Cost Savings - What Can Executives Do?

In recent days there have been many articles about driving cost down and what we can do about it.


While much has been said and written, how much has been done in your organisation? What is hampering your organisation from implementing or achieving cost savings initiatives.?


Cost savings initiatives can be done holistically and on company wide basis or just done on a selective project on a one off basis.While the former is on a much larger scale and takes a longer time, its long term effects on the organisation is also much greater and sustainable. On the other hand, short projects can produce faster cost savings impact.


Executives will have to weight the company overall procurement and sourcing strategies, competition, supplier's bargaining power as well as the intended bottom line targets in order to select the right mix.


After decision has been made, it is time to look into the resource i.e. is this project going to fully driven by internal staffs or getting external consultants to assist or a mix of the two.


Getting external help yields many benefits.


Consultants bring with them a variety of industry experience and will be more focused on the achieving the strategic goals as they are not involved in daily operational issues. Local staff also get educated in the process and what is more effective as training with actual hands-on feel?.


Since most companies do not have the staff resources to be able to regularly review expenses and reduce costs or do not have the time to monitor the market place or their suppliers. They may engage consultants to expertly manage the situation.


Moreover, consultants can provide higher management a 'bird's eye' & independant view of the current state of the procurement process and where significant improvements can be made.


The first thing is to consider if the consultant may do for the company. For example, do they have the track record and adequate resources to deal with your company/project size? Then how are the fees structured and the scope of work they provide.


Internally, prerequisites to successful cost reduction are high commitment & support from higher management, good execution skills and right mindset of the mid & lower level staffs. All but not least, self interest should be seconded to company goals. It should not be seen as just another 'talk of the month' thing.


On a more macro level, effective cost reduction can be derived from 2 major areas namely direct and indirect cost. Often and not the most neglected area is the indirect costs that seems 'trivial' to many companies but is where cost reduction can be achieved easily.


Here are 10 simple tips where you can start to do a cost saving initiatives.

1. Centralized purchasing.


2. Cutting paperwork.


3. Consider using supplier's house brand.


4. Better negotiation skills in purchasers.


5. Review existing specifications or design.


6. Adopt Lean concept to every aspects of the organisation.


7. Rationalize your logistic routes.


8. Review holding stock levels.


9. Benchmarking against best practise.


10. Improve workflow process to cut inefficiencies

Concluding, SMEs should be adopting procurement best practices to reduce business costs and improve productity.