How to reduce company costs without laying off staff and cutting wages

In this article, you will learn about several alternative methods for reducing enterprise costs and get acquainted with examples from Western practice (see How to reduce personnel costs in foreign companies and How to stop losing money without making much effort: advice from Russian colleagues). We bring to your attention 16 original ways to deal with unnecessary spending.

How to reduce personnel costs in foreign companies

Real estate agency Luxury Retreats practices a reshuffle. So, eight employees from the development department were trained and began to work in the sales department (in positions that bring profit to the company).

Rhino Foods, an ice cream ingredients company, sends employees to work at Autumn Harp, a color cosmetics company, when demand drops.

The leadership of the Accolo recruitment agency asked employees to take five days of unpaid leave, promising not to cut salaries.

Paint manufacturer Sherwin-Williams has introduced a variable vacation schedule for employees at its own expense - voluntary suspensions from work for six weeks.

Bob Fifer, head of the consulting firm Fifer Associates, has used these methods.

• He stopped including “mandatory” expenses in the budget - for the purchase of furniture, hiring new employees, etc. He announced that the allocation of money for these items requires his personal approval. Few applications were received, funds were not spent.
• Refused couriers. Six months later, everything was fine: they began to send something by mail, employees delivered something to contractors when it was on the road.
• Restricted the budget for the maintenance of the office. While advising a firm, he suggested, without discussion, a 40% budget cut ($3 million a year). As a result, the adjusted budget was not exceeded.

How to stop losing money without much effort: advice from Russian colleagues

Introduce e-procurement. The tender announced on the Web attracts a large number of suppliers who are ready to make concessions in order to win. If you conduct an auction with a short list of suppliers in real time, the price drops by an average of 10-15%.

Set a minimum order quantity. Due to underloading of vehicles for retail deliveries, profitability may be lower by 8-12% compared to deliveries to large customers. You can either enter a minimum order amount or charge for shipping an item with a total value less than the amount you set.

Prohibit the use of office phones for personal purposes. A printing company from Nizhny Novgorod receives a printout of calls from work phones from a mobile operator and analyzes those that cost more than several hundred rubles. The company has warned workers that spending on personal calls will be deducted from their paychecks. As a result, the monthly fee for telephone communication has decreased from 200 thousand to 40 thousand rubles.

Practice experience: Kirill Gulyaev - General Director of the First Printing Plant, Krasnogorsk (Moscow region)

Save heat, load warehouses, commercialize the canteen

Heating due to the heat generated by the equipment. This method is called heat recovery: we use the exhaust hot air to heat the production facilities. The purified air coming from the printing equipment is not emitted into the atmosphere, as is usually done, but enters a special heat exchanger. There, hot gases heat the water that goes into the heating system of the enterprise. This reduces the load on the boilers and reduces heating costs. Equipping machines with heat exchangers increased their cost by a fraction of a percent of the original price, and the use of this technology allowed us to save, according to the most conservative estimates, about 8 million rubles. in year.

Reducing logistics costs by renting warehouse space to its suppliers. We have our own warehouse complex with an area of ​​7500 sq. m. According to the production technology, we must store a two-week supply of paint in the warehouse. At the same time, most of the consumables are imported from abroad. In order to reduce shipping costs, we offered one of the major suppliers to lease our warehouse space (about 6% of the total warehouse area). The supplier agreed, and now for us the logistics are limited to the delivery of ink from our own warehouse to the print shop. Raw materials are not listed in our warehouse stocks and are supplied in exactly the required volume as needed. In addition, we received additional rental income, and our partner gained conveniently located warehouses and a loyal customer under one roof.

Services of own dining room for third-party companies. There is a canteen at our enterprise, employees can eat tasty and high-quality meals at minimal prices due to subsidies from the company. At a certain point, the cost of the canteen became burdensome for us, as food becomes more expensive, and raising the price of food is an unpopular measure. As a result, we commercialized the canteen and entered into contracts with organizations located nearby. Now we deliver lunches to neighboring offices on the machines of the plant, and some employees of these enterprises come to us themselves. Due to the fact that food purchases were increased, we were able to reduce costs. This made it possible to bring the corporate canteen to break even without increasing the load on the wallets of its own employees.

Practice experience: Sergey Shilov - Managing partner and owner of AT Consulting, Moscow

Transferred the IT department to self-sufficiency

One way to reduce costs is to make those departments that do not normally generate direct profits self-sufficient. For example, during the economic crisis, our IT department began to serve some of our clients (in particular, those who use the same email system as we do). Employees began to support this system for a separate remuneration, partially compensating for their content. As a result, the company's expenses for this department were reduced by 40% in four months.

Practice experience: Evgeny Firsov - Deputy General Director for Operations, APK Stoilenskaya Niva, Stary Oskol (Belgorod Region)

Purchasing raw materials at minimum market prices

A dozen and a half bakery enterprises of the group purchase raw materials for 190–200 million rubles a month, their total share in the cost of production is about 40%. The range of price fluctuations in different groups of raw materials is from 3 to 30%. It turns out that a change in the price of some of its types by only 1 ruble can cost us 5 million rubles. per month across the entire holding.

Procurement is carried out directly at the enterprises of the holding, which creates

fertile ground for corruption. In order not to tempt employees, we have introduced a special information system "Stoilenskaya Niva - Raw Materials" (informally, we call it "Izyum"). Now our 14 purchasing centers operate in conditions of internal competition and absolute transparency, when everyone sees everyone.

The principle of operation of the system is as follows: an employee of the supply department, who is going to purchase raw materials, is obliged to print a special sheet, which is automatically generated by the Izyum system. It describes in detail when this raw material was purchased both by the enterprise itself and by other companies that are part of the group. The document shows the best prices at which raw materials were purchased over the past 10, 30, 60 and 90 days. As a result, the supply department employees receive the necessary information, and the financial director, who does not even understand the nuances of the sugar market, will not miss a specific deal, because he will see: for example, sugar was bought cheaper at a neighboring enterprise three days ago. If the proposed transaction is made, it immediately enters the centralized information system, where a database is formed containing information about all transactions.

For example, a large enterprise that purchases fairly large volumes of raw materials turned out to be average in prices, while a small enterprise, where prices seem to be higher due to small volumes, achieved the lowest prices for raw materials among all enterprises of the group. Naturally, we parted ways with buyers at a large enterprise and transferred specialists from a small one there. The situation changed instantly, and today it is our leader in procurement efficiency. There were cases when line managers of supply departments at enterprises tried to test the system. Some of them declared as an ultimatum: “There are no such prices for cottage cheese, if you don’t believe it, come and try to buy it yourself.” But the system dryly stated the opposite, and for some reason everything worked out right away for the specialist who was taken in the place of the dismissed one.

System administrators - two people in the company's central office: the head of the price analysis service and his assistant. The tasks of this group are technical administration, transferring information about the best prices to managers of all enterprises, and proposals to managers to terminate labor relations with unscrupulous buyers. Also, these specialists control simultaneous purchases for several factories at once, so that, by interacting, we can get additional discounts.

