Reducing costs associated with operations will not only increase the profitability but will also help in increasing liquidity of cash for any business. However, reducing operational costs without sacrificing quality is a challenge that is commonly faced by every business. Achieving this goal majorly revolves around effective and efficient use of technology, operations management, and regular employee engagement for training and feedback. From the early days of industrial revolution there have been many strategies like total quality management, continuous improvement etc. which were used by statisticians and quality professionals to optimize the operational costs while maintaining exceptional quality. We will discuss how we can leverage technology, operations management and strategic management to achieve this goal for any organization.
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Leverage Technology
- Automation
Effective allocation of resources is one of the major challenges for any organisation which deals with high volume of customers or queries regardless of the domain in which the organisation is working. Automation tools can substantially reduce human error, can streamline processes having repetitive tasks and free up employees for training and high value work. Businesses which generally face high volume of customer queries can benefit substantially from robotic process automation in handling administrative tasks. Chat bots can assist customers with their queries can reduce dependence on manpower substantially.
- Cloud Computing
Migrating data to cloud can not only reduces costs linked with maintaining physical servers but also provides scalability to the business in terms of the data management. Cloud services provide excellent customization features where businesses can pay only for the services which they are using. Hence migrating to cloud from physical servers not only provides excellent customization and scalability features but also provides a robust and cost-effective IT infrastructure.
- Data Analytics
Using data analytics not only helps describing the current situation of the business in financial and operational aspects it also helps in identifying areas of opportunity where cost reduction can be done. By effective application of predictive analytics costs can be optimized by accurately forecasting demand, optimizing inventory and improving supply chain.
2. Optimize Supply Chain Management
- Supplier Relationships
Periodic review of supplier expenses will not only help to find areas where cost reduction can be done it also gives the indication it might be the time to look for new suppliers. If current suppliers are not providing services as per the supplier quality requirements it becomes important to find out new suppliers who might give better terms for services without compromising the quality.
- Inventory Management
Costs related with holding the inventory and waste become substantially large if inventory management is poor. Implementing inventory systems like just-in-time (JIT) can effectively reduce the inventory holding costs and can also minimize waste. Effectively managing economic order quantity and tracking inventory real time with the help of latest technologies will ensure accurate stock as per predicted demand and will eliminate risk of overstocking and stock outs.
3. Enhance Workforce Efficiency
- Training and Development
Trained employees can not only save time by working more efficiently and productively they can also contribute to problem solving and hence can prove an incredible asset for cost saving. Training and development programmes improve cost effectiveness by enhancing skills and hence increasing productivity and efficiency of an any business.
- Flexible Working Arrangements
Managing facilities for carrying day to day operations costs on a daily basis and there are many costs associated with facility management which can be minimized. New working models like hybrid working environment and work from home reduces office space requirements and costs associated with managing day to day operations. Statistical studies have shown that such operating models have also increased employee satisfaction, which can be a motivating factor for employees to perform well.
- Performance Management
Operational efficiency of employees is what makes a company efficient at the ground level of their operations. Performance management system in simple words is a system which makes sure that employees are performing and are striving for success. Rewarding who are performing well and encouraging who are facing hard time with their performance will create a culture of improvement and appreciation in the organisation and motivated team is capable of creating wonders in any domain.
4. Energy Efficiency
- Sustainable Practices
Hybrid operating models and work from home models will definitely reduce day to day operating cost for a business whose operations can be carried out remotely. But for organisations which require manpower to work onsite investing in energy efficient equipment for the facility can save a lot of money in a long run. Implementing sustainable practices will also help in reducing the energy consumption to carry out daily operations for the company. Switching to LED lighting, replacing the old HVAC systems with new energy efficient systems, and implementing practices to use water saving fixtures can save a substantial amount of money by lowering utility bills each month.
- Renewable Energy
Considering renewable energy sources can be tough decision for the management as the initial costs for the setup is high. However, if the location of the facility provides enough sunlight throughout the year than this one move can reduce expenses and save a lot of money in a long run.
5. Outsource Non-Core Functions
Every business has many non-core functions like payroll. IT support, and customer services now maintaining the infrastructure for these functions and keeping employees onboard for these functions will cause significant expenses. However, outsourcing these non-core functions will not only lead to substantial cost reduction but also increase output as only core business activities will be handled by the employees and non-core activities would be handled by expert service providers.
6. Continuous Improvement
Every business is associated processes which have their designed outputs. By ensuring that each process is accomplished with nearly zero defects can reduce the costs associated with defects and errors. With the application of six sigma methodology variations can be controlled to 3.4 defects per million opportunities which can correspond to 99.996% accuracy in processes. Reducing waste is another aspect where organisations waste a lot of money waste can be eliminated by using lean principles. Techniques like Kaizen which ensures improvement at all levels can be adopted at every level of operation to improve the process and eliminate waste.
7. Financial Management
- Budgeting and Forecasting
Effective budgeting process not only tracks expenses for an organisation but also helps in identifying areas where the business actually went over the allowable expense limit. Forecasting is other tool that any business can use to predict accurately what changes they might face in future financially. Effective implementation and review of these two processes will assure cost reduction and adaptability to any change in the future.
- Cost Control Measures
Utilizing cost control measures like expense approval workflow which will require justification of significant expenses will help in tracking how much should be spent on any given process for the organisation. Implementing these workflows will ensure that all spending is necessary and is required to achieve business goals.
Conclusion
We can conclude easily that reducing operational costs require strategic, innovative and committed actions at multiple fronts such as technology, operations management, supply chain management, workforce management, finance management, and strategic business management. Most important factor that contributes towards the success of such optimization projects is actually the commitment of the senior management towards the change. Many organisations in the United Kingdom have run optimization projects internally and have millions of pounds in recent years. It is just the effective change management and encouragement for such internal which will help in making amazing financial savings which can be used for rapid expansion as well.
