How can businesses ensure long term cost reductions?
Cutting costs now saves money now but if, in 12-18 months, costs have risen back to their original level, was the cost reduction a false economy? One place this may often be seen is in sales, general and administrative areas, where cutting costs at one level will eventually cause costs to rise elsewhere, keeping the entire segment at the same outlay.
Part of the problem is that those forced to make cost savings are not those who the cost saving affects. A sales manager is best placed to decide if a sales meeting is essential, can be conducted over a video link or requires in-person attendance – not a finance officer who only cares about the fuel bill. Making the sales department accountable for sales costs encourages each member of the department to make case by case cost reduction.
Change the System
When cost reduction is achieved by changing the system it is more likely to maintain the reduction. For example, instead of cutting the paper budget moving to functional paperless systems will naturally reduce the paper bill and will continue to keep it down.
Don’t Give Up
Long term cost reduction needs to be maintained and integrated into procedures. Taking a short-term approach will result in short term gains that are soon swallowed up again. A systematic approach to cost reduction will lead to long term savings that will continue to be realised over the coming years.
Are you making the right decisions for your business? If you’re not sure and want to explore what opportunities may exist – then contact me to talk.
Paul Strachan M. 07793 447961 T. 01307 460667 E. firstname.lastname@example.org