Everything you need to work should be at hand - this will increase productivity

We have been implementing process management technology at our enterprise for the third year already. To begin with, we measured and analyzed the consumption of working time for each production operation (for example, preparing raw materials, preparing a dish). In particular, it turned out that quite a lot of time is spent looking for the right ingredient or tool. By optimizing the workspace, we were able to reduce waste and increase productivity by 16%. This was achieved thanks to the “bent arm” rule. The essence of this rule is that you can reach everything you need for work without fully extending your arms. For example, the chef's workplace is now organized so that he does not have to run for inventory from one end of the workshop to the other (moreover, we have fixed in the company's standards what should be located near the left hand of the cook, and what should be next to the right, on how far away should inventory and equipment be placed). As a result of the measures taken, we were able to reduce the number of personnel at each facility by transferring people to new production facilities.

production costs is the cost of acquiring the factors of production used. The most efficient production model from an economic point of view is the one with which it is possible to reduce production costs. They are determined by the expression of the value of the expenses incurred.

The economic essence of costs is based on the problem of limited resources and alternative use, i.e. the use of resources in this production excludes the possibility of using it for another purpose.

Selecting the most acceptable version of spending productivity factors and reducing its costs is one of the main tasks of businessmen.

Internal (implicit) costs are the costs that a company pays by using its own resources on its own.

The sums of money spent by the company for contractors (work, fuel, raw materials) are called external (explicit) costs.

Types of production costs

Economic costs are the economic costs forgone by the entrepreneur at the time of production. These include: resources, company purchases, company resources, market turnover not included.

Accounting costs are miscellaneous payments made in order to acquire the necessary factors for manufacturing. Accounting costs are the actual costs incurred to purchase sources from external producers. They are divided into direct and indirect costs. The costs that were spent only during the manufacturing process are direct costs. Indirect costs are called costs without which the company could not function - indirect costs.

Opportunity costs are the costs of creating products that the company for some reason does not intend to manufacture. Costs that could exist but are missed are opportunity costs. Costs contribute to an increase during the rise in the magnitude of production. They are an indicator of the optimal size of production in the current conditions, because it is clear to everyone that production will not expand indefinitely. The costs can be divided into:

Fixed costs (FC) are the costs that a firm will incur regardless of the volume of production. This type of cost includes: property taxes, money for equipment, wages, rent.

Variable costs (VC) are those costs of enterprises that change if production increases. These include: wages of hired workers, taxes and VAT, transport services, raw material costs, etc.

• 3 KPIs for production that work without losing quality

How to determine production costs

Total costs (TC or C). They can be determined by the following formulas: TC = FC + VC and TC = f(Q).

Average fixed costs (AFC)- AFC = FC/Q, where Q is the number of manufactured items.

Average Variable Cost (AVC)- the amount of variable costs that comes per unit of output that the company produces. Formula: AVC = VC/Q

Marginal Cost (MC)- the cost associated with the production of an additional unit of output. Can be calculated using the following formula: MC = ∆TC / ∆Q = ∆VC / ∆Q.g8g

How to reduce costs by optimizing production waste

There are not so few ways to make money on production waste if two conditions are met: strict accounting of waste and their prudent use. In the article of the electronic magazine "General Director" manufacturers of completely different goods - windows, down jackets, flour, confectionery, electrical systems - talk about the experience of waste disposal.

How to keep track of production costs

The costs brought together with the process of transformation of trading activity are distribution costs. They can be divided into those that are closely related to the progress of production in the functioning of circulation and those that are caused by buying and selling. Costs are deduced from the costs observed during the movement of goods to the buyer and the costs associated with the development of products, production and sales of goods in public catering establishments.

Articles of distribution and production costs:

1. Transport services.
2. Employee wages.
3. social need.
4. Rental and equipment costs
5. Depreciation of fixed assets.
6. Repair expenses.
7. Packing and sorting of goods.
8. Promotion costs.
9. Interest rate of loans.
10. Loss of waste equipment.
11. Fuel consumption, gas, electricity

Operating account associated with production costs:

Depreciation of fixed assets
Exploitation of goods
Cash spending by businesses
Credit expenses of enterprises
Tax debts
Deductions for social insurance and provision of company employees
Salary to employees
Costs included in the transportation costs of circulation
Shortage of goods
Surplus in cash
Shortage previously accepted at the expense of trading enterprises
Distribution costs, which are written off to the sales account at the end of the reporting period

Rules for Effective Cost Control

Costs will be less if they are taken into account. For example, a company can monitor phone calls to reduce telephone costs. Employees will stop calling on personal matters and then the costs will decrease.

The team at work should strive for a common goal - to reduce the company's expenses. By having a conversation with employees about the importance of reducing costs, you can get advice on how to save money.

It is necessary to systematize personal costs depending on the volume of production. Costs are divided into fixed and variable. It is possible to systematize variable costs depending on how easily they can be adjusted when the activity in production changes. Real spending on materials, for example, increases or decreases in response to changes in production volumes. And by reducing the staff, reducing salaries, it is possible to correct labor costs. But direct labor costs can be corrected only if the company's management can take appropriate measures (staff reduction, salary reduction, etc.). On the other hand, the management of the company will hardly be able to reduce the cost of renting the premises if there is a decline in productivity.

Try to track not only the structure of expenses, but also the reasons for their appearance in the enterprise. If you eliminate the cause of the unpleasant increase in costs, you can eliminate the costs themselves. For example, when hospitality costs are high, find out why the firm is spending a lot of money: to increase the client base, during which the number of successfully concluded contracts grows, or because there is no control over the expenditure of hospitality funds.

• Optimizing Cost Management: 7 Rules for Dealing with Costs

Ways to reduce production costs

Optimization of production costs

1. Warehouse logistics. Often the reserves with which you can reduce costs are located there. In particular, old raw material quality control equipment is often used. There were cases when raw materials were accepted with parameters that did not meet the requirements of the technology. Subsequently, the production process was disrupted, and the cost of energy and the use of raw materials increased. If you purchase new equipment, you can get both cost reduction in production and efficient work with suppliers.

At various enterprises, due to the fact that there were not enough warehouse workers and the time was limited to unload the wagons, the wagons with raw materials were not weighed. As a result of the checks, it was found that the underweight was about 10%, and the supplier was to blame. Bottom line: losses at the enterprise from the volume of purchases were greater than from the wages of employees.

It also happens that raw materials can be in the open air. Raw materials lose their chemical properties and technology is violated during production. This problem increases the amount of raw materials that are required at the time of manufacture and causes an increase in the use of other resources, such as electricity. You can also get defective products.

2. Transport logistics. Internal (moving around the territory of the enterprise) and external logistics of the enterprise (delivery of raw materials or finished products) is often poorly organized! Managers often face the problems of inefficient use of the vehicle.

For example, the company organized work with clients, determined the smallest volume of sales, but did not discuss the smallest volume of delivery. The volume of deliveries is very important, because the price upon delivery can significantly affect the income from the order.

The problems that are associated with suboptimal movement of raw materials and unfinished products are internal logistics. For example, raw materials were unloaded for incoming inspection, then they were transported to prepare them for production, and later they were transported again to get to the workshop. As a result of the following disorganized logistics, the company incurred costs and lost raw materials during immersion and transportation.

In different companies, the costs that were spent on transportation were reduced, but at the expense of not very obvious solutions. So, in one company, drivers could go to lunch in working cars. And no one cared. The fleet mainly consisted of trucks and tractors, so the cost of such lunch trips significantly increased the costs in the firm. In this regard, the company's executives purchased a minibus, with which they could take employees to lunch. Here's an easy way to cut costs.

