With the recent COVID-19 pandemic, many businesses are suffering due to the dwindling economy and are looking for ways to cut costs anywhere. Cost reduction strategies have suddenly become the number one priority for every business. However, no matter the state of the economy, businesses and management should be watching the bottom line at all times. Money flowing out the door without a good return is a drag on the business. It shouldn’t take the threat of a pandemic, recession or an economic slowdown of any type for a business to implement cost reduction strategies. Time should be set aside each fiscal year, at a minimum, to delve into ways to reduce costs without jeopardizing operations. One of the main areas that businesses can turn to in order to reduce costs is shipping, and seeking out the help of shipping consulting is one of the easiest ways to reduce such costs. Here are some categories and ways a business can reduce costs, some very simple, and others requiring more effort. Read below for the top cost reduction methods you need to implement immediately.
1. Automate Accounts Payable
If your vendors are receiving checks, it’s time to look into automated accounts payable (AP). Do you know your total cost per invoice, the amount to process and pay one invoice? That total cost ranges from $7.50 to upwards of $30, depending on the business. The calculation includes AP labor, technology and overhead costs. Plus it can include labor time for those in other business units and management manually approving invoices, interruption time from vendors seeking information about payment status, and invoice preparation time for audits. With automated AP services, the total cost per invoice can drop to $1.25, and some AP staff can be redeployed to do different work, like implementing other cost-saving strategies.
A cost reduction strategy is decreasing the need to pay late fees. Renegotiating terms to receive discounts for paying earlier is another. Automated AP services increase the transparency for your entire supply chain, giving your business a better understanding of when bills are paid and under what payment terms. By negotiating small discounts for earlier payment, these small discounts add up. Ask for a 2% decrease to pay in 10 days, if you’re able. And change to vendors offering better terms.
2. Energy Reduction
Has your business undergone an energy audit? Whether you’re a small office or a larger enterprise occupying multiple buildings and warehouses, saving energy adds to the bottom line and lowers operating costs. Simple fixes include programmable thermostats set to reduce heating or cooling at night when no one is working in the building. Larger fixes for warehouses might mean adding insulation, light sensors, LED lighting, high volume low-speed fans, and painting the rooftop white to reduce heat. Adding renewable energy sources like solar panels can save money. Proper maintenance of HVAC equipment can also lower the operating costs. Energy reduction strategies can lower costs in the total supply chain and decrease both your operating costs and manufacturing costs, and increase profit margin.
3. Space and resource management
If your business has extra space in the building, consider renting it out or reconfiguring it for efficient use. With more employees working from home, dedicated desk and office space can be reconfigured for hoteling options. This provides temporary desk space when employees come in, and doesn’t leave desks or offices sitting empty for long periods of time, which increases overhead costs. If reconfiguring the physical infrastructure, the office can add small rooms for phone calls, additional meeting rooms, and storage or locker space for those who aren’t in the office full time.
Research your waste disposal options. Some waste can be diverted for recycling, saving money or even bring in money to pay for the program. Metal recycling is the best from a financial perspective, but cardboard also has value. Food waste can be diverted for animal feed, to reduce costs for disposal and decrease what’s sent to landfill. Programs like these have another benefit: increasing a business’s sustainability efforts and ratings. With investors and customers paying attention to sustainability scores, changes like these can increase visibility and funding. Businesses can hire services to coordinate the waste program, which helps lower operating costs.
4. Office Expenses
The fiscal year budget review is a good time to make changes in a cost reduction program. Each business unit and its management should review programs and overhead costs. That means revisiting recurring expenses like phone bills, memberships, subscriptions, energy providers, and service providers (copy machines, cleaning and legal). Are the terms of service appropriate for the business size and needs? Would your business be better off leasing or trying to increase purchasing of new equipment? Are the legal retainer hours and amounts appropriate? Work with an insurance broker to ensure that all policies are providing adequate coverage at the right price. That might mean consolidating policies with one business or changing carriers. Bank accounts may offer a better deal and more personalized service by switching all accounts over to them. Office supply purchasing might be more economical through procurement services through a group purchasing organization, for additional cost savings and efficiency in purchasing operations.
