Published by Marc Freedman on April 29, 2016
Cost is a phenomenon that needs to be controlled throughout the life of a company. Cost decisions hold a major significance and are usually handled by senior management executives. The financial stance of an organization, whether small or large, has to be managed by keeping in mind the businesses long-term achievable goals. The CEO or CFO is usually responsible for cost controls with the assistance of other high level staff in each department. Businesses should understand that constant investment doesn’t always guarantee you success. You have to budget, plan and analyze the appropriate monetary needs and then invest accordingly.
When competition increases, you have to make sure of your company’s survival by having a competitive edge. Sometimes companies start losing their profits because they are spending profusely throughout and therefore fail to get the desired results. A CEO, who has an unreasonable view of the demands of consumers and his business needs, is the only person who is able to identify the problem standing in their way. Bloated spending and improper monitoring of expenses can lead to an immediate downfall of the business. This is why a cost reduction strategy has to be implemented to counter against the drawbacks that are in your path to success.
Here are some reasons why a cost reduction program should be adopted:
- To increase your profits
- To be leaner in your production costs
- To decrease asset waste
- To increase productivity
- To reduce costs on company resources
- To improve your competitiveness in the market
This is sometimes a difficult task to commit to and there are a lot of complexities and a number of staff members that are resistant to this method. In almost all cases, it is more productive if a CEO adopts a Cost Reduction Strategy first. While we do not get involved in labor reductions it maybe one of the first areas to review for job redundancy. That said, an employee reduction can ultimately lead to a feeling of job in-security in the remaining workforce so tread carefully. We have seen where executives have made flawed staff reduction decisions and cut costs in the wrong areas which could also lead to delaying other critical investments and causing an ultimately slow down in revenue generation. Keep in mind that personnel cost reductions are short lived so there is not usually an actual long-term benefit attached to them.
Implementing cost reduction strategies and plans should not be done hastily and you have to set a reasonable time frame for the process. The CEO or CFO need to identify the categories that will provide a dramatic impact when it comes to cost reduction or else it might not produce the desired output. Inventories can often be reduced but if a JIT (Just in Time) approach is engaged as a solution then the company needs to confirm it has reliable relationships with suppliers or your production could be at risk or come to a complete halt.
If your business is failing, not competitive or you would like to be more profitable then cost reduction is a solution that should to be considered. It is helpful to partner with and expert as doing this internally presents a risk which is not always a sensible option!
Subsequently, we understand that each business has different priorities and risks. Our team examines your requirements and ensures your competencies are satisfied before deciding on recommending a solution. We will manage this process for you and 87 percent of the time we can maintain the existing vendor relationship. Contact us to determine if we can be helpful for you to realize the real potential of your company!