3. Purchasing. Despite good bidding procedures, this will not lead to automation of procurement costs. Not only corruption is to blame for this, which, say, has not been completely eradicated anywhere. The essence of the problem often comes from the organization of the process, and if it is revised, it is possible to obtain a reduction in costs. Let's see the possible changes:

Elimination of excessive formalization. It happens that with the maximum regulation of procurement control, the result is not high. The whole essence of the purchasing department leads to the usual collection and recording of papers. But after all, the most important essence of the work of employees is to find a good supplier and conclude an agreement with him. In large firms, each meeting of tender committees amounts to 15 or more purchases. From this it is clear that procurement service employees take a lot of time to prepare a tender and analyze suppliers. But a detailed development of each purchase is impossible due to lack of time.

Not many purchases can be analyzed in detail. The main point is to determine the suppliers that are a priority for the company, because they can provide the bulk of the supply with good conditions. Finding alternative suppliers eliminates the risk. At the tender, you can raise the question of the most good or not very good suppliers and approve the conditions for working with him. Whose conditions will be more favorable, those suppliers will be chosen.

Improved coordination between production and technical services and the purchasing service. When technical departments and purchasing services work together, cost reduction can be achieved. Determine the required change in production indicators and submit other variations according to the requirements for materials, components. This action will help in planning, choosing suppliers, helping to find out the best price and quality while optimizing costs.

Independent assessment of current conditions of work with suppliers and search for potential suppliers. An independent company can conduct an analysis of the market situation and find suppliers. At the initial stages, an open source is analyzed in order to compile a complete list of potential suppliers and determine the general price level. Next, it is necessary to negotiate with some potential suppliers about possible prices and conditions of purchases. This will show senior positions in the firm a new tender campaign and invite a wider audience. In this situation, you can find that the company can buy material much lower than before.

Practitioner tells

Vadim Afanasiev, Leading Analyst of ZAO Samara Oxygen Plant

In recent months, we have become much more attentive to work with suppliers, we carefully analyze the prices of purchased materials, especially since the cost of many resources has decreased.

We have very complex logistics: both small and large-tonnage transport is used. For transportation and storage of liquid products, we use rail transport, as well as many mobile and stationary tankers. In addition, due to physical laws, liquid gases cannot be stored for a long time, and their losses are irreversible. Therefore, we are now paying great attention to optimizing logistics and storage. We calculate everything to the smallest detail. A clear sales forecast, the production of the most accurate volume of products, optimal delivery - we save a little everywhere, but on the scale of the enterprise it is millions.

The state gave business a "gift" in the form of an increase in electricity tariffs. Therefore, it is necessary to deal with energy efficiency issues. We carefully analyze the operation of all equipment. For example, our production uses air separation units, the optimization of which has already resulted in a significant reduction in electricity costs.

We also try to save on business trips. We go only if it is really necessary and the solution of the issue requires the presence of our employee on the spot. Instead of air travel, we use railroads.

4. Production. Considering that a large number of companies are reducing or stopping investment projects, we advise you to focus on the direction that can reduce costs at the time of production, excluding accounting for your own investment.

Implementation of lean manufacturing tools. It makes no sense to dwell on the method of lean manufacturing. I would like to note that during practical actions it gives a significant economic effect, but its implementation may take a long time. This situation is connected with the fact that the result of the reduction in this situation does not occur instantly, but is achieved during production changes in the culture of the staff.

Effective accounting and control of the use of inventory and waste. Implementation of an efficient system of accounting and control of inventories and waste is aimed at reducing costs through their more efficient use. In most Russian enterprises, the volume of waste and control over their use are poorly taken into account. At the same time, the value of such waste can be significant, even compared to the cost of finished products, and many industrial wastes are converted into products that are in demand with little processing.

Management expenses

Management costs are mostly fixed, most of which are direct costs - employee benefits, bonuses. These costs are the main factor in the growth or reduction of some other costs in management: due to the growth in the number of workers, rents and transport services may increase. To keep management costs as low as possible, you need to manage employee costs.

1. Reducing costs without reducing the number of employees. Cutting costs without laying off employees seems to be the most preferable option for many companies: it allows you to keep employees in the company and not worsen the corporate culture. The only caveat is the short duration of the effect achieved.

The potential for layoffs lies in several areas:

• reduce administrative and transport, travel and rental costs;
• cut wages, the cost of medical insurance, the cost of corporate parties, a review of the daily routine.

All of the above actions can solve the issue of reducing costs without laying off employees.

2. Change in organizational structure

One of the tools to reduce the number of workers is to change the organizational structure. This structure is far from perfect in Russian companies. It differs in "flat" at the top and "narrow" at the bottom.

The consequence of the large number of workers who report to the CEO is a "Flat" structure. Usually, the number of such people reaches 7-10 people, and sometimes 15.

When no more than three bosses report to the leaders, then the structure is called "narrow" at the bottom. This action leads to problems that arise between functional units, between project managers and managers.

For a company to perform better during a crisis, it needs a “flatter” bottom structure. This is achieved in three ways:

• enlarge structural subdivisions (combining two departments);
• reduction of intermediate levels of management (for example, the abolition of departments and the subordination of department heads directly to the head of the directorate);
• establishing the optimal number of positions and the number of divisions (for example, up to seven to nine people in a department, at least four departments in a department, at least three departments in a department).

Consolidation of structural units and reduction of management levels will reduce the cost of middle managers - heads of departments and departments - with the smallest change in the scope of functions performed and without dismissal of ordinary employees. For example, a company that manages one large holding company managed to reduce personnel costs by $1.5 million per year by eliminating intermediate levels of management and consolidating divisions.

• 3 Ways to Reduce Manufacturing Costs by 20% in One Year

Practitioner tells

Andrey Evseev, General Director of CJSC Tula Transformer Plant

All of our production personnel work on a piecework basis, so a decrease in the volume of orders automatically led to a decrease in piecework wages (the piecework rates themselves remained the same).

To reduce the cost of wages for management personnel, a shortened (four-day) working week has been introduced (the same applies to piecework workers). All employees can use the additional day off at their own discretion, including for part-time work on the side. In my opinion, a shortened week is better than a part-time job, as people have a full day freed up.

We have no superfluous employees among the management and engineering staff, so there is no one to cut here. As for production pieceworkers, they could be reduced, and then, while maintaining the general wage fund, the average wage would increase. However, the workers themselves do not want this, for fear of becoming unemployed.

3. Reduction and redistribution of functions.

Functional optimization can be carried out in some directions.

Reducing the number of reports, sources of processed information and the level of detail. Managers are often overwhelmed with reports that are too bulky and poorly structured. If you reduce the level of detail of reports, this will lead to a reduction of 20-30% and can improve the speed of decision-making in management.

Transfer of functions of permanent structural units to project units (working groups) and collegial management bodies. In one company, it was decided to liquidate the staff unit dealing with the integration and restructuring of new assets, and transfer its responsibilities to a working group consisting of representatives of different functional blocks. This has given good results in terms of cost reduction.

Allocation of functions to common service centers and their transfer to outsourcing. An example is the transfer of IT support and administration functions to a third-party firm. This works because, in search of new clients, some of these firms have lowered their prices.

