When Cutting Costs Use A Scalpel
Cutting costs effectively with minimal harm to your business requires a scalpel. not an axe. This is not a new message. It’s been preached by management experts for decades. Yet, still, in difficult times, poor managers still use the axe. They send out the message that every department has to cut their costs by X per cent. Whether they do this because they’re lazy or just ignorant, we can’t say. However, this is never a sound method for cutting costs.
When cutting costs, executives must examine every function of the business closely. They may find some areas would benefit from additional resources and some where costs could be cut by a larger amount without impacting too negatively on the overall success of the organization.
It has been proven over many economic cycles that businesses that, for example, drastically cut their promotional costs to save money, face a much harder time as the recession eases. Their market has forgotten them, so they have to spend considerably more to get anywhere near where they were before. Their competitors who kept their name out there do not face this challenge.
The same is true if you cut costs simply by finding cheaper vendors for functions that you outsource, such as, for example, distribution. Choosing your vendors merely by price may cost you much more in the end, although it will not show as a greater cost on your distribution accounting line. It will show up in reduced sales as your reputation suffers because of late deliveries or other problems, higher costs because of inefficiencies or ineffective processes, and greater risk due to restricted capacity, etc.
There are no easy ways to analyze where you can safely save money. It takes serious analysis and thought to assure that you are spending your money wisely – spending neither too much nor too little on every facet of your business.