or haven’t) been attained. They will provide you with valuable data.
Rework is synonymous with losses. If your company has to do a lot of rework, investigate the cause. In many cases, employees haven’t received adequate training and this is why they can’t perform their jobs well, wasting their work time, and in some cases, raw materials.
Instead of beginning a hiring process — which is normally expensive — look at training your current employees. Besides being less expensive, which will contribute to your cost reductions, this initiative can greatly improve your company’s efficiency.
A good way to discover how to reduce costs is to reevaluate your company’s investments. Many companies have investments that are distant from their area of expertise. In some cases, the rates of return aren’t advantageous and these investments only generate the expenses of maintaining them.
Your company’s investments, besides being safe, should be simple to manage — this way, you’ll save in terms of fees and/or the costs of the professionals responsible for monitoring them.
Besides improving your buying process, meeting with your suppliers can be a way to discover how to reduce costs. In many markets, there’s been an increase in the number of companies that can be considered potential suppliers. Your purchasing department should evaluate the reputation of these companies — as well as delivery logistics and payment timeframes — to know if it’s viable to change a supplier.
The entrepreneur should always be looking for chances to reduce company costs. This attitude normally results in improved company processes and greater financial solidity for your business. It shouldn’t be seen in a negative light, and certainly not associated with layoffs or compromising the quality of your final product.
It’s rather a series of natural and constant advances that can be found in successful companies. It’s necessary for businessmen to keep their business data in an organized and secure form, because this will be fundamental when it comes time to find ways to streamline your company’s processes. Remember: you can’t manage what you can’t measure!
The current economic situation has caused companies to reinvent themselves, changing the way they act in the market, and has also led them to try to reduce their operational costs. Reducing costs is the simplest decision to make when your goal is to leverage your gains and differentiate your company in the market.
There are various ways to lower your company’s costs, ranging from improving tasks and reducing material waste to the feared large scale layoffs.
These days there are new innovative and efficient ways to reduce costs that guarantee great results for the companies that adopt them. That’s why we’ve selected the 4 best trends when the subject is reducing costs. Check them out!
Cloud computing is one of the most recent market technologies. Storing your information in a cloud can be integrated with your company’s most varied processes and operations, making your data exchanges faster and significantly more efficient.
Besides a considerable reduction in server and maintenance expenses, this storage technology enables you to centralize repairs – you don’t have to manage various computers and servers spread throughout your organization.
Importing machines, equipment or materials increases your company’s costs in terms of taxes, fees and transport, among other things. There’s an easy way to avoid all of the expenses related to importing: use suppliers within your own country.
Finding domestic companies that meet your needs is a trend that has become more common due to the high value of the dollar. Buying equipment and materials from Brazilian companies will save your business thousands of reais by the end of the year. That’s the reason why you should search the market thoroughly for suppliers that can meet your demands.
One of the fundamental tenets of business administration states that inventory is money that isn’t doing anything – and it means less available cashflow. In addition to this, working with large levels of inventory results in various costs for your company such as the hiring of more workers, the need for a larger physical space, the acquisition of special storage closets and compartments to store your products – as well as the administration of your storage space itself.
Thus, a great way to reduce the costs of managing your business is to work with lower levels of inventory. In doing this, don’t stop trying to be more efficient in your tasks and services, because this allows your inventory to be as small as possible leaving just the amount required for your company’s operation.
Having a well trained professional team, besides increasing the quality of your products and services, allows you to achieve great reductions in operational costs. This is why training your employees is fundamental for every company that wants to differentiate itself in the market.
It’s important to remember that trained employees can easily resolve everyday problems and are of great help in improving tasks and reducing small losses.
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Reducing costs is an essential topic in terms of positioning your company in the market. This step comes with a series of challenges, because it’s not enough to cut costs or the number of employees. You need to invest in planning.
Strategic management is a tool that helps managers increase profitability, avoid waste and keep their company in front of the competition by setting it apart from others in the market.
In this post we offer 5 tips to optimize your evaluation of costs and gain a competitive advantage. Check it out!
It may seem like an obvious idea, but many companies don’t include cost reduction in their targets. Strategic management is not only oriented towards increasing sales, but also towards making a forecast of costs that don’t affect essential aspects of your company or quality of service. Intelligent planning is the road to making the investments that will lead to your company’s growth, not its failure.
Reducing costs in a way that compromises your company’s quality is not an intelligent management strategy. The customer is the main source of a company’s income, and this is why cutting costs for products, services and customer service will have a negative effect on your company’s image and cause a steep decline in sales in the medium and long term.
Monopolizing the strategic management of a company is a great mistake when we’re dealing with cost reduction. Internal communication should be focused on getting all of your employees on the same page.