• Lean: small steps for big goals

Practitioner tells

Mikhail Semenov, General Director of Qbik, Moscow

Our company manufactures and installs mobile structures at fairs and festivals. We call a unit of such a design (a place for one seller) a cube. When we first opened production, the installation of one cube was expensive, since the consumption of materials was not taken into account in any way. Gradually, we began to work on reducing costs. A special scientific center was organized, which included an architect, designer, head of the production unit and the General Director. Every two weeks, department heads poll employees for any suggestions or ideas for optimization, and then bring them up for discussion at a general meeting of directors in the center, which takes place once a month. Let me tell you about some of the implemented ideas.

Standardization of cube elements. The dimensions and shape of all elements of the cube were standardized and described in a special regulation. For example, the front and rear pillars of the cube were unified, which made the work of installers easier: today they do not need to think about which pillar and which side to fit. As a result, the time for assembling the cube has been reduced. In addition, its size has become more compact (now it is smaller by 15-20 cc) without losing functionality.

Minimize waste when sawing beams and slabs. The architect, together with the director of the production part, compared the standard market sizes of the raw materials with the details of the cube. As a result, each beam, each board and slab was lined up so that no more than 5% of the materials went to waste. For example, in the past, one OSB (oriented standard board) was only enough to create a floor. Now you can make both the floor and the table out of it. For the manufacture of pillars, a whole beam used to be completely gone, but now there is material for the leg of the table, which reduced costs by 4% on a production scale. The method of sawing all types of beams and plates is fixed in the regulations, which each employee of the production must adhere to. We do not throw away 5% of waste - they are used to decorate structures and repair cubes.

Design. Previously, we made identical cubes that lined up in a row. And now we collect only the first cube, and we attach the rest to it. Due to the fact that the cubes had common elements (for example, one common wall), wood consumption was reduced by 8%. In addition, a single design is stronger in itself.

Increased structural strength. The head of the production unit at the next meeting suggested equipping all the poles with wooden inserts. At one of the festivals, we were convinced of the effectiveness of this idea: during a hailstorm, a tree fell on the cubes, but this did not affect the design in any way.

Reusable cubes. Previously, when assembling cubes, self-tapping screws were used. When the cube was assembled for the second time, new holes had to be made for the screws, as water got into the old ones and corroded the structure from the inside. Now we fasten everything with bolts. Holes for them are made during the production process and then used repeatedly. The installation time of the cube has been reduced by 20 minutes, and there are no more extra holes. In the future, we plan to improve the mount.

Production of related products. When we built up the festival site in Monaco, the organizers asked us to install not only blocks, but also swings for children and other elements. Then we had the idea to expand production. Now we also make swings, tables and much more. Expansion of capacities and readjustment of equipment was not required. Only the volumes of purchases of wood have increased.

From February to June 2015, the work of our center for optimization of production costs helped to reduce costs by almost 14%. Now, for each new product that is launched into production, we immediately draw up a standard (how to cut the source material, how to assemble, etc.) so as not to repeat the mistakes made at the dawn of our first cubes.

Common mistakes made in reducing production costs

1. Identifying the most important cost items that need to be reduced is one of the mistakes that are typical for enterprises. Management is always aware of the biggest costs of the firm. But as the firm grows, the business becomes more complex, and executives can't always change cost growth at some point. The firm, for example, pays attention to the most obvious, but fails to notice unjustified costs from the category of others.
2. Incorrectly determining what bears the most significant costs is a big mistake. When a firm aims for a minimum cost of production, it may increase its output but fail to sell it. As a result, the desire to reduce production costs per unit of output will lead to their increase due to the large volume of production. If you replace this action by reducing the cost of production, efficiency will increase.
3. Losing the individuality and competitiveness of the company's products, if they are of high quality, is a detrimental consequence of cost reduction. Despite the fact that by reducing expenses, you can get an increase in income. But in the long run, this action will cause unjustified harm to the company. In particular, a fashion accessory store may be able to generate some revenue from savings in stocking and staff training. But still, such an economical action will undermine the credibility of the store and lead to a decrease in customers.
4. Spoiled relations with suppliers, workers of the company, due to uncomfortable conditions for their work.
5. Loss of important employees while reducing costs in critical areas.
6. Misunderstanding of the company's cost interdependence mechanism. After all, sometimes a general cost reduction can be achieved by increasing them for some particular type of activity. Example: An increase in travel expenses can lead to contracts with new suppliers who sell raw materials cheaper than old suppliers.

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It is quite logical that in the conditions of economic instability, companies want to "be afloat", for which they use various methods to reduce costs. This issue does not tolerate hasty decisions and amateurish approach. Therefore, a lot depends on which methods are used in the enterprise, and what you want to save on.

How to start reducing costs in any business

Start by classifying the costs of the enterprise into the following categories:

1. Efficiency.

The costs associated with the manufacture of products that will subsequently be sold are considered effective. Inefficient costs include all types of losses: damage, marriage, theft, downtime, and others. Inefficient costs should be kept to a minimum.

1. Relevance.

The manager must control the dependence of planning on the decisions he makes. Costs that depend on managerial decisions are considered relevant.

If the CEO is no longer able to influence the costs by his decision, then they are classified as irrelevant costs (for example, costs that occurred in the past period, which he can no longer influence in any way).

Particular management attention should be given to opportunity costs that are categorized as relevant.

1. permanence.

Depending on the level of production, there are fixed, non-fixed and mixed costs. One of the main conditions under which it is possible to control fixed costs is their optimization, which, in turn, requires the division of production costs.

To do this, it is important to know that variable costs do not affect fixed volumes of production and are directly proportional to the production level, while mixed costs include both variable and fixed costs.

1. Impact on cost.

There are direct and indirect costs in this category. If the costs relate to a specific type of service or product, then they are considered direct (for example, the cost of purchasing materials, paying wages to employees of production units).

The rest of the costs that are not directly related to a specific product are called indirect (for example, the costs associated with the implementation of management and maintenance of the administrative apparatus). If the enterprise produces only one product, then all its costs incurred in connection with the manufacture and sale are considered direct.

Now you must identify the costs to be adjusted and make a plan to reduce them by applying certain cost reduction methods.

After conducting an analysis of the work of many enterprises, we came to the conclusion that, as a rule, the costs of production, personnel, quality and advertising are reduced.

Methods to reduce production costs

Method number 1. Reduced production costs

Warehouse logistics

Quite often, it is in the warehouse that there are reserves that can be used to reduce production costs. For example, often quality control of raw materials is carried out using outdated (in every sense) equipment. This leads to the fact that the received raw materials do not meet the technological requirements.

In this case, the disruption of the production process is inevitable, as both the volume of raw materials used and energy costs increase. By upgrading the equipment, you will not only reduce production costs, but also get the opportunity to work more efficiently with suppliers.

It happens that production costs increase due to insufficient number of warehouse workers. Suppose that wagons with raw materials arrived, which must be unloaded at a strictly allotted time in order to meet them, they simply were not weighed.

And, as a result, another check shows that the underweight of raw materials is almost 10%, of course, that the supplier is to blame. Conclusion: the enterprise will spend less on the wages of warehouse workers than it will lose on the underweight of raw materials.

It happens that raw materials are stored in improper conditions (outdoors, etc.). This is fraught with the fact that it loses its properties, and violations of technology can no longer be avoided. Not only the volume of consumed raw materials is increasing, but also other resources, in particular, electricity. In addition, it is possible that such a violation will adversely affect the quality of the product.

Transport logistics

Methods for reducing costs in the enterprise include working to improve the efficiency of the use of vehicles. Often, movement, both within the enterprise and outside it (deliveries of raw materials or finished goods), is organized very unsatisfactorily.

