The Challenge Of Reducing Operating Costs

Every business at one time or another decides it needs to reduce the operating costs

. In these tough economic times, doing more for less seems to be the motto of most companies. However, its a balancing act. On one hand, you want to grow your company. On the other hand, the demand to reduce costs is ongoing. You need to find a way to do both at the same time. Its tricky to develop a strategy to reduce operating costs while not compromising the potential for growth. Identify where you can improve efficiency, consolidate or trim non-core functions, and then take those savings and reinvest them in critical assets for your business. You will need to have your employees on board for this to work.

Many companies are quick to outsource. Thats because non-core functions such as payroll, billing, and human resource functions can be outsourced without hurting the company. Some companies even outsource operating processes. What you need to understand is that while outsourcing may be the right choice for your company it also opens you up to risks you would not otherwise be exposed to. For example, an impolite customer service rep, or an inferior supplier can do a lot of damage to your company very quickly. So before you choose outsourcing to reduce operating costs, make sure you weigh all the pros and cons.

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However you decide to proceed you need to be cautious. You need to evaluate all avenues of cost reduction from planning to implementing. Dont be afraid to bring on board someone who is experienced in these matters. When reducing operating costs you must consider the following:

Taxes

Outsourcing

Location planning

Employee benefits

Employee compensation

Capital structuring

Cost of capital

Downsizing

Effectiveness of IT

Financial function

Global supply chain

There are so many ways to reduce operating costs. Sometimes its the smallest change that can have the largest impact. So leave no turn unturned. Examine every aspect of your business. Dissect each under a microscope. For example, look at your office supplies. Can you cut the cost of your pens, your paper, etc? Go through your office thoroughly.

Then move into employees. Can you cut overtime, benefits, number of man-hours? Can you reduce the number of staff or the number of hours? Perhaps you have too much overlapping on shifts. From there you can move into your IT department, and then onto operations.

Reducing your operating costs can be a challenge, but its worth all your effort to see better profits.

by: Daniel Henry

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