As the economy slows and business costs grow, it's becoming increasingly difficult to rely on earnings growth to improve the bottom line. Astute managers are looking to unlock the profit opportunities that lie hidden within their businesses costs. They know the impact of a 1 percent decrease in costs can equal a 2 percent increase in profits or 10 percent more in top-line sales on typical margins.
Here are 20 simple cost-cutting ideas on ways you can improve your company's profit and cash flow.
Centralize purchasing. You may be buying the same goods from different suppliers, particularly if each department seems to have its favorite suppliers. Centralize purchasing to maximize discounts through bulk purchasing power.
Cut the paperwork. Request monthly consolidated invoices to reduce administration costs.
Demand a reason. Don't accept a price increase without challenge.
Get a second opinion. Obtain alternative quotes on everything. Advise existing suppliers that you are going out to bid and give them a chance to reduce their prices.
Call in a bad guy. Don't allow the person in daily contact with a supplier to negotiate price. Use the good cop/bad cop approach.
The "bad cop" removes emotion from the process and the "good cop" can preserve the established, day-to-day relationship with the vendor.
Ask for ideas. Take advantage of your suppliers' expertise. Ask them for suggestions on how to improve the way you work together. Could ordering weekly instead of daily allow them to reduce their own administrative costs and enable them to pass the savings on?
Make space. Reduce your stock levels and encourage suppliers to hold stock.
Review product specifications. Ensure that products being used do not exceed requirements. Can you use second-hand pallets for transportation? Recycled toner cartridges?
Clean up. Are factory items such as mats being cleaned more often than necessary? You may be able to reduce the frequency of cleaning and still maintain safety standards.
Don't go to waste. Your garbage dumpsters may be emptied well before they are full. Can you cut back on the number of weekly or monthly collections?
Consider couriers. Understand how your couriers charge. Local services may be best for early-morning deliveries, while worldwide carriers such as FedEx and UPS may offer lower prices for local delivery of letters and packages scheduled for later in the day. Determine which services will be most effective for you and establish guidelines for your staff.
Watch out for automatic renewals. Contracts for leased equipment such as copying machines automatically renew. This automatic roll-over is called an "evergreen clause" and it locks you into subsequent years at the same terms as the original lease. Typically, you must notify the leasing company, in writing, 90-120 days before the expiration date to avoid an automatic renewal.
Beware. Service agreements, too, have evergreen clauses and need to be terminated, in writing, during a specific time window. Just to make things confusing, termination notification periods for service agreements vary from the periods used in the lease agreements. The window is typically 30-90 days before the expiration date.
Make space. If you pay for staff parking, do not allocate a specific space to a specific staff member. Have 7 percent fewer parking spaces than the number of staff entitled to them. On any day, you'll find that there will be a certain number of absentees; you don't need to pay for empty spaces.
Try brand X. Use suppliers' own-brand products. This can reduce costs by up to 30 percent.
Pack it up. Printed cartons are expensive. Instead, consider using plain ones, sealing them with printed tape.
Cut and coordinate. Clean up your database to reduce returned mail. Coordinate your marketing mail-outs to take advantage of bulk rates.
Shoot the messenger. Investigate alternate methods of disseminating information. Can you use e-mail rather than snail-mail? There are companies that specialize in distribution methods to suit your preferences.
Stop the presses. Always use standard paper sizes. Although printing larger quantities at one time means lower per-item costs, if you only need 7,000 brochures, it's still cheaper to order that number at $3.30 per unit than it is to pay for 10,000 at $2.80. Companies tend to over-order to get the price down, but then don't use the stock.
Toss. Don't pay to store boxes simply because you haven't worked out whether you need to keep them. Review!
Mary Peterson is a director in Reno with Expense Reduction Analysts, a worldwide consulting company. Contact her at 343-6598 or mpeterson@expensereduction.com.