For example, an enterprise has established work with customers by setting a minimum sales volume, but has not considered the issue of the volume of deliveries, although this greatly affects the income from the entire order.

Difficulties associated with the inefficient movement of raw materials relate to internal logistics. For example, repeated unloading and transportation of raw materials: unloaded - conducted incoming control - loaded - transported - unloaded - prepared for production - loaded - transported to the workshop.

Pretty long chain, right? The result of such manipulations is the company's costs incurred as a result of repeated loading and transportation.

Many companies have used seemingly dubious methods to reduce transportation costs. For example, at one enterprise, drivers calmly went to lunch in working cars. No one even thought that this was an expensive pleasure (transport, as a rule, is freight), of course, transportation costs were huge.

The management solved this problem by buying a minibus, which they began to take employees to lunch. Bottom line: transport costs have dropped significantly.

Purchasing actions

It has not been possible to automate procurement-related activities, despite the fact that the tendering procedure is carried out at a fairly high level. Corruption alone cannot be blamed for this, often the problem lies in the improper organization of the process.

You may be able to apply some cost-cutting techniques if you rethink your purchasing approach. What can be corrected? For example, the following:

• Elimination of redundant formalization.

Sometimes well-established procurement control does not give the desired result. This is because the job of the entire purchasing department is to collect data and complete documentation. Although, the employees of the department should be engaged in the search for "profitable" suppliers and the conclusion of contracts.

Serious companies arrange tender meetings when they have more than 15 proposals. Naturally, procurement staff spend a lot of time analyzing proposals and preparing the necessary documents. But the detailed development of all purchases takes a lot of time, and it is often not enough.

• Not all purchases can be subjected to detailed analysis.

The main thing is to establish priority suppliers, since it is they who are able to provide the bulk of raw materials or materials on mutually beneficial terms. Finding a supplier that will become a “fallback” will relieve the company of risks.

By arranging a tender, you can identify profitable suppliers and discuss the terms of cooperation with them, as well as decide who it is better for the company not to contact with whom.

• Increasing the level of interaction between the purchasing department and the production and technical division.

An established tandem "purchase - production" can significantly reduce costs: apply certain methods to reduce costs, make specific proposals for changes in production indicators and requirements for raw materials.

These proposals can be applied when drawing up a work plan for the enterprise, when choosing suppliers. Also, the mutual coordination of the actions of these services will help to choose a supplier whose products most successfully combine the requirements set by the company for price and quality.

• Independent evaluation of the existing terms of cooperation with suppliers and search for new supply channels.

An independent company can help analyze the current market situation and find potential suppliers. At the first stages, in order to prepare the most complete list of new possible suppliers and to identify the proposed prices and terms of delivery, an open source analysis is carried out.

Based on the results of the analysis, the management of the enterprise will be able to expand the scope of the tender campaign. An independent evaluation, for example, may show that there are firms from which similar material can be obtained much cheaper than it was done before.

Production

Considering that many companies are reducing the number of investment projects (or abandoning them altogether), cost reduction techniques can be recommended to help focus on areas that can reduce production costs. For example,

• Lean manufacturing method.

It is simply meaningless to give detailed explanations regarding this method. The only thing I would like to pay attention to is its effectiveness (although it takes a lot of time to get a noticeable result).

The fact that this process stretches for a long time is easy to explain: it consists in changing the culture of employees during the implementation of production work.

• Efficient accounting and control of the expenditure of material assets, stocks and industrial waste.

This method provides for cost reduction through the efficient use of all production resources. As a rule, Russian enterprises almost do not keep records of waste, and, of course, their use is not controlled.

Although sometimes the cost of waste can be much higher than the cost of the product itself, and if it is recycled a little, then the waste will turn into a sought-after product.

Submit your application

Method #2. Reducing management costs

Management costs are usually classified as fixed. Moreover, most of them are direct expenses (bonuses and other payments to employees). Many cost reduction methods involve revising these particular cost items, as they are a key factor affecting management costs.

Reducing costs without cutting staff

For most companies, reducing costs without reducing the number of employees is an ideal cost optimization option, as it promotes team building, prevents staff turnover and enhances corporate culture. But, unfortunately, the effectiveness of this approach is short-term.

Typically, downsizing has the following goals:

• reduce administrative, transport and travel expenses, as well as the cost of renting premises;
• cut wages and health insurance costs;
• rethink the structure of the working day.

Adjustment of the organizational structure

The organizational structure of many companies in Russia is far from perfect, so the use of this tool to reduce staff is sometimes simply necessary. Conventionally, the modern organizational structure can be divided into two levels, located above ("flat structure") and below ("narrow structure").

The essence of the “flat structure” is the subordination of a large number of employees to the CEO (as a rule, it is 7-10 people, and sometimes their number reaches 15).

If the management has up to three superiors, then this is a “narrow structure”. Such an organization can lead to problems between functional units (for example, between project managers and supervisors).

In order for a company to function fully in a crisis period, it needs a “flat structure” from below. Cost reduction methods provide three ways to solve this problem:

1. Expand structural divisions by combining several departments (you can limit yourself, for example, to two).
2. Make intermediate levels of management shorter (for example, introduce a new order of subordination of department heads: remove departments, leaving one representative of the directorate).
3. Determine the required number of positions and divisions (as an option, you can leave no more than nine people in the department, and each department can be represented by three departments, consisting of four departments).

By reducing the levels of management and expanding the structural units, you can save a lot of money that was intended for the maintenance of middle managers. Such an adjustment will have little effect on the functional responsibilities of the remaining bosses, in addition, you will not need to reduce the staff.

For example, a company that manages one large holding company has been able to reduce employee costs by $1.5 million a year by expanding organizational units and reducing levels of intermediate management.

Functional optimization

Cost reduction methods provide for several areas of function reductions and their redistribution:

• Reducing the volume of reporting documentation, sources of processed data and the level of detail.

Often managers have to process a large number of voluminous and poorly structured reports. If the level of detail is made lower, then the amount of work will also decrease (by 20-30%). This will improve the efficiency of managerial decision-making.

• Redistribution of functions between permanent structural units, working groups and collegiate management bodies.

We know of a company that chose this area of ​​functional optimization: its management decided to liquidate the division that was engaged in the integration and restructuring of assets.

These responsibilities were assigned to a working group, which included representatives of various departments, which allowed the company to significantly reduce its costs.

• Distribution of functions between service centers and their outsourcing.

A third party company may, for example, provide administration and IT support services. Today, this is quite profitable, as such companies offer their services at a very reasonable price, trying to expand their customer base.

Methods to reduce the cost of product quality - myth or reality?!

In fact, the cost of quality cannot be avoided, but some cost reduction techniques can bring it down to an acceptable minimum. There are such costs for quality, without which no enterprise can do, and some can be completely eliminated.

The latter include the costs that occur due to the appearance of marriage or some defects. If this is not possible, then try to reduce defects to a minimum, guided by the principle: less defects - less costs.

Avoidable costs are:

• leftover materials;
• correction or improvement of defects;
• the expenditure of additional working time necessary to eliminate the defect, delay;
• auxiliary checks and additional control in order to detect defects, the percentage of which is already predetermined;
• additional risks related to the fulfillment of the company's obligations (including guarantees);
• low sales due to non-compliance with consumer requirements.

Mandatory costs are funds aimed at maintaining high product quality and a minimum level of defect. These costs are necessary as insurance, even with a low percentage of marriage.