You should do this not just in terms of seeking solutions, but also in terms of increasing productivity and in everyday activities such as the use of cleaning products, electricity and the telephone, and any other activity that can minimize costs.
The value chain concept developed by Michael Porter is an efficient way to identify activities that add value to a company and also those that can be eliminated, and examines the entire process starting with the acquisition of raw materials through the delivery of your product and concluding with customer service.
This chain is divided into the main activities that are related to sales, maintenance and support, such as:
And the support activities:
By structuring your company using this model, you as a manager can evaluate costs more easily and identify what affects profits, the activities that add value and don’t add value, and how you can optimize your customer service.
In addition to the value chain, many specialists focus on Michael Porter’s models to detect errors, avoid reworking and increase competitiveness. The generic strategies proposed by this Harvard Business School professor focus on:
These models are very helpful in guiding your strategic management, but like all theory, they include aspects that may not fit with your targets or your business model. The ideal is that you define the best strategy for you in terms of scope and integrate it with your other business tools.
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Logistics plays an important role in corporate management. Through control and execution planning, you can optimize this area’s processes, reduce its costs and increase your profitability. However, seeking to make your logistics efficient implies some costs that often discourage businessmen from investing in this area.
In this article, we’ll present 6 ways to reduce your company’s logistics costs. Take a look!
Program your delivery routes more intelligently, considering a number of variables – such as, for example, whether there’s an intense flow of deliveries to the same region. Rethinking your routes will offer your company savings, because it will help identify less expensive practices, as well as errors and unnecessary spending.
There are several pieces of equipment that are mainly used in handling and storage, such as forklifts, pallets or conveyor belts. To reduce your logistics costs you need to constantly evaluate the performance of these items to identify bottlenecks and excess workloads that can make your processes more expensive.
To opt for the most appropriate form of transport, you need to take into consideration factors such as the distance traveled, the volume of products to be delivered, and the cost of each means of transport, among other things. This will allow you to substitute rail for air in the case of closer deliveries, for example. It’s also interesting to evaluate alternative forms of transport, such as motorcycles or bicycles. They can often be more appropriate for your purposes.
Investing in technology brings good results over the long term. If you decide to outsource, bet on companies that offer high tech solutions. You should also use computer systems in your own business. To control logistics costs, cost control software is recommended. Doing this can even improve the quality of the products and services that your company offers.
Key Performance Indicators are essential for any operation. It’s no different with logistics. You need to identify which points need to be evaluated and then choose the best performance indicator for each one. With the correct KPI, you can improve your resource management and reduce extra activities and thus your logistics costs.
Storage is still expensive for managers. It’s more important to use your space intelligently than increasing its size. Rethink your storage area layout, invest in systems that will help you manage your stocks and seek ways to reduce your stocks such as demand forecasts. This way you can optimize your storage process and reduce your costs.
Logistics costs involve storage, handling and distribution. These processes are fundamental to the proper functioning of your business. That’s why it’s important to know ways to reduce your logistics costs without harming the quality of your company’s services. Thus you’ll be able to improve not only your rate of return, but your customer service as well.
So are you going to put some of these ideas into action? Take this opportunity to leave a comment and share your experiences and opinions with us!
Strategies that optimize the financial management of a large company are indispensable for decision making. After all, every action taken by directors and managers needs to be aligned with your company’s financial planning and cash flow. This is why your control of costs and expenses should offer extremely consistent information.
Below we present 5 tips on how to best control your costs and expenses. Understand how to analyze your company’s finances efficiently, without giving too much importance to losses or negative indicators.
To achieve the best results, your company should follow detailed financial planning. Using good software, it’s possible to analyze and forecast estimated costs as well as revenues for a given period. It should be emphasized that these analyses should consider all of the companies fixed expenses.
Together with financial planning, you should consider having an organized and clear cash flow. To organize with clarity all expenses, revenues, accounts payable and receivable, investments and other indicators, it’s interesting to:
Bad stock planning can lead to unnecessary expenses directly affecting your company’s finances. Your company should invest in stock planning, always considering sales levels: keeping an item with low sales in stock leads to large storage costs which are not desirable.
The best way to organize your stock and plan it to maximize your company’s returns is to use stock management software. Automating this process reduces your risk of errors and therefore losses.
There are some decisions that improve the reputation of companies, especially from the point of view of suppliers. One of them is anticipating payments or making them on their due dates.
If a supplier of products or services offers considerable discounts for anticipated payments, this may be of interest. In addition to a good image, anticipating payments improves your credit. For your company’s finances, these discounts can economize resources that in other scenarios could be useful.
Hiring and firing employees are processes that involve costs. Defining the best possible moment to alter your workforce is a strategy that directly helps you control costs and expenses. In addition, you should consider the real necessity of training, mainly performed by external partners.
