Top Best Cost Reduction Strategies For Maximum Profit

There is one rule for the industrialist and that is: make the best quality goods possible, at the lowest cost possible, paying the highest wages possible
Henry Ford

For an effective cost reduction campaign, follow the strategies below:

Supplier Consolidation

This is one of the most effective means of cost reduction. Many people may not agree with me but the truth is that when you reduce your suppliers to a limited few, there is a high chance that there will be a better negotiation of prices. This is necessitated because of their desire to retain you as their trusted and consistent customer. Again, because of the long term trust and relationship you have built with your suppliers over a period of time, there will be some exclusive privileges reserved for people like you. You will always be offered products at the best prices .This is a win – win situation whereby they will retain you as their customer by offering you incentives that will make it even harder for you to leave and you will continue to patronize them.

Global low-cost sourcing/ Outsourcing

This strategy works best for large businesses. This is a strategy in which a business sources materials from another country with lower production costs. This will reduce the operating expenses because of the availability of cheap labor in those countries. The aim here is to find a supplier with better quality goods at lower prices.

Global sourcing helps businesses to concentrate more on areas of their highest competence to reduce technical, maintenance and improvement costs while giving out the contract to businesses who are well equipped and positioned to offer those services. It also helps businesses to pay only for the services they need, when they need them and how they need them. Larry Elder, an author and TV personality once said “outsourcing and globalization of manufacturing allows companies to reduce costs, benefits consumers with lower cost goods and services, causes economic expansion that reduces unemployment and increases productivity and job creation”

Reduce operating expenses

Operating expenses also called the overheard expenses are those expenses that are necessary for the day to day smooth running of the business or your house. These expenses cannot be well traced to any particular cost unit, they can be grouped as miscellaneous expenses. They are the sum of all other expenses that can be incurred outside, direct materials, direct labor and direct expenses. Such expenses as utility bills, advertising, insurance, accounting fees, rent, telephone bills, travel expenditure (including hotel bills, transport fares, feeding away), Labor burdens and repairs are all grouped as overhead expenses.

For the economy to grow, businesses must recognize these expenses and take drastic measures to make reasonable cuts. Before making any cut, you must understand the impact of the expense on the general quality of your life and business. Understanding these things will help you to know the best approach in making the cuts. To do this, you have to take statistical records of all these expenses for at least a month, analyze them and then make the adjustments.