Typically, mandatory costs are associated with the following activities:

• audit and operation of the quality system;
• checking and maintenance of equipment;
• evaluation of suppliers;
• increasing the level of knowledge of employees on quality issues;
• inspection and quality control (to a minimum).

Of course, cost reduction methods involve reducing the cost of quality, but getting rid of them is simply not realistic.

Small Business Cost Reduction Techniques

Not all Russian companies are representatives of big business, but the issue of cost reduction is periodically raised in every company. Therefore, we want to offer methods to reduce the costs of business activities for companies belonging to the category of "small" and "medium".

Get out of the office

Today, remote work (at home) is becoming more and more relevant. If you do not use office space for storage of goods, meetings with clients or showcases, then think: “Why do you need it?”. It's possible that you'd be better off giving up the lease.

This approach comes with a number of positives:

• cost reduction. Small businesses spend a lot of money on utility bills, so by refusing to rent an office, you will significantly reduce costs;
• prudent use of time. Instead of wasting time on the road to the office, use it for work;
• free schedule. You plan your working time on your own and, with a reasonable approach, you will be busy not only with the performance of your functional duties, but will also be able to devote time to your loved ones and your own development.

Not all employers are sure that without their control the subordinate will perform his duties with high quality and solve the tasks assigned to him. Of course, everything here depends on the employee: an effective employee does not need total control.

For a “painless” transition to remote work, it is necessary to carry out a number of activities: prepare step-by-step instructions for subordinates, formulate their goals and objectives. Wages for such employees are charged not for the time spent on work, but for its actual performance.

Enter into negotiations with the landlord

If you still need an office or other space, try to negotiate with the landlord to reduce the rent.

Of course, such a dialogue does not always end as the tenant would like, but positive aspects are still observed. For example, you can hear each other and enter into normal partnerships.

When renting a room, do not leave unused square meters and, perhaps, you will come to the conclusion that you can get by with a smaller area (and this, again, will warn against unnecessary costs).

Don't "hold on" to unprofitable customers

Not all clients can become profitable. Sometimes a client takes so much time, effort and money that the amount received as a result is not able to cover all expenses.

Think: why do you need such a client? Is your cooperation mutually beneficial?

It is more logical to use these funds to attract new customers by offering them interesting loyalty programs, bonuses or additional services.

Sometimes the financial situation of a company may be such that it will be necessary to apply certain methods to reduce costs. New negotiations with suppliers is a good way to solve the problem. Of course, first of all, you need to pay attention to those for whom you are a profitable client and with whom you have been successfully cooperating for a long time.

Contact your supplier for a deferred payment or discount. It is possible that the supplier will not refuse you.

Mutually beneficial cooperation

There are companies that, in order to reduce costs, are exploring new options for business cooperation.

As one option, you can use the joint implementation of various campaigns. For example, if your firms rent neighboring premises or retail space in the same hypermarket, then you can run a joint promotion or share the costs of promoters distributing leaflets on the street.

The ideal option is a combination of businesses that have a thematic connection. For example, a wedding dress salon and a flower shop, a travel agency and a travel accessories store.

Do not neglect ready-made solutions

It is cheaper for companies that belong to the category of small and medium businesses to use ready-made solutions than to develop something new (of course, if you are not engaged in design or web development).

Enterprises can use the following ready-made business solutions:

• accounting software;
• software products (analytical or financial orientation);
• website development;
• a range of services for the organization and implementation of communication programs, etc.

In addition, the modern service market even offers the introduction of sales systems that are highly efficient.

17 methods to reduce personnel costs within the framework of the Labor Code

1. Do not accept "extra" employees.

Some cost reduction methods are based on elementary mathematical knowledge. Therefore, it is not difficult to calculate that the payroll of eight people occupying the same positions is less than, for example, ten.

If the existing eight employees successfully cope with their duties, then why pay more and fill all the vacancies in the staffing table?

1. Raise the variable part of wages.

If the enterprise uses a time-based wage system, then it is practically impossible to apply any methods to reduce wage costs, as well as to manage the fund itself. According to Article 74 of the Labor Code, it is possible to change the system and the amount of payment only in case of fundamental changes in technological or organizational working conditions.

If you have justification for making such changes, then inform employees about it and implement this program after two months.

If an employee refuses to sign an additional agreement that specifies new payment terms and is ready to leave the company, then you pay him a severance pay equal to his earnings for two weeks.

On the basis of the same article, the employer may, for a period not exceeding six months, transfer the company to part-time and/or weekly work.

1. Enter the summarized accounting of working hours.

Overtime payments do not have to be paid monthly. Article 104 of the Labor Code states that such payments can be made at the end of the reporting period. Cost reduction techniques do not preclude such an approach if production is not at full capacity or is subject to seasonal changes.

1. Use the system of short-term surcharges and allowances.

If during a certain period of time one of the employees has to perform a larger amount of work, replace an absent employee without releasing him from his main duties, then this, according to Article 151 of the Labor Code, is the basis for increasing the amount of payment.

Accordingly, wages may be reduced if there are no grounds for additional payment.

1. Pay bonuses only after the company achieves certain goals.

For example, employees receive bonuses if the company has fulfilled the production plan and, conversely, if there is no plan, there are no bonuses. Article 135 of the Labor Code regulates the procedure for paying bonuses, and changes to the payment system are made on the basis of Article 74 of the Labor Code.

1. Reduce the number of employees or reduce staff.

The reduction of staff is regulated by paragraph 2 of Article 81 of the Labor Code. It would seem that such methods of cost reduction should give an instant effect, but this is far from being the case.

First of all, because the reduction procedure itself must be planned in advance, you need to inform the employees about this no later than two months before the dismissal and pay them a severance pay (2-3 monthly salaries).

Thus, you will “feel” the effectiveness of the method only 4-5 months after you decide to reduce the number of employees (downsizing).

1. Review labor standards and optimize production processes.

Cost reduction in the enterprise is when fewer employees are involved in the implementation of the production plan, or they cope with the tasks set faster.

When applying this method, you must be guided by articles 160 and 74 of the Labor Code, which state the need to notify employees about your plans to revise labor standards and conclude additional labor agreements with them two months in advance.

1. Sign fixed-term employment contracts.

The grounds for the application of this method are set out in Article 59 of the Labor Code, which also establishes restrictions on its use.

1. Use outstaffing (rental labor).

The rules for applying this method are set out in chapter 53.1 of the Labor Code. Before using it, you need to weigh the pros and cons and evaluate your benefits.

On the one hand, outstaffing is a good way to reduce management costs: you do not need to select employees and take care of the timely accrual and payment of salaries to them, etc.

But, on the other hand, paying for the services of the company that provided employees, you still spend money on staff.

1. Take advantage of outsourcing.

Methods to reduce costs involve the purchase of services through the conclusion of an agreement with cleaning companies. For example, by purchasing the "Clean Office" service, you do not need to hire a cleaner.

It is impossible to say right away whether it will be beneficial for your company or not - everything must be calculated. Although, in the budget, personnel costs will definitely decrease.

1. Sign civil contracts.

It is very good if the performance of work does not go beyond the framework of a civil law contract. In this case, you are not considered an employer, and your relationship with the employee is not covered by the Labor Code.

However, before starting to use such methods of reducing costs, it is necessary to carefully study Article 15 of the Labor Code, which sets out the grounds for entering into civil law relations.

