4 Strategies for Improving the Cost Effectiveness of Your Business

Cost effectiveness is a vital aspect of business maintenance. Of course, it involves being highly critical and acknowledging that the business can, in some ways, improve. While there are several approaches to performing this analysis — and making the changes necessary to create an economically thriving enterprise — regular organized reviews are an excellent way to guarantee that your business is being as cost effective as possible.

Cost Effective Business - Expense Report


According to Artin Vaqari LLB, MCL, CEO of the Purchasing and Procurement Center, business should be viewed as a basic formula where Sales Revenue less Expenses/Cost equals Profit. Vaqari reiterates that procurement is a C-suite strategic unit which has direct influence on a company’s bottom line. The Purchasing and Procurement Center, as a whole, suggests that implementing the following core areas of cost management can have a substantially positive effect on your business.

1. Determine where you can save money on your inventory. It’s no secret that inventory provides a huge cost for businesses; however, it is also one of the easiest places to cut down on spending. Companies need to manage their materials wisely by reducing the amount of inventory lost through improved inventory control and through what are known as Economic Order Quantities. Employing these controls will minimize total spent through checking for the variable costs that can inevitably occur when holding inventory. Companies must consider setup costs, demand rates, and holding costs in order to properly analyze their inventory. Additionally, companies would do well to develop positive relationships with vendors.

Cost Effective Business - Analysis Graphic


2. Develop a strong IT infrastructure. Developing and maintaining efficient forms of automation can easily allow your company to cut down on costs. This can mean investing in labor tracking software, high-quality production machinery, Enterprise Resource Planning (ERP) software, or other forms of automation. While this may seem like a heavy investment up front, investing in automation can very quickly provide you with a large return.

3. Centralize labor. Periodically reviewing company positions and eliminating redundancy is crucial to effectively managing costs. Making sure to eliminate too many duplicate positions is important, as is considering a switch in some areas to automation.

4. Have a cost management program. It is very important to have a specific program that will allow your company to analyze and employ cost saving strategies. Implementing high quality, high return strategies is nearly impossible if you do not have a vision or the ways the entire company can effectively maximize the money spent. This might mean optimizing supply chain methodology through taking advantage of options such as lower cost domestic sourcing.

Cost Effective Business - Woman drawing chart on screen


The first step in tying all of this together is by creating a specific and all encompassing company vision and making a plan to guarantee its success. Part of realizing this vision means identifying those places in which you can readily improve. Using a cost benefit analysis, employ the methods that will allow your company to run as efficiently as possible. Addressing these methods will optimize the resources available to you.


Fred Coon, CEO

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