When we talk about costs, people might think that it is the finance department and the boss’s responsibility.
It is nothing to do with me.
Cost management is an essential part of business management. It is closely related to every employee.
The key to business development is to increase revenue and reduce costs as much as possible.
Nowadays, competition is getting more challenging. It is tough to get orders.
Companies have to lower their sales prices to survive. The profit is getting narrow.
Evan, many companies have to close their factory.
At this time, many owners and management teams have started to realize the cost strategy.
Let’s start!
Sometimes, reducing costs is easier and faster than increasing sales.
If you learn more, let’s continue.
For example, The selling price of item A = total cost + profit
Selling price $100- total cost $80 = profit $20
If your total costs increase by $10, the selling price keeps.
Selling price $100 – total cost $90 = profit $10
If your total cost is reduced by $10, your selling price keeps.
Selling price $100 – total cost $70 = profit $30
As you can see from this simple example, reducing costs means increasing your profits.
Whether you have been in business for years as a SME. or a startup, cost reduction is essential to your business development.
Cost savings eliminate the “waste” as much as possible throughout the supply chain.
Anything that does not add value to your product throughout the supply chain can be considered waste.
If you learn more, let’s continue.
When we do our annual planning, we need to have a total cost strategic plan.
Business owners need to lead the team to take action.
Every employee engages in it. Improvement action needs to be specific, detailed and executed.
Training employee increases awareness of cost management. Cost management is part of the company culture.
Employees reduce unnecessary expenses through improvement projects.
It will make the company more competitive in marketing.
Reducing operation costs, optimizing processes, optimizing inventory management, improving space utilization, and other methods to reduce costs.
I will use the “The Seven Wastes” tool to introduce how to save costs. It is easy to act in our daily life.
Toyota proposes the seven wastes. Transport, Motion, Inventory, Overproduction, Defects, Over-Processing, Waiting.
These methods mainly refer to how to reduce waste in the supply chain.
If you learn more, let’s continue.
For example, You purchase fragile, very large products, etc.
There is a risk of damage, loss, delay, etc., during shipping if the distance is very far.
You can choose the near supplier if the price difference is not too big.
Avoid receiving it damaged or unsuitable.
The complicated return processing will take a lot of time, and your potential costs will be high.
For example, when you purchase goods from different suppliers in China, you can consolidate all goods for delivery.
It will save transportation costs and people handling fees.
Inventory will occupy your money and your warehouse space.
You must regularly do stocktaking and clean dead items or put them on a used platform for sale.
It is best to have an inventory management system or excel sheet to manage stock.
The most basic function of this system or excel sheet is to keep track of all your items.
People will take cycle counting to keep data accurate. The amount of inventory should be correct.
You will try to find the root cause if there is a difference between stocktaking and physical stock.
Usually, you should keep the inventory level updated timely.
It is crucial to make sure inventory is accurate.
The motion refers to the movement of products in the supply chain. We try to minimize the action as much as possible.
For example,
You will place the tools close to the workbench.
If products are shipped frequently, they will be placed on shelves where you can easily take them.
If Products are not shipped frequently, they need to be placed at the top of the shelf or far from the shipping door.
When we design the kitchen operation desk, we will consider the workflow.
The easiest way to avoid waiting is to be planned as early as possible.
If you order A.B.C. products from different suppliers in China. They will be launched at the same time.
In general, different suppliers have different production lead times.
It is best to receive them at the same time.
If you receive product A first, product A has to wait for products B and C in the warehouse.
When you purchase goods from different suppliers in China, please ask about their production lead time.
If the supplier does not have enough inventory, keep more time.
When all the goods are ready, inform the suppliers to send the goods to your freight
forwarder’s warehouse and finally deliver them together.
Over-processing is doing more work without necessary.
It is not the customer’s requirements.
We must understand our customers’ needs first.
For example
Communication with the supplier’s technical experts if there is a better solution with a lower cost.
Last at least, it will secure the same quality.
It is a custom product.
Production planning requires make-to-order, not make-to-stock.
It will be overproduced if you produce more than the customer’s order quantity.
Your inventory level will be increased.
Inventory will take up your warehouse space and capital. Your handling fee will be increased accordingly.
If the customer’s design changes, inventory may be scrapped. So it is a potential risk.
When you purchase goods from China, the supplier will suggest ordering more quantities to get a good price.
Usually, you will consider buying in bulk if the product is consumed quickly.
If the products are not consumed quickly and are not sure to be increased sales a lot in the future, you will consider them seriously.
In general, don’t purchase more quantity even if you can get a better price from the supplier.
This will increase your inventory and storage fees.
Defective products are additional costs.
Everything that does not meet the customer’s requirements is a defect.
Because of defective parts, you can’t guarantee delivery to your customers on time.
It will cause customers to be unhappy, and eventually, it is possible to lose customers.
If you purchase goods from China, please communicate the product specifications clearly with your supplier.
It is best to order a sample and place an order for mass production after the sample is received and approved.
There are many ways to reduce waste and control costs in our daily life.
These are just a few simple examples of waste reduction. Their purpose is to increase awareness of cost management.
If you learn more, let’s continue.
Increasing profits is not just about developing new customers to increase sales.
Enhancing our ability to identify waste in our work accurately is vital.
You can eliminate waste, reduce costs, and increase profits by taking action. The business can achieve sustainable growth.
It’s becoming increasingly electronic. Try to save your business time and costs using Paperless Office.
Share information among employees and use email or messaging tools rather than printed documents.
Before printing documents, please Consider whether printing is necessary and try to print as few documents as possible.
Print and copy using both sides as much as possible.
Before the meeting, you invite participants and send the meeting agenda. Improving the efficiency of the meeting will save time.
After the meeting, the organizer will make minutes and an action list. The action list should include items, responsibilities, finished date, etc.
If your suppliers’ or customers’ location is near your company, you can consider using the recyclable package.
Put a company label on the package and return the recyclable box when you deliver.
Items are old and dirty.
You think about if you can reuse them.
Items will look more attractive after cleaning. It will save you a lot of money.
Items are old and dirty.
You think about if you can reuse them.
Items will look more attractive after cleaning. It will save you a lot of money.
Everyone is interested in the new thing. Sometimes buying new isn’t the smart way.
Especially if you’re a startup, consider buying used equipment instead of buying new items at the total price.
It will save you money.
Non-critical tasks can be outsourced, or some temporary tasks can be outsourced instead of increasing headcount.
Its total cost will be very high when you hire a new employee.
Whether you are a startup or not, it is vital to do everything possible to find ways to save money in daily work.
From the examples I gave, most methods are not difficult to implement if you are willing to change.
It is easier to reduce costs than to increase sales.
Please start with the smallest and easiest ones first.
I hope these simple and easy methods will be helpful for you.
If you’re already implementing them, have you met any problems? I’d like to hear your thoughts.
Or if you have other questions, please share your thoughts in the comments section.
Thanks!