If such an agreement turns out to be illegal, then all your savings will come to naught.

1. Announce simple.

If the downtime occurred through the fault of the employer, then, according to Article 157 of the Labor Code, the employee receives a salary, the amount of which is not lower than 2/3 of his average monthly salary.

If neither the employer nor the employee is to blame for the downtime, then wages are calculated in proportion to the downtime in the amount of at least 2/3 of the salary (tariff rate).

If an employee is to blame for idle time, then wages are not accrued to him.

1. Conduct employee appraisals.

In case of inconsistency of the employee with the position held or the duties performed, in accordance with Article 81 of the Labor Code, he may be dismissed. The results of certification are confirmation of his qualifications.

Such a technique cannot be classified as one of the most effective methods of reducing costs, since it is very laborious and selective.

1. Cancel social payments and compensation.

We mean the complete or partial cancellation of payments provided for by the Labor Code of the Russian Federation.

You, as an employer, have the right to revise payments based on certain regulations, such as travel, meals, accommodation or medical expenses, and financial assistance.

If your collective or employment agreement contains obligations to provide additional payments, then these documents need to be adjusted.

You do not have the right to change the collective agreement on your own. But, according to Article 74 of the Labor Code, it is possible to unilaterally amend the employment contract, for example, cancel the travel payment for an employee whose nature of work has been changed (he stopped traveling to resolve production issues).

1. Manage staff turnover.

There are many factors that contribute to a high level of staff turnover: inappropriate working conditions, hard work or not very convenient schedule, wage system or salary, etc.

The employer is able to take legal measures to regulate the degree of influence of these factors on employee turnover, thus introducing cost reduction methods (and it is difficult to give any recommendations in this matter, everything is very individual here).

1. Reduce employee training costs.

The hardest part is managing the costs associated with employee training.

When planning a budget for personnel costs, you can go in several ways, for example:

• limit the cost of training one employee;
• identify priority learning objectives;
• conduct training independently;
• invite specialists to conduct trainings, etc.

Staff training is a good opportunity to show creativity and creativity. This topic is so voluminous that it requires a separate publication.

1. Provide unpaid leave, set a part-time/week schedule.

According to article 128 of the Labor Code, in order to be granted leave without pay, an employee must write an application.

In order to introduce part-time work, it will be necessary, in accordance with Article 93 of the Labor Code, to conclude an additional labor agreement.

Naturally, the desires of the employer and the employee do not always coincide. Therefore, it is necessary to enter into negotiations with employees, during which they are made aware of what can happen if more stringent methods of reducing personnel costs are applied. Usually, decisions made in this way suit both parties.

Summing up, it is worth noting that the choice of method depends only on you, but before making a decision, it is advisable to consult with experienced financiers and lawyers.

Methods to reduce advertising and marketing costs

If you gave at least one affirmative answer, then we can help you optimize your marketing budget by offering the following cost reduction methods.

Do not communicate with the faceless crowd, called the "target audience"

The current level of technology development makes it possible to find out much more about a potential buyer than the banal: “a woman; age: 35-45 years; average income is 100 thousand rubles.

Suppose you have several thousand customers - this is not a reason to appeal to the entire target audience. A potential buyer is very different from the rest: he is interested in purchasing your product or its equivalent. He needs it!

You must find out why he needs it, when this need arose, where he is trying to find him, from whom he asks for advice, why he has not bought it yet, and with what funds the purchase will be made.

First, when you answer questions about the buyer, you can identify their information sources. They may not match the Mass Media you use to inform your target audience.

Place information on the communication channels demanded by your potential customers. Tell them the information included in the context of the purchase.

When addressing a person who is already faced with the task of buying this product or not, you will offer him a ready-made solution. It is enough for him to listen to the information once, maximum, twice, in order to remember or write down the information received.

SEO budget and arms race costs are similar

Search engines work on algorithms that rank search results according to the degree to which they satisfy the user's request. Moreover, SEO-optimizers regularly work to "outwit" the search engine, and they regularly update the algorithms. It turns out a vicious circle.

It happens that search engines “take over”, but after some time, SEO-craftsmen again bypass them. If your resource entered the TOP only due to effective SEO optimization, then soon it can be moved “to the backyard” by more competitive resources.

But there is a way out! Fill in the resource demanded by the potential buyer. This can be done, for example, in your blog.

What are cost reduction methods?

Firstly, blogging does not necessarily involve expensive specialists. Not all blogs are run for the sake of making money. As a rule, people are interested in it. And in your company there will be those who like their work and who want to talk about what they do (sell or produce).

Secondly, attracting a professional blogger will cost no more than paying for the services of an SEO optimizer. The only point, find out how well he understands your product (maybe he just beautifully presents the information?).

Thirdly, given that search engines regularly update their algorithms, SEO optimization must be carried out constantly, which entails ongoing costs.

If you publish informative materials, then the resource can “work for you” for many years. You can see this when you find useful information in the "old" articles (published several years ago).

Memory stores creative advertising

Consider some memorable slogans:

1. "Let's change the world for the better" . Who and how?
2. "Sometimes it's better to chew than talk". Of course, chewing gum! And what exactly?
3. "Impossible is possible" . Did you hear it somewhere? About sport! Or Bilan's song?
4. "More than fuel" . Seems to be gasoline. Or not about him?

We took slogans that have received worldwide recognition. They were made by the best creatives.

A similar picture is observed in relation to special effects. Today, sneakers can take their owner into space. Effectively - yes, effectively - hardly. The audience knows perfectly well that this is unrealistic, so you should not expect everyone to rush to buy them.

What are cost reduction methods?

For the sake of creativity, give up creativity. Having received answers to questions about customers, you will be able to understand not only “who”, but also “why”, “when” buys your products. It is this information that should be placed in the advertising message. Don't turn means into ends, but use them to achieve those ends.

Does participation in advertising of movie stars, sports or business contribute to its memorization? Certainly! Does it affect the buyer's choice? Unlikely!

Choosing a reliable bank to which people will trust "their hard-earned money", they will look for sources that inspire confidence. Whom will they believe? An ordinary bank employee who will be their good friend or relative (albeit distant) or a Hollywood star?

It is unlikely that this celebrity keeps money in one of the banks in Russia. It's not even mentioned in the ad. Where does such confidence in its reliability come from?

What cost reduction methods are appropriate here?

For example, a famous athlete can appear in an advertisement for sneakers if he personally tested them. In other cases, it is better to analyze people who are familiar with your product so that everyone understands: “why” he bought it and “how” it solved his problems. Such information will be more useful than any "famous person".

We have provided you with generalized cost reduction methods. Do not forget that every business is individual, just like its owner. Any company faces specific tasks that are unique to it.

Today, all business representatives are in a difficult position. Most likely, the one who can continue to be successful with minimal production and marketing costs will be able to “stand” and “flourish”.

Inform the consumer about the merits of your product without investing heavily in it. This is the only approach that can be called effective!

Cost optimization at the enterprise is a necessary and important stage in an economically unstable situation. Let's consider it in detail.

Main questions

To do everything right and not become a “tyrant and satrap” in the eyes of the staff, you need to understand:

• existing types and options for reducing costs;
• principles and methods of planning accompanying measures to optimize costs;
• the most effective ways to reduce costs from a practical point of view;
• ways to reduce the cost of materials;
• essence of the benefit from reduced transport costs;
• ways to choose a strategy to reduce costs;
• basic principles of optimization.

