In our last article, we examined how cost optimisation strategy can drive accelerated growth and stated that it should be part of an organisation’s culture. As firms are concerned about cutting cost in their operations, let’s consider some cost reduction strategies that could be adopted.
Before diving in, it is important to understand that cost reduction techniques may vary in different organisations/industries. For instance, the technique for reducing cost in a manufacturing firm will vary from that of a service firm. But one thing is clear, the effect of whatever technique is adopted must be evident to the overall bottom line.
Hence, we have selected some functional departments and the techniques that can be adopted to reduce cost.
Procurement department
This department has a broad stream of activities that are cost-dependent, such as drafting a purchase order, sourcing of items /vendors, negotiation, financing and record keeping. Some cost reduction techniques include:
Monitoring inventory levels to understand pattern and avoid excess purchases.
Purchasing reoccurring items in bulk which may attract discounts from suppliers.
Automating procurement processes, like raising a purchase order, obtaining approval from management and finance department and tracking inventory, to avoid costly errors that may occur when done manually.
Maintaining more than one supplier to avoid last minute delays, which would incur additional costs
HR department/payroll
This is a crucial department in any organisation. Here are some of the cost reduction techniques that can be adopted:
Reduce personnel cost by recruiting interns and entry level employees.
Adopt remote work to reduce miscellaneous personnel expenses like transport allowances
Automate tasks for effectiveness.
Marketing department
Marketing is often considered a capital-intensive endeavour and, as such, some of the techniques to reduce costs could include:
Develop a marketing strategy that is in alignment with organisational goals.
Encourage customers to provide reviews for products and services.
Leverage social media
IT department
Many companies have embraced the use of IT in their operations. Although this may seem capital intensive at the initial stage especially for small businesses. Here are some techniques to consider when trying to reduce IT cost.
Use cloud storage rather than occupy office space for storing files.
Review software licences to determine the irrelevant ones which need to be discontinued.
While the above listed techniques are important for reducing costs, an alternative option is to outsource the services. At first, this might seem like an expensive choice as external consultants may charge lump sums for their services, but in the long term, the reoccurring cost involved in performing these activities in-house maybe more expensive.
In addition, outsourcing gives organisations time and resources that could be diverted into creating value in other business areas.
In summary, cost reduction techniques need to be regularly reviewed to ensure they are not affecting the organisation negatively. If your business needs to outsource any of its departments or activities as a cost reduction strategy, please email us at enquiries@ovacgroup.com.