The fastest way to improve your profit is to undertake a process of cost reduction in your business!
However, we need to bear in mind that this is a very limited step. If you save costs to the ultimate degree, you no longer have an operating business! Clearly there is some point below which cost cutting can damage the business rather than improve profitability.
Nevertheless, it is very often the first step undertaken by businesses and very often is undertaken without much discrimination.
We often see overly simplistic cost reduction exercises where, for example, 10% of the staff are made redundant across the board without giving thought to necessary skill sets and the products and locations that are to be maintained.
This Yellow Belt project illustrates a number of cost centres that you can consider overhauling on your road to Optimising Your Existing Operation in 100 Days.
Steps for Cost Reduction:
Work through the following articles prior to embarking on the next project – C2.5 Increase Revenue:
C2.4.1 Which Costs to Target
C2.4.2 Reduce Waste
C2.4.3 Products to Discard
C2.4.4 Locations to Abandon
C2.4.5 Cost Reduction Budgeting
C2.4.6 Working with Suppliers
C2.4.7 Reduce Inventory Costs
C2.4.8 Reduce Fixed Costs
C2.4.9 Research & Development Costs (R&D)
C2.4.10 Reduce People Costs
So Much to Do, So Little Time
Congratulations on working through, and completing, the above steps.
Like everything else in Optimise100, there is a lot of potential homework and it might seem overwhelming.
But remember, you have 100 days to work your way through and you can start with the easiest / most attractive / most productive stuff first and slowly work your way through.
Take a deep breath!
So far, we have been looking at how to process cost reduction.
This is by far the fastest way to increase your Profit but it has two major limitations:
- It can only be done once in a while and so can’t make a regular contribution to boosting your Profit.
- How deeply you can cut costs is limited. You can’t cost cut your way to growth.
We are now turning our thoughts to the far more exciting opportunities to grow your business. These are open ended and you can continue to tune them, and your Profits, indefinitely.
The opportunities to grow your business are grouped in the next section on increasing Revenue: C2.5 Optimise100-Increase Revenue
What’s Next After Cost Reduction
Optimise100 is divided into several projects to be more accessible for you. These are:
- C2.2 Introduction to Optimise100 Campaign
- C2.3 Getting Ready – how to prepare.
- C2.4 Cost Reduction – the fastest step so probably where you will start. (You are here)
- C2.5 Increase Revenue – without making many changes to what you presently have, it is likely you can increase Revenue. Options are discussed here.
- C2.6 Advanced Profit Growth Techniques – Blue Belt
- C2.7 Using the Optimise100 Planning Spreadsheet: this is a worksheet for all the things you might work on and the expected payoffs, pick the best first.