Cost-Cutting…the Hidden Gem of Profitability

Every smart business searches for creative ways to become more profitable. One of the most overlooked profit opportunities, however, lies hidden within a company’s operating costs. Even businesses that stress prudent management of their costs typically overpay by as much as 75% for materials, equipment and services. Clearly, cost reduction management has a valuable role in every company’s bottom line. It begins with diligently questioning the demand for the product or service to be purchased. Is it a strategic or an operational cost? Can you eliminate the need altogether? Is it worth paying more for additional quality? Equally important is the manner in which you build key supply relationships. Never base that relationship on blind trust or, conversely, take a strictly adversarial stance. Try to identify excessive margins in the supplier’s pricing and don’t be afraid to negotiate so you get only what you need. At the same time, suppliers should be treated as partners in an atmosphere of mutual cooperation.

Above all, there must be clear lines of accountability for managing operational costs within your organization. Whomever you hold accountable should have the authority and capacity to act for the entire company, and their key performance indicators should be spelled out in their contracts. You must be completely confident that the person or people entering into contracts with suppliers have adequate market knowledge and negotiating experience. If there are particular costs that you cannot attribute to a particular person’s responsibility, you have probably identified potential areas of cost-cutting and, consequently, profit opportunities.

Remember…never assume that you are properly managing your operational costs. Complacency such as that keeps you from achieving satisfactory results. At ERA, for every $1 million of costs under management we put an average of $200,000 back to our clients’ bottom line. Isn’t that kind of money worth more than a mere assumption?

Contact ERA Today! For more information, contact Marylou Garcia, ERA Area Developer for Los Angeles and Orange County: 310-791-5570 or mgarcia@erala.net and visit our website at http://www.erala.net/.