5. Shipping Solutions
Whether companies ship a lot of packages or a few, eCommerce shipping costs or general transportation costs matter a lot in your total supply chain. A business should audit their parcel and LTL shipping usage each fiscal year to understand current usage— doing so is a great approach to reducing unnecessary spending, and thus operating expenses. What size packages are shipped? Where do they go? What carriers are used? What packages have exceptions and additional costs? How often are they on time? Are you paying for rush delivery more than needed? What rates and terms are given? This type of audit is a painstaking process, and can easily be handled by an experienced outside firm that deals with it full time.
Some easy fixes for strategic cost savings might be adjusting the packaging type and size, to better fit the contents and reduce the shipping rates. Using carrier packaging is sometimes cost savings as well, especially for shipping heavier items in flat rate boxes. Outsourcing to certain third-party logistics can also minimize fulfillment costs. Renegotiating shipping contracts can save a bundle, whether the business does it themselves, or uses a service like Shipware offers. However, Shipware’s experts used to negotiate from the carrier side, so we know what terms can be tweaked and what pricing others are getting. This gives businesses an inside advantage. We can walk you through a negotiating strategy so you can conduct it yourself, or we can do it for you.
Lastly, your business should be auditing your shipping records daily, to ensure the carriers are meeting their obligations. For example, they should be refunding you if your packages show up outside of the guaranteed time. It’s time-consuming to check that yourself, but Shipware’s parcel audit technology can automatically scan all your UPS and FedEx invoices, identifying incorrect surcharges and unclaimed refunds. The Shipware fees come directly out of the cost savings. That means businesses not only save money on shipping, but they don’t have to pay extra to do so.
Cutting back on travel expenses is a big category to consider as a cost reduction method. More meetings are done by video calls these days, and giving everyone access can be much less expensive (and more efficient) than sending an employee across the country for a business meeting. Of course, some travel is essential. If your business units and management haven’t created policies for what is considered appropriate expenses, those should be developed. That can include traveling only in coach airline seats, or booking with a specific hotel group for preferred rates.
Retaining quality staff members is less expensive than finding new ones, even if you pay the current ones more than new hires. The search process, whether done in house or using a recruiter’s services, is labor-intensive and that costs money. With low rates of unemployment, it’s hard to find highly qualified employees for many positions. Provide employees with cross-training, so they have a good understanding of other roles. That way, if an employee leaves there is someone who knows enough about their job to fill in, and less institutional knowledge is lost. That additional training may also be an incentive for people to stay on board, so they don’t get bored and look for outside opportunities.
When using contractors for specific projects, total cost is always a consideration. But quality is as well. Hiring a business or independent contractor with low rates but less experience or less cultural understanding of your business can come back and bite you. Think twice before using this as a cost-cutting strategy. Work that must be redone because it doesn’t hit the mark means your employees now increase their time spent to correct it, and that defeats the purpose of using lower-cost vendors. It also lowers your employee efficiency.
Valuing staff means providing good benefits to increase morale and length of service. Revisit your benefits policies each fiscal year, and find out what options are new, how costs differ between insurance plans and benefits and give employees a say in what’s offered. Some benefits don’t have to cost an employer extra money, as the employee pays for them but may not have access on their own. Tax-advantaged savings accounts, for example, allow employees to take a stake in their healthcare choices, to reduce costs and risk for the employer. Services provided by a benefits company or insurance provider can give additional cost-saving benefit ideas.
9. Cloud Storage
A big expense for many companies is information technology. Hardware gets outdated quickly and more and more is needed to store a business’s data on-premises. Outsourcing to cloud storage can be a good cost-cutting method, eliminating not only storage hardware but the real estate for that hardware. Paying for cloud storage is generally by usage. Companies should have someone in charge of monitoring the usage and ensuring that what’s used is vital, and setting limits for what reports are run, what data is added, and who has access.
Cut Costs Now
Whether your company implements just one or all 9 of these types of cost reduction, you’ll be able to reduce costs without a lot of effort. To learn more about how your business can cut costs, check out our blog on tips for cost-effective supply chain management. Contact Shipware for a 30 day free trial, and reduce your shipping costs now.