Given the competitiveness of markets and the current economic climate, conscious and effective management of all resources, particularly financial resources, has become essential for every company.

It is therefore fundamental that each company is able to define which are its core costs and which are its non-core costs. In this way, it will be able to identify sources of wasted resources, optimise non-core costs and invest in core costs.

Core costs are those most directly related to the company's offering, that is, all those related to the production process, and for this reason managers are much more familiar with them. However, there are many other costs (non-core) that are not always taken into account and, for that reason, end up as poorly managed costs, since they are not central to the business activity and do not generate added value, harming the company financially. It is therefore essential to optimise these costs.

Reducing Costs. The 7 ideas you should remember.

Find out how to successfully implement a cost reduction and optimisation strategy in your organisation.

1. Define objectives and different levels of savings to be achieved throughout the cost reduction plan.
2. Adapt the cost reduction strategy so that the quality of the company's services and products is maintained, so as not to harm the market's perception of value.
3. Keep all employees informed about the cost reduction plan, share the results obtained and ensure that each person is motivated to achieve the defined objectives throughout the whole process.
4. Analyse expenses and commitments with suppliers in detail, checking whether they are really bringing more benefits to the organisation. There may also be a need to centralise purchasing from suppliers in a single internal department.
5. Analyse infrastructure, physical spaces, equipment and other tangible resources, ensuring that they are really necessary for the company, are being well managed and used to their full capacity, and considering the option of choosing more economical alternatives.
6. Wherever possible, turn fixed costs into variable costs by using outsourcing, leasing or monthly subscription services and technologies.
7. Reduce the complexity of organisational processes and use software to carry out repetitive or low-value tasks, saving time and freeing up employees to carry out more relevant actions.

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Openlimits

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The innovation, success and growth of an organisation depend heavily on its internal and external investment. However, not all entities have a turnover compatible with the changes they want, particularly in Portugal, a country dominated by small and medium-sized enterprises (SMEs). As a result, resource management has become a necessity, as well as a way of achieving cost reduction.

Putting cost reduction into practice in the company

For a rigorous implementation that meets the desired objectives, this reduction needs to be planned, communicated to all employees and monitored throughout the entire process, thereby ensuring that it works properly. It is a long process and significant results will not appear as soon as it begins; however, in the long term they will meet your needs.

The planning of the cost reduction strategy must fit in with normal working operations, and the whole company must be in agreement and act accordingly. Targets and objectives should also be set according to the time available. 

Cost reduction: 3 ways to reduce costs in your company

1. Analyse all expenses associated with purchasing goods and raw materials

For many companies, the biggest expenses are associated with purchasing the materials needed for their business activity. This area needs to be managed according to production and the final product for sale, understanding whether there has been any loss of raw materials, how to avoid it and how to optimise the process, thereby avoiding waste.

2. Invest in technology and digital

Technology has continued to evolve and has become embedded in business activity, to the point that many entities can no longer do without it. Investing in and renewing technology has become common practice, since devices need to be updated with the latest features and new, more capable machines acquired. However, the cost-benefit ratio needs to be analysed in order to understand whether this investment is in the company's interest.

The creation and implementation of software has been a means of maximising profitability because, despite requiring an initial investment, it makes things easier for people and all their activity, particularly planning and strategy. In addition, it allows much more precise tracking of work and more accessible records of all activity, both pending and completed.

3. Manage the relationship with suppliers and manufacturing industries

You need to understand whether the relationship with suppliers is bringing advantages to the company or not, since this type of relationship should be two-way and mutually beneficial. If it is not, it needs to be rethought and better alternatives sought.

Analysing all business activity should be a priority in order to understand whether it can be optimised or even carried out by external entities in the manufacturing industry, through outsourcing. Very often, the space and production cost associated with a material do not make in-house manufacturing worthwhile, and it ends up being cheaper to hire third-party companies to do it.

Advantages of cost reduction

First of all, cost reduction may involve an investment, as in the case of acquiring new technology devices; however, if it is well managed, the return is inevitable and brings several advantages.

• Capital available for investment
• Market presence and competitive advantage
• Increased profitability

At Openlimits we advise on the ideal solution for you and your company, taking into account your specific challenges. We adapt the whole process to meet your needs and desired objectives, optimising your activity and achieving success. Contact us and start reducing your company's costs today.

Written by:
Openlimits

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