The great secret to controlling costs and expenses is the adoption of processes that simplify decision making. Obtaining precise consolidated information — through automated processes — reduces the risk of erroneous decisions and losses.
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The crisis that has afflicted this country’s economy has affected the profits of many companies. In such an uncertain scenario, good managers need to reevaluate their businesses and seek to survive this time of turbulence while maintaining their company’s health.
Increasing profits by reducing costs is essential to this process. However, it needs to be done in a planned and organized fashion.
Reducing costs doesn’t simply mean cutting spending in a haphazard manner. You need to understand the nature of each cost and its relationship to your company’s sales and profits.
Thus, we’ve written this post to offer tips on how to cut costs in an intelligent manner and also increase your business’s profits. Read on!
Establish goals
Identify all your costs and expenses for at least the last six months. After careful analysis, establish reduction goals for each item. This is known as cost forecasting, and should be done monthly.
In addition, you should keep track of costs regularly, comparing your forecast with what was effectively spent month by month, verifying if your goal is being achieved. If it isn’t, you should analyze what could be impeding the realization of your goals.
Be careful with false impressions
A large sales volume doesn’t necessarily mean large profits. Often increased sales give an image of prosperity, while behind the scenes expenses are consuming all the profits.
To get real results, spending has to be used in an efficient manner. This can be achieved by increasing your average ticket (the customer’s average purchase), optimizing the ROI (return on investment) of your campaigns, and improving your procedures and internal methods.
Analyze your costs in percentage terms
In analyzing your costs, use percentages instead of quantities of money. It’s good to do this because if your sales increase but a cost remains constant, this cost now represents a smaller percentage of your sales volume. And when you diminish your cost percentage, you’re increasing your profits.
On the other hand, if your sales volume remains constant, you can increase profits by reducing the cost of a specific item. This way you can strive for two goals: diminishing specific expenses and increasing productivity at the same time.
Use a reliable system
Before you determine whether a cut in spending will increase your company’s profits, you need reliable information about your operations. This data can be obtained from a system which offers strategic management of your company’s costs, profitability and performance and is integrated with your company’s existing systems.
With this solution, you’ll have access to basic and complex graphic analyses, and the ability to execute advanced simulations for possible economic scenarios. This is important in preparing monthly reports, budgets and evaluations of your operations.
Did you like our tips? Are you ready to reevaluate your business and reduce costs? Leave a comment and share with us the difficulties you have confronted in managing your company’s costs.
Good cost management is fundamental to the growth of any organization that wants to keep up in a market that´s getting more and more competitive.
No matter how big or what kind of business you have, forecasting, knowing and controlling your company´s costs is essential to the management process. We´ll give you a better idea of what efficient cost management means and what you should do to achieve it, as well as the errors that you can and should avoid.
Definition of cost management
Cost management is a process that seeks to understand in detail all the costs and expenses related to the production process and revenue earning for a given company.
Efficient cost management is the rational use of these resources in an intelligent manner. In other words, it’s conducting this process while maintaining the quality of your products and services.
Basic concepts of cost management
To put efficient cost management into practice, you need to first understand the difference between the two main components of this process: costs and expenses. In manufacturing firms, costs are those components that are used in the production process, such as raw materials, labor, and the indirect costs of manufacturing represented by rent, electricity, water, and wages among others.
Expenses on the other hand are monetary values consumed in obtaining revenues that are not directly related to the production process, such as administrative salaries and the money spent on sales and advertising.
Fixed and variable costs
Another important distinction is the difference between fixed and variable costs. This distinction is necessary so that we can determine the difference between the costs that are not related to the production process which will exist even if there are no revenues, such as rent and administrative salaries, and costs that are related to the size of a company´s production such as raw materials, other materials and labor (in the case of manufacturers).
These classifications are important so that the sales price can be defined in the most precise manner possible, taking into account not just the values that are directly associated with products or services, but also those that are necessary to maintain the company itself. If these classifications are not made, prices may not be defined correctly and the company may run into difficulties because it’s actually selling its products below cost.
Efficient cost management
For cost management to be efficient, one has to understand not only how costs behave, but also how to use reports and distinct analyses to display product and service costs per distribution channel and client. This includes a view of the production and non-production processes involved, which will include a broader view of administrative costs, which have grown in importance in recent years.
We should also take into account the small errors and deviations that can occur during the production process which can affect the final values for products and services to a significant extent. Ignoring the cost of support areas or using simple cost assignments based purely on production quantities or revenues can also result in important distortions in the calculation of the costs of these products and services.
Advantages of cost management
Good management goes beyond focusing only on increasing profit because, depending on the progress of the economic scenario, reducing costs, for example, is smarter and simpler than creating strategies to increase revenue.
When done efficiently and continuously, cost management positively impacts the company in a number of ways. Check out below what are the benefits of the continuous administrative management of your costs and resources. Keep reading.
