Lessons Learned One – It All Adds Up

I think a company should continually look for ways to cut costs.  It is easy to be complacent and stop worrying about costs when times are good.  The trouble is, you never know when times are going to be “less good.”  By keeping your business as cost-effective as it can be, you are prepared when fortunes take a dip, and you maximize your profits when things are cranking.  It all adds up.

Make Visible Changes – Engage Your Employees

You can start by pulling a list of all your vendors and the amounts you have spent on them over the last year. If you Pareto your spend (rank from highest to lowest) you can learn some pretty shocking things about your business.  Look for vendors whose charges look high.   Find a highly visible expense, so you can raise the employee’s awareness of what you are doing.  If you sort your vendors and you find, for instance, that your coffee vendor payments seem high, get some bids and lower your costs.  The employees will notice what you have done and start asking questions.  When anyone asks, tell them you are trying to cut costs and nothing will escape scrutiny.  Hold all employee meetings and show them charts and graphs about how cost of goods are calculated and explain that  you are going to be attacking cost of goods in order to increase your efficiency. Worry about ALL expenses, not just the cost of goods.  Give the employees as much data as you can and ask for their help.  I have seen tremendous ideas come from all over by using this approach.

Shop Around

Start at the top of the list.  Take that vendor’s invoices and pull them from your system (if you have one) or have someone type up the detail on the invoices if they are on hard copy.  Here again, sort from the highest to lowest.  Look for items that appear too high.  Go on the internet and look for substitutes at lower prices.  Go through the list of the highest items.  If you find ways you can substitute, you could switch vendors.  I actually recommend calling the representative in for the vendor in question and sharing your findings with them and asking them to help you lower costs.  I have found this approach to be 1) refreshingly easy and 2) surprisingly effective.  When you engage your vendors, they can also be very responsive.

Question Everything

Another example is your utility bills. Traditionally, business people think of utilities as being a fixed cost. I disagree with that notion. Your local utility has representatives who are happy to come out and discuss ways you can become more cost efficient with your utility bills.   I have worked with several, and they are extremely helpful.  I have seen recommendations made by utility representatives add up to huge savings on utility spending.  If you question everything, you will turn up some real gems.

Be Willing To Make Changes

Manufacturing labor is another place you can become more efficient.  You can graph out the flow of your manufacturing staffing or the staffing associated with the services you offer and compare it to the actual flow of goods and services and look for gaps.  For example, if your employees work 8 hours a day, 5 days a week and your product flows through manufacturing in a way that is better serviced by 10 hour shifts, you might want to consider switching to 4 x 10 hour shifts to better optimize labor.  In many cases, employees actually want to work a hybrid shift.  Obviously, it doesn’t work for all employees.  By being honest with them about what you are doing and why, and engaging them as experts, you will undoubtedly come up with a non-traditional shift structure that creates more throughput through your business, and lowers costs.

Turn Over Lots of Stones

Examine each and everything you can in order to cut costs.  Tour your building and look for opportunities.  Another example is copiers and printers.  If you are leasing your printers, you probably originally committed to more capacity than you needed.  Your vendor might work with you to downgrade your capacity where practical to lower your equipment costs.  Also, many printing vendors charge more for color copies.  By defaulting your copiers to black and white and making employees override the default when they want color copies, you eliminate a bunch of money being spent for color copies you don’t need. Also, if people are printing copies of presentations and handing them out at meetings, but the presentation is being shown on the conference room screen, consider e-mailing the presentation to people after the meeting and eliminate the color copies.  It will surprise you how many ways you can find to cut costs on things that won’t even be noticed in the workplace.

No Savings Is Too Small

The list goes on and on. Look at your list of people with company paid blackberries or cell phones and evaluate their usage.  Cut out the ones that aren’t essential.  Remember – you have engaged your employees to help, so they won’t push back too much when you make changes.  Consider stocking your first aid kits with your own staff, instead of paying vendors.  Don’t worry about how small the savings are – take them all.

 The Impact Is Dramatic

Depending on the size and nature of your business, you can save, literally, millions of dollars by starting a cost reduction program.  Engage your employees.  Engage your vendors. Use data to guide the way.   You can make big gains in productivity and cost reduction by paying attention to details and being willing to question everything.  It all adds up.

Copyright 2012, Red Hawk Consulting, LLC.   All rights reserved.