How to Reduce Costs and Not Die Trying

Many organizations, globally, are going through a rough period due to covid. It directly affected revenues for thousands of companies. This implies additional pressure on managers to generate results and cost savings. Here is a list of 8 possible cost containment measures.

  1. Digitalization.  Technology’s potential to reduce costs is incredible. RPAs, chatbots, inventory robots, scanners, Watson, software, blockchain, and so much more, I think the list is endless. The point is, depending on each company, there is a series of digitalization opportunities that can generate time and money savings. What is important here, is to evaluate the potential savings of different technological solutions and select the ones that have the biggest impact on the bottom line. We all live in the digitalization era, and people are more receptive to these changes than ever.
  2. Outsourcing. When we have internal activities that drift away from the core business, it is healthy to compare the cost of doing them internally vs contracting third party services that specializes on them. This typically applies to some human resources activities, as well as payroll, legal, accounting and IT, but there are many other potential outsourcing areas. It is simple, if another company has economies of scale and better expertise that us in a particular area, it is logical that they will be more cost efficient than us and can do it at a lower cost than us. This allows us to focus on core activities that give us a competitive advantage.
  3. Process Optimization. If the processes of the company are inefficient and if it is evident that they cost more than necessary, then it is necessary to review critical processes to identify ways to generate efficiencies. Processes such as purchasing, inventory management and recruiting are easier to improve because there is a lot of information on how to do it. But even if you want to make other processes better, there are many tools and methodologies to evaluate and improve them including value flows, cause-effect analysis, Pareto, Lean Six Sigma, etc. Process improvement can take a lot of effort, and it requires the participation of those involved in the process for changes to work, but well implemented improvements can generate significant impact on the numbers.
  4. Consider Run to Failure. Some maintenance costs are unavoidable, but there may be some we can escape. Some IT and operations equipment, with limited life span may have preventive maintenance costs that end up surpassing the cost of replacement. This maintenance tactic proposes that maintenance is only given when the equipment fails or needs to be replaced. In times when cash flow is affected, it is an alternative worth analyzing.
  5. Selling Assets. At this moment, those who have cash know they can find big buying bargains. For those who are low on cash, this is the time to evaluate underutilized assets, especially those that generate costs, and consider selling then and refocus internal efforts. In a January report, the World Bank estimated global output would, by 2025, be 5% lower than in 2019. Given this, are we willing to stay with those assets for several more years without taking full advantage of them? Sometimes, competitors can be our allies, and this is not a bad moment to pick up the phone and make them and interesting offer.
  6. Review Suppliers. We often stay with a supplier for a long time and forget about asking for better prices. This sometimes happens with mobile services when they offer new clients great deals and leave loyal clients with poor data plans. You need to review the list of suppliers, staring with those who have a bigger share of our wallet, and ask them how they can improve their offering. Relations with suppliers are important, but it is good to look at other possible sources and promote competition. Lowest price tendering with clear specifications allows you to generate more savings.
  7. Save Energy. Energy prices can be extremely high depending on the country and location. Remote work possibly had a positive impact on the energy bill but depending on the nature and the internal policies of the organization, that cost may be rapidly increasing with economic reactivation. To reduce this cost, you could ask an expert to do an energy consumption audit and give you recommendations, buy energy efficient equipment, evaluate supplier options – depending on the country – you may have a better choice than your current one. Remember that creating conscience about energy consumptions is healthy for your business, your employees, and the environment.
  8. Payroll Reduction. If workload has decrease, of automation or outsourcing has had an impact on internal jobs, if there is duplicity or excess redundancy on functions, if payroll is too high and numbers are in the red, positions need to be eliminated. We all care about employees, but if the company is not looking good financially, there may not be another option. Explain the reasons behind to those affected, they will understand. If possible, provide support to them, they will thank you later. For example, Copa Airlines hired coach Wally Pretelt – Kieswetter to help people transition into the job market.

Reducing costs can be difficult, more so when this happens at a juncture and there is not a savings culture. For savings to be effective, communication is key. Being honest about the company’s challenges and obligations puts in perspective what can happen if actions are not taken now. To have a resilient organization, you have to act and learn from the lessons of this pandemic. We live in a world that is constantly changing, in highly competitive environments; companies that have a culture of efficiency and savings are more sustainable and will be better prepared to face the challenges ahead.

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