Cost Saving – Improve your Business’ Efficiency

Cost Saving – Improve your Business’ Efficiency

Cost Saving

The marketplace is extremely competitive, no matter your industry. Keeping costs under control are a key aspect of any major business endeavor. But what exactly is cost saving?

The main aspect of cost saving

The most important thing you should consider about cost saving is keeping the same product/service quality level, but with a lower cost. That is, you must be able to do that $1.00 job for $0.90, but with the exact same outcome.

At the supermarket, when you compare the regular box of your morning cereal with the family-size box, you should look into the price per pound. That’s the same idea with behind cost saving. Do the same with less.

Where to do cost saving?

Every company has two kinds of costs: operational and support. Technically speaking, costs are always related to your product or service. Support costs, e.g. sales or IT, are expenses. But for the sake of this article, we’ll say costs are all money spent by your company.

So, operational costs are the money spent on your product or service, on what your customer will get. While support costs are those required by your business, but don’t affect the quality of the product/service.

As a general rule, it’s good practice to start looking for unnecessary costs in the administrative areas of your company. Those are generally easier to find and to cut. Reviewing phone bills and shopping for a new phone plan could be a good example.

Cost Saving on Operations

Operations are the main part where your cost saving effort will yield more results. The trick here is to do the same with less, as we gone through before. One common mistake is to try to reduce the quality of materials used, which will results in a lower cost, but generally in lower quality as well.

Reducing quality to reduce cost is not cost saving. You’re giving away quality in exchange for cost, and that’s not what we’re looking for. If you sell a gold ring and replace the gold for silver, you shouldn’t sell it as a gold ring, right?

On the materials field, there are not too much choice. You can either find new suppliers, which will supply you with the exact same product for a lower price. Or you can look for an alternative material, with the same characteristics of the old one.

Cost saving with a lower quality material isn’t always bad. You should clearly evaluate if the replacement will change your product in any way: appearance, durability, life-span, maintenance, usability, safety, etc. If the replacement material don’t change anything, go for it. But be sure to make some tests before implementing the full change.

Cost Saving on Operational Processes

Commonly an strategic and efficient cost saving initiative will present most of the returns when visiting your company’s operational processes. There are two main reasons for that:

  1. Business processes are often repetitive and even a small gain within a given process can show huge returns over a short period of time; and
  2. Most operational processes are born without much consideration, and as the company grows, inefficiency grows as well.

Our Approach

At Catarina International we offer cost-reduction consulting with a money-back guarantee. Our approach to cost reduction respects the principles above, like keeping quality while spending less and becoming more efficient to allow sustainable long-term growth.

When we do our cost saving review, we follow these basic 10 steps:

  1. Review and understand the operation of the company and what customers value about the product/service.
  2. Break-down the product/service into small parts, so it’s easier to look for cost saving points.
  3. Check for inefficiencies when a given product/service moves from one department to another (this generally can save time; time = money).
  4. Talk to people to understand how they believe their job could be done better and more efficiently.
  5. Redesign all relevant processes to calculate the reduction, cost of change implementation and ROI (if investment is required).
  6. Review all office expenses and providers.
  7. Review all payroll and benefits expenses.
  8. Look for alternative plans for the last two items.
  9. Check if a long-term contract will reduce the prices with suppliers.
  10. Wrap up all the discoveries into a plan, so nothing gets missed.

Of course, every business has it’s particularities, but in general that’s what we do. And it works so well, that we offer a full refund if we don’t generate savings higher than our fees. And we never had to cover that guarantee.

Should I use an external party when doing cost saving?

Every business should be able to stand on it’s own. But external help can accelerate things, and the expertise from outsiders can quickly identify problems and present solutions. Also, external consultants are not in the daily operations, so they’re not used to the company, which will raise more questions and give a more critical review. Most people will often be more prompt to speak with an outsider about their problems than with the co-workers or boss.

You can read about our cost reduction service, here.

You can also contact us using this form.

 

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