Cost Reduction

Posted: 11/02/2013 in Latest Ideas and Opinions
Tags: , , ,

I decided to do a brief overview of cost reduction as a first blog, more so as this is an area i enjoy. Although not a comprehensive guide covering all scenarios, it should start the thought process and encourage people to view their own business in a new light.

Cost reduction is too easily associated with not spending money. I identify it more with using what money we are spending wisely. It is easy in business to keep hemorrhaging money into new systems, processes, stock or extra staff, when really we could just move the resources we have,, over into the area we need it.

To do this successfully we need to first identify the most important part of the business model, the area that is going to bring us things such as future growth, repeat business and good profits. Once this has been identified we can slowly manipulate the business into making this the focus of our future business model. We can then use part of any funds we save and reinvest it back into this area of the business.

Once the identification process is complete we can start to aim to cut wastage and redirect funds where they are needed. This can be in a wide range of areas, dependant entirely on business sector. A lot of national companies, for example, still feel the need to have cost heavy call centre premises with hundreds of staff doing the same or similar jobs but in different departments of the same building. We have all seen it, but no one can ever stop it because to put the brakes on any business and redirect it overnight would actually bring it to a  standstill. Processes generally get added to, over and over again, to try to cover every new lesson learnt. I prefer to remove processes that have no function and reintroduce new simplified processes, that make the customer the focus, not accountability. This in turn leads to less staff needed in the call centre and potentially more staff actually on the ground where the money is earned.

Once the streamlining process has taken place and the money is being reinvested, we have to be sure that we are not expanding quicker then our business can handle. A small company offering a personal service, will have to adjust some of its processes to compete on a national stage. This isn’t to say that the companies principles or service levels have to drop, the company just needs to be aware of the increased service area, customer base and stock levels. All of which can incur extra costs. Costs that inevitably can be reduced through things such as outsourcing, networking, sharing resources and negotiating new deals for stock (increased ordering can lead to bigger discounts of stock costs).

Morrison’s is a prime example of a company that needs to be changing focus to keep up with competition, while still portraying your local market under one roof. In my opinion Morrison’s haven’t yet realised the true potential of the internet shopping and distribution network, which hurt them over Christmas and New Year. I know they can’t throw money around like Tesco, but i feel by not even offering a basic delivery option, they are missing millions of customers. I also think they would be better suited then some of the other big supermarkets to get small High Street Convenience Stores, as the business model they use would fit very well in the environment. Imagine walking into a convenience store and having a stock of fresh produce, hot food and a large selection of frozen meals. Morrison’s do these areas better than the rest but don’t do it on a small-scale enough.

Any feedback or comments are welcome and next blog will be focusing on increasing turnover.


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