Ten ways to cut your costs by 20%: Part Two

Five more ways to boost your bottom line, with some expert cost-cutting tips from a leading specialist.

Last Updated: 31 Aug 2010

In the second of our two-part series, MT brings you five more cost-cutting tips from Expense Reduction Analysts. The world’s largest specialist cost improvement consultancy, ERA claims that most organisations can save up to 20% of their operating costs by trimming non-core expenditure...

Click here for the first five ways to cut your costs by 20%.

6. Don’t purchase things you don’t need

Buy what you need, not what your suppliers would like to sell you. Suppliers will often use bait-and-switch tactics to move you onto their higher-margin items, or will try their version of the fast food pitch: ‘Would you like fries with that?’ Many suppliers make much more money from supplementary services or add-ons like service or maintenance agreements. Be sure you understand what you are buying and whether you really need it; for example, do not purchase premium services unless they are necessary (such as a 10am courier delivery if 5pm is acceptable).

7. Let suppliers know about your cost review

Rarely will a supplier volunteer a price review. Let your suppliers know that you are undertaking a review of all overhead costs. Also refuse to accept price increases during these challenging times, or any suggestion from your suppliers that ‘our prices are higher because we provide superior quality and service’ or ‘our prices cannot be beaten’. Remember, it is a buyers market and you will be amazed how many suppliers will back down to retain the business.

As highlighted above do your research and comparison-shopping before approaching suppliers, so that you are able to negotiate from a position of strength. During negotiations present the value of your business to the supplier.

8. Establish key supplier performance

In addition to reviewing prices, look at establishing key supplier performance indicators that are appropriate for your business. Set them higher than required, and this will add to your cost base. Conversely, set them too low, and this could affect the quality of your service to your clients – and thus your business relationships in the longer term.

Make sure you obtain management information from suppliers relating to any cost increases/decreases, otherwise these could be easily be hidden (and therefore missed) in an invoice incorporating a large number of supplied items. This helps avoid over-charging and also ensures a transparent relationship with the supplier. Finally, constantly monitor their performance levels and adherence to your contract.

9. Only jettison suppliers as a last resort

Reducing costs is not just about going to a cheaper supplier. Good relationships in any line of business are fundamental, and the one with your supplier is no exception. By following the tips above and working in partnership with your suppliers to identify cost-cutting strategies, you can in the majority of cases generate savings without affecting or disrupting standards of service through changing suppliers.

10. Create a long-term cost-management programme

Potential savings are great, but they don’t mean anything unless they are realised. After implementing a culture of cost-consciousness, appoint cost champions to drive the programme forward. Constantly monitor the situation to ensure that staff are not slipping into old habits; that suppliers are charging correct prices; and that service standards match the agreed specification. Also remember to frequently review each business cost category, whether it be logistics, property, banking, telecommunications, property costs or anything else.

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