Reducing risks
Not being fully aware of the expenses and costs involved in running your company is one of the reasons why many companies close their doors. As a consequence, the dynamics of this sector is unknown and presents uncontrolled behavior.
However, by properly managing the fixed and variable costs of the business, it is possible to have better planning and financial management, as well as increased budget visibility and security, which allows for decisions to be made before getting into debt.
Decreasing expenses
How can you cut and decrease the company’s expenses if you do not know them in depth? An effective and continuous cost management makes it possible to identify the waste of resources and exaggerated and superfluous expenses that can go unnoticed in the routine of a corporation.
By doing this, you will have enough information to cut accounts, establish the habit of economics, reduce the volume of input purchase, and consequently lower costs at the end of the month.
Increased profitability
The management of a company works in a cyclical way, that is, one action influences another. When you save on one department, the effects are noticed in the final profit. Therefore, by constantly and properly managing all costs and cutting unnecessary expenses, you will ultimately see an increase in your profitability.
The mistakes commonly made in cost management
Some managers often make some errors and mistakes that can jeopardize the cost control. So that you do not do the same, we selected the mistakes most frequently made in management. Check out below what they are.
Little investment in technology
The market is constantly innovating in order to meet demands. In addition, the market industry is increasingly competitive, and there is no room left for companies that stopped in time and still adopt manual methods in their processes.
Betting on technology is investing in growth and in the better use and optimization of time. Many of the old management techniques are no longer efficient or even viable. There is no more time to lose with annotations on diaries, notebooks, and piles of files.
To avoid making this mistake, bet on technologies and use strategic cost management software, systems and other tools that make your work easier. They can store information more quickly and safely.
Lack of predictability of expenses
Another great error that can lead to serious consequences is to not predict the company’s expenses. Many managers do not estimate the costs of projects and strategy implementation. As a result, the values end up being greater than the finances allow, which results in loss.
Therefore, always make forecasts by reporting and analyzing the values of all the steps of an activity before carrying out the plan. It is important to research prices and especially analyze cost and benefit in order to verify if the proposed action is possible for the enterprise at that moment.
It is also important to emphasize that analyzing the relevance is essential, so that the most affecting and significant aspects of cost management are considered first. That way, you do not waste excessive time on decisions that, in the end, have little impact.
And remember: when there is no cost management, there is a great risk of getting into debt.
Did you like this content? Then check out how to get back in the black and recover your company!
Economizing can be the best solution to guarantee a strong cash flow and keep your business competitive. The problem is that frequently managers don’t know where to begin, since there doesn’t seem to be much fat to eliminate from their expenses.
With this in mind, we’re offering a few simple tips to reduce costs which can make all the difference for your company. Check them out!
It’s always possible to improve some production process – and you don’t have to sacrifice the quality of your products or services to do this. Start by looking at your consumption of water, energy and telecommunications services.
Beyond this, study the whole production process and soon you’ll discover points where waste is occurring, whether it’s in terms of time, materials or labor. With all of this information in hand, prepare a strategic plan for improvements and in a short time you’ll have a more optimized production process with lower costs.
Stock can be one of the most wasteful areas in a company, since poor purchases can immobilize financial resources for a long time. To achieve greater cost reductions, plan your purchases so that they include products that have higher turnover during periods of great demand.
Through purchase and sales reports, it’s possible to make projections of what to order, in what quantity and when. Doing this will give your products and services greater turnover, increasing cash flow and reducing unnecessary purchases.
Review your buying contracts with suppliers of products and services and analyze the conditions for delivery, payment plans and minimum buying volumes required, etc.
Survey other suppliers to find the best opportunities and, if you wish to continue with your current suppliers, renegotiate with them based on the information you’ve gathered from the competition. You’ll probably be surprised by the new parameters that you’ll be able to establish in exchange for fidelity, and your business will achieve a great reduction in costs.
Using your reports again, examine your expense accounts and analyze each expense to identify how to reduce them or eliminate them entirely. Then make a forecast of future revenues and expenses to align your cash flow with programmed purchases.
For example: program your purchases to be paid always on the same dates when forecasts indicate that you’ll have money from sales coming in. With these techniques, along with reducing your costs, you’ll always guarantee a positive cash flow.
Many companies still use manual processes, requiring large amounts of rework due to human error, wasted time due to tasks that could be automated, reports with unreliable data, an excess of printing costs and a large quantity of wasted raw materials in the production process. The solution for all of this is to automate your business using strategic and operational management software (systems) which, along with contributing to cost reductions, should improve the overall performance of your business.
Maintaining your costs under control is what sustains the survival of companies in competitive markets and putting these tips into practice can increase your company’s competitive force, leading to sustained growth.
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