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Cost saving: 10 (good) ways to cut corners

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Friday, June 01, 2007

Tim Hickey, principal at Tim Hickey Consulting Associates in Vancouver, Wash., has some pretty sound advice when it comes to cost cutting.

Don’t think first about what you can cut out, he says, but what you can improve in terms of your processes and operations. Don’t make cuts that reduce your revenues and, no matter what, don’t start sizing up your business like it’s a Thanksgiving turkey.

“Too often companies come in and just sort of think, ‘What can we carve out?’” says Hickey. “If you do that, you’re putting yourself at risk of death by a thousand cuts.”

Chris Adamek is practice director at ACME Business Consulting LLC in Portland. His best advice on cutting costs?
“There’s a certain amount of that that just comes from being more efficient,” he says. “Sometimes you’re not able to tie a specific dollar amount to it, but it still makes a difference.”

In sum, to realize some cost savings in your business, don’t cut just to cut. Identify and then tackle inefficiencies and consider the following tips for running a tighter ship.          

1. Invest in a marketing plan. Hickey is no fan of having talented, highly paid sales people spinning their wheels trying to find good sales leads. Instead, he suggests investing in a high-quality, focused marketing program. “Companies that cut marketing end up paying more for expensive leads,” he says.

2. Look for outsourcing opportunities. People see the word “outsourcing” and immediately think of a call center moving to India. But, says Adamek, there is much more to it than that. “Every function of a business can be outsourced,” he says, listing as examples payroll, marketing or creative services. “It’s just a question of what’s strategic to you and what isn’t.”

3. Eliminate one-off projects or operations. One-time customer projects rarely make sense for a company that doesn’t consider itself a custom shop. That doesn’t mean a firm shouldn’t consider new markets, but it does mean a company should have a clear definition of the services it provides and the products it offers.

4. Annually review software and other contracts. It’s not un-common for businesses to lack expertise when it comes to negotiating contracts with software vendors or to be paying for services they don’t need. Keep these costs down by reviewing such contracts annually to make sure you’re paying a good price for truly necessary systems.

5. Make regular technology upgrades. Still using Excel spreadsheets to manage important sales figures or inventory numbers? Adamek says many companies could benefit by upgrading to a more sophisticated system — something that can usually be started in-house.

6. Don’t start unsupported initiatives. Time and again, Hickey has seen companies haphazardly and half-heartedly start an initiative, only to abandon it with little to show for their efforts. “Too many companies will see any old opportunity and just throw something at it,” he says. “That’s a waste of money.”

7. Consider direct sources — or not. Many companies benefit by having direct source contracts with suppliers for their raw materials. For those that do, Adamek suggests reviewing those contracts every year to make sure they still make financial sense. Companies that use third-party sources would be wise to at least consider direct sources as an option. “There can be some real opportunity for cost savings there when they hit a certain size and scale,” he says.

8. Implement a strategic plan. Without a unified strategic plan, the management team isn’t able to focus and can slip into a chase for what Adamek calls “micro-opportunities.” The result? Loss of both cost savings and efficiency.

9. Streamline processes. “Make sure your processes are what you really need to get the job done in the best way,” Hickey says. And make sure everyone is focused on improving those processes every day. “This can hugely reduce costs,” he says.

10. Link compensation to cost-cutting goals. “If you’re going to build cost savings and efficiencies as a core tenent of your business,” Adamek says, “make sure it’s fully integrated into performance assessments.” That means finding creative ways to encourage — and reward — cost savings achieved throughout a company.

— Jon Bell

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