A Penny For Your Thoughts
Jan 07, 2010
As most business owners have come to realize, many inefficiencies can (and probably will) develop during booming times when a Company is focused on sales growth versus cost containment. Expenses become secondary as long as the products/services are delivered to the Customer. The recent recession has taught business owners and managers that the reduction and control of expenses is the key to survival. As reflected by the Unemployment Index, the first reaction to cutting costs was to cut payroll. So, where do we go from there?
The answer is in the details. While different businesses have unique processes and costs, there are still various ways to reduce costs, albeit, a “Penny at a Time.” The days of the “home run” in cost savings is unrealistic. Here are some suggestions that may be applicable to your business.
- Meet with your major customers and suppliers to better understand their business needs and how each of you can give and take on service requirements. You may assume that your customer needs your product the next day but in reality they can wait an extra 2 or 3 days. This will save you in shipping costs. Alternatively, you may not need product from your supplier the next day and can negotiate part of that savings into your cost of product. This partnering technique brings your customers and suppliers closer to you and allows for the development of a stronger, long-term relationship.
- Evaluate your payroll hours to determine where the most inefficient time is being spent. For example, many distribution companies spend a significant amount of time driving from the plant to their first delivery stop and again returning at end of day. It would become more efficient for the truck drivers to be able to add more stops per route so the cost/customer for delivery is reduced. One way to accomplish this without adding overtime is to convert the driver’s workweek from 8 hours @ 5 days to 10 hours @ 4 days. This will enable them to make more deliveries within their normal day plus (with proper scheduling), enable you to service your customer a 5th (and 6th) day without incurring overtime. This also provides better utilization of your equipment and can reduce these costs as well.
- Alternatively, consider changing your workweek for all employees to 4, 10 hour days and closing the facility on the 5th day. With proper energy management, you can save substantial dollars are your utility bills. You may find that your employees actually appreciate that work schedule and may see some increased productivity as a result.
- Increase your communications with employees asking them for their suggestions and offering a meaningful incentive when implemented. The best people to discover operating efficiencies are the ones doing the job!
- Reduce paper processing and flow that requires multiple “touches.” Again, you want to minimize the non-productive time of your employees so they can focus on their primary responsibilities. You don’t want a $25/hour truck driver or warehouse employee standing around waiting for paperwork.
- Carefully monitor and evaluate your inventory. Old and slow turning inventory will cost you not only the actual purchase cost if it becomes obsolete, but the hidden carrying costs as well (warehouse space, cost of money, handling, etc).
- Have 3rd party consultants audit your energy and telecom costs. In many cases, you will pay a percentage of their savings. In the best case scenario, the consultant is actually paid by the service provider and doesn’t cost you a penny.
- If you’re currently paying your employees weekly, reduce the frequency of their paychecks. While you will probably have some pushback from your employees, there are ways to initiate this without the employee feeling a major impact on their cash flows. Ultimately, you will defer 1 week’s payroll and gain that additional cash flow and interest savings.
- Be certain that your financial reporting systems are in order. Before you begin to implement changes, you’ll need to be sure that you’re able to evaluate those changes accurately and timely.
- Network with other business owners outside of your industry. You’ll find that many of your problems are shared with other business executives. No need to recreate the wheel if someone else has it rolling smoothly. Beg, borrow and steal ideas that will work for you. Since you’re networking outside of your industry, these business executives will most likely share their success stories with you.
So the simple answer to a difficult question:
How do I continue to reduce costs with a minimal impact on my ability to service my customers?
Think outside the box.
The above suggestions are meant to stimulate your thought process and may or may not be applicable to your business. A strategic thinking CFO will be able to assist you with this process in developing specific initiatives tailored to your Company’s short and long-term goals. Don’t wait until it’s too late!