If you read our previous article, Finance Executives Still Expect Growth in 2023, but Cost Concerns Continue, you learned that vendor or supplier costs were the chief concern. But cutting costs is a balancing act. How do you cut costs without impacting your bottom line?
This post will explore some strategies that finance executives can use to cut costs in a sustainable way.
Negotiating with Suppliers
A good starting point might be to negotiate directly with your vendors and suppliers.
If you have a strong business relationship or can demonstrate solid business credit, your vendors may extend a discount to retain your loyalty. They may also offer discounts based on order volume or frequency, which means that if you commit to a year-long contract, you may pay less than making individual purchases.
But don’t be afraid to pursue alternative partners, either. You may discover that other suppliers can address your business needs at a better rate or simply offer a product that meets customer demand at a lower cost than you’re currently paying.
Similarly, recent supply chain disruptions have highlighted the need to diversify your vendor list, which in turn keeps your distribution network running at peak efficiency.
Even if this doesn’t directly address the cost of your vendor, you’ll at least be able to deliver greater distribution speeds, which can boost your customer satisfaction and sales volume.
Implementing Lean Processes
Controllers and CFOs can also help their organizations adopt lean operating processes. Basically, the goal is to do more with less. As a result, the company will enjoy greater efficiency with lower costs and less waste.
For example, some manufacturing companies rely on “just-in-time” (JIT) strategies, producing only as many items as needed when they’re needed. This prevents company resources from being tied up in unsold inventory.
Other companies may want to scale back their inventory entirely or only reorder supplies and inventory when it matches the needs of their business cycle. This approach liberates working capital that can be reinvested into other parts of the business and may make the company more profitable.
Outsourcing Core Processes
Outsourcing is another way companies are adopting a lean approach.
Outsourced accounting or HR firms give companies access to industry-leading expertise at a fraction of the cost of an in-house employee. Moreover, the firm will typically possess current knowledge of current regulatory issues to help companies stay compliant, a must-have as corporations increasingly adopt ESG programs.
An outsourced service provider can also reduce the administrative burden on your current employees. With better administrative support, your workers will have more time to focus on the revenue-generating activities that lie at the heart of your organization.
Controllers and CFOs also benefit from company data provided by the outsourcing firm. This data can provide valuable insight into how to improve efficiency and save even more money.
Investing in Technology
Technology is a tricky area, as evidenced by recent data. Some companies are scaling back their technology stacks as a cost-cutting measure, viewing such tools as a “nice-to-have” that doesn’t necessarily drive the bottom line. But other companies are discovering that technology can improve efficiency and even cash flow.
For example, electronic accounts receivable/payable software can be used to create digital invoices and receive online payments. At the very least, these tools can help your company get paid faster, boosting your cash flow so you can meet your financial obligations.
Other tools can be employed for such processes as inventory and supply chain management and even certain HR processes, all of which can streamline your company’s core processes, saving both time and money.
Caution: Don’t Be Quick to Reduce Headcount
Recent data notes that some companies have sought to reduce headcount and compensation packages in order to cut costs. But at least some of these companies came to regret this decision, as they were later forced to backfill their roles to maintain their operations.
It’s important to consider the cost of employee turnover. Not only will you have to invest money in recruiting and onboarding a new employee, but you’ll also bear the indirect costs of lost productivity or diminished company morale until the position has been filled.
Investing in your workforce can boost employee engagement and lead to higher retention rates, which may actually save you money compared to the costs associated with employee turnover. And this says nothing of the productivity-promoting effects of having an extensively trained and fairly compensated team of long-term employees.
The Future Belongs to Those Who Adapt
As noted in the previous article, financial professionals are optimistic about the future despite some lingering concerns. But the future belongs to those who adapt.
By taking a thoughtful and strategic approach to cost management, organizations can set themselves up for long-term success and growth. These tips can improve your efficiency and, in some cases, may even contribute to a more positive workplace culture.