Tue 3 Apr 2007
In today's world, fierce competition and rising expenses are resulting in diminishing profits for small businesses. Simply put, today, cost reduction could mean survival. Given below are some of the main areas that you should look at to effectively reduce your business costs.
Raw Material Procurement — If possible, your manufacturing facility should be situated close to the source of raw materials to cut down this cost.
Raw Material Inventory Levels - Raw material inventory is simply tied up capital. The optimum level of raw material should be stored to meet production requirements in the short term.
Logistics - Inbound and Outbound — Expenses are incurred in bringing the raw material to the production site and sending out the finished product. The transportation should be the cheapest that can guarantee safety, require minimum handling and be reliable in terms of time schedule.
Warehouse and Stores — This is for storage of raw materials until they enter the production line, as well as for storage of the finished product until it goes into the market.
Manufacturing Process — The process should make optimum use of the 4 Ms - Material, Men, Money and Management - to produce the finished product.
Energy, Fuel & Water — This avenue of saving is often overlooked, but can result in significant savings if used efficiently. Better machinery and manufacturing and an awareness of the need to conserve energy among the workers can result in considerable savings.
Information Management - Information is power. Having an efficient, reliable and up-to-date information management system can help your business save lots of money.
Finance — Spending capital resources efficiently is crucial to avoid high interest payments.
Human Resources — Having a well trained, motivated workforce will increase the efficiency of your business.
Sales & marketing — These are distribution expenses that need to be incurred to develop the market and increase the demand for the product.
By reducing costs, or making sure that certain areas of your business are lean and efficient, your business profits will substantially increase.