Attention to Costs
Learn how and where to cut them without harming the company’s operations.
“Costs are like fingernails. You have to cut them constantly”. Inspired by the Wal-Mart retail chain’s strict cost controls, the phrase is used as one of the work bases of the successful Brazilian entrepreneurs Jorge Paulo Lemann, Marcel Telles and Beto Sicupira, owners of a huge group that includes companies like Ambev (beverages), Lojas Americanas (retail chain) and Burger King.
Especially in difficult times when resources are scarce, it becomes a priority to pay attention to costs. This no one disputes. But, as shown in the opening sentence of the article, this attention should bepermanent.
How to do this? Where to start?
To find out where you can cut costs, the first step is to make a detailed study of the expenditures made by your company. With this, you’ll have a clearer picture of how and where your resources are being used. At this stage, just with an organized expenditures list, many people can already find many opportunities to save.
From the information gathered, it will be possible to evaluate all expenditures made and separate them into different categories, starting with those that are really necessary – that cannot be cut. After that, the suggested path is to find out where there is room for cuts, analyzing carefully how and when some of them can be:
- Renegotiated (for example, with suppliers);
- Deferred to a more favorable moment;
- Totally or partially eliminated.
With all the data in hand, it becomes easier to identify waste, which always exists, no matter how much is cut. Here are some examples of where they may be:
- When purchasing materials or in their incorrect use;
- In shipping and transport;
- In time loss due to rework;
- In the lack of organization, which causes further delay to carry out the activities and therefore higher spending with people;
- In the inappropriate use of resources such as water, energy, telephone, gas etc.;
- When using outdated technologies.
“Eliminating waste should be a permanent and continuous effort by everyone in the company, at all times”, affirms José Roberto Ferro, president of Lean Institute Brazil, in an article on Época Negócios website. “As a result, costs are constantly being reduced. And with that, the company will be in a better competitive position to face market falls or changes, without despair or radical measures”.
However, it’s important to properly evaluate the cuts, to not lose efficiency and not harm the company’s operations.
Two examples are cutting staff and reducing the budget allocated for product promotion and distribution and for the company itself. These are measures that may seem positive in the short run, but can seriously affect serving customers and attracting the public to your establishment.
The consultant Mario Pacheco Fernandes, author of the book “25,555 days on the road – what I learned administering companies”, draws attention to precisely this aspect. “All actions to be taken cannot ignore tomorrow: the company will remain in the market after the turbulences”, he warns.
He claims that cutting costs without clear criteria can lead to loss of knowledge and quality. The risk is in harming the company’s future: when the market normalizes, it will be less prepared. “This causes loss in the crisis and loss in the market recovery”, he alerts.
For moments of crisis and turbulence, Fernandes suggests that, before going for cuts, the company’s leaders adopt the following practices:
- Define priorities and objectives clearly;
- Be proactive (taking the initiative);
- Preserve and improve the motivation of employees;
- Transmit confidence to the team, showing what’s being done and explaining the reasons.
Recognized as one of the world’s leading experts on leadership and innovation, the North American John Kotter follows the same line of reasoning and says the worst thing that can be done is taking the company to the cliff’s edge, in the name of cost savings. “The recession will end one day. If you have done little during the bad period to boost services, improve your product or develop new launches, you’ll be behind when the skies finally clear”.
Revenue arising from the tips of these experts involves, therefore, three measures that should be adopted simultaneously: maintaining constant attention to expenses, increasing efficiency and pursuing new opportunities. Study how to do this in your business and move ahead!
PRACTICAL TIPS TO GET GOOD RESULTS
- Involve the team: it’s necessary to have the employees’ support and collaboration to achieve lower costs. Clearly inform them what the objectives are and listen to the suggestions they bring. To motivate them, part of the saved value can be used to reward them.
- Avoid impacting service: service quality and efficiency should be maintained, so that the cut doesn’t cause a negative perception in customers.
- Check the small expenditures: some items, when isolated, don’t represent a very high cost, but when added together can weigh heavily on the company’s finances.
- Phone savings: create employee awareness about the duration of calls and the best times to make them, is a good way. Also using free or very low cost communication tools such as Skype can be adopted.
- Optimize energy costs: it’s possible to reduce the electricity bill with measures such as changes in habits, better use of natural light, replacement of bulbs and equipment.
- Joining forces: a partnership with a competitor or complementary companies for group purchasing allows for better prices and conditions.
- Research prices before purchasing: when it’s necessary to acquire materials and equipment, check the prices offered by various suppliers. The same goes for contracting services such as transportation, cleaning, security, etc.