Budget

Often they try to shift budgeting to a department whose employees believe that they are not fully competent in this matter. However, budgeting is an important step. Participation in it allows you to get a large amount of information that is important for all departments.

The budget is formed in several stages:

• formation of a project plan for the future budget;
• consideration of the draft budget;
• approval of the budget;
• budget execution;
• performance analysis.

Optimization of budget expenditures is the next stage after budgeting.

Expenses

Cost optimization is impossible without understanding the content of the term "expenses".

They are those funds that are involved in the formation of profit for a certain period. Part of the costs accumulates in the form of finished products, semi-finished products, intangible assets or construction in progress in the company's assets. The diagram shows a simplified structure that complies with IFRS standards.

Simply put, an expense is an increase in liabilities or a decrease in assets that results in a decrease in capital.

Optimization

It is believed that cost optimization begins with cost reduction at the current moment. However, this is not quite true.

Optimization of budget expenditures at the enterprise does not begin at the moment when they begin to strictly control the spending of money that is already in the account. Unfortunately, at this moment the question of where the money in the account comes from is not controlled at all. Attracting active lending, as well as managing only expenses, entails a chronic shortage of funds in the enterprise, and then - possible bankruptcy.

The effectiveness of this procedure depends on keeping records of both income and expenses. These items need to be planned, and management must constantly monitor the numbers by year, quarter, month or other financial period. There is always a chance that projects that are currently costly will be very profitable in the long run.

Areas of work

Cost optimization does not mean taking actions to the detriment of business interests. The task of reducing costs should be solved in an optimal way, when comparing costs and income with each other.

The issue can be addressed in several ways:

1. Cost reduction due to internal resources (direct reduction). Such actions include increasing productivity, reducing material costs, reducing management costs, as well as reducing the staff of the enterprise.
2. Reducing production costs (relative reduction). This can be achieved by increasing the volume of production. In this case, much less money will be spent on one part.
3. Formation of the offer due to the conducted marketing research. In this case, the growth in the volume of purchases by customers is stimulated and an influx of new customers is formed.
4. Formation of strict financial discipline. In this variant, a limited circle of people can give the “go-ahead” for expenses.

The budget spending optimization program should cover the narrowest areas. Then it will be most effective.

Ways of optimization

A cost optimization plan can include three directions in which an enterprise can go.

Allocated to the cost of the enterprise rapidly, systematic reduction.

Each of the methods is used in a specific situation. The measures taken in this regard should correspond to the current state of affairs and also be based on long-term planning.

Express reduction

Having chosen this method to reduce costs, it is urgent to stop paying expenses for some items. To determine the result, you need to find out the likely consequences of each optimization method.

All costs are divided into:

• High priority. Such expenses are necessary for the enterprise to continue its activities. These include the payment of wages to employees, the purchase of raw materials for production.
• Priority. This is the cost of paying for mobile communications, advertising. If you stop paying under this article, then the work of the company will fail.
• Permissible. These include benefits for employees, payment for sanatorium treatment for staff. If the company does not have free funds, then these payments can be suspended, but it is preferable to keep them.
• Unnecessary. An example of such costs is the payment of a private flight for the head of the company. The cancellation of such expenses will not adversely affect the company's operations.

When choosing an express cost reduction, first of all, payments for an “unnecessary” item are stopped and the permissible ones are sharply limited. It is not desirable to reduce the first two categories.

Rapid cost reduction

Cost optimization at the enterprise at a rapid pace is possible as a result of a number of measures. In order to reduce costs as effectively as possible, management must determine where they save first.

1. Save on materials for production and raw materials. Ways to optimize costs can be different. Revising contracts with suppliers in order to obtain goods at a favorable price is the most effective way to reduce costs. Also, suppliers can offer deferrals on payments, which will give the company the opportunity to raise the required amount without obtaining additional loans.
2. Analysis of transport costs and optimization of this item of expenditure. In addition, you can reduce the cost of electricity, telecommunications. can be outsourced, and then contact the logistics center, which will draw up a program to reduce transport costs. To reduce the cost of electricity, control its consumption, monitor the level of illumination in the dark, install energy-saving equipment. Reducing the list of employees who are entitled to corporate mobile communications will significantly reduce costs. You can negotiate with a mobile operator or telecommunications service provider to conclude a corporate contract with favorable terms.
3. Reductions in staff and reduction in payroll. Outsourcing and freelancing effectively reduce the cost of paying salaries to staff, while recruiting companies or an internal recruitment department will help replace inefficient employees. For example, it is not necessary to have a cleaning lady on staff. Outsourced service personnel will save up to 20% of payments per employee.

Another option is to optimize costs by reducing wages, but providing social benefits: expanding the list of medical insurance conditions, providing employees with food at the expense of the company or free coffee from a vending machine. Studies show that the investment in this case will be profitable in the long run, as it will increase staff loyalty.

Systematic abbreviations

As the name of this optimization method implies, its essence lies in carrying out periodic measures aimed at reducing costs.

1. Investment management. Long-term investments should always be carefully justified. In order for a company to purchase new, more efficient equipment, the department concerned must argue what will be the benefit for the company when the project pays off, when it starts to bring profit. The introduction of new competitive technologies helps business development. However, when making a decision to buy something, management must keep in mind the main goal - cost reduction.
2. Procurement management. It consists in the periodic search for new suppliers that provide quality goods at better prices.
3. Business process management. "Sudden management", so inherent in our country, greatly affects the principles of doing business. From the point of view of new methods, when organizing business processes, it is proposed to look at production from the side of the buyer. Conduct a process analysis. The manager of the enterprise needs to ask himself, will the buyer pay for this? The client will not want to pay for the movement of goods, downtime, re-equipment of production without changes that improve the product. Therefore, such costs should either be reduced as much as possible, or completely eliminated.

Optimization rules

When drawing up an action plan to optimize costs, it must be remembered that a situational solution to a problem is not always the best choice. Reducing costs is a chore that should become a good habit every day.

By following the rules of optimization, you can achieve the maximum effect with the least loss.

1. Costs do not always need to be reduced, most often they need to be effectively managed. Sometimes, in order to reduce overall costs, you need to increase the amount of costs in a particular area.
2. Costs are kept to a minimum to achieve the best result. The efficiency rule says that one unit of costs must necessarily provide the maximum result.
3. There are always costs, whether it be action or inaction.
4. There are no trifles when it comes to spending. Let the employees of the company be angry about the report on the use of the third dozen pens in a month. But once they get used to paying attention to the little things, as a result they will be able to see an increase in salary or an improvement in working conditions.
5. Trying to keep costs as low as possible is not always helpful. It may be optimal to reduce costs slightly and maintain them at the required level.
6. Optimization of budget expenditures is impossible without financial investments.
7. There is a type of expense that allows you to avoid even greater losses. These include insurance, hiring security guards, installing alarms, and improving product quality.
8. All employees of the company should be included in the process, but everyone should have their own, important task for them.
9. Caution is never too much. A thought that slips into your head or a suspicion that arises as a result of reading the report forces you to analyze the indicators more deeply and almost always leads to a reduction in costs.
10. Cost optimization should be carried out constantly. New items of expenditure affect the company's profit. Appearing suddenly and suddenly disappearing unnoticed, they can cause significant damage to the company's budget. Tracking expenses should be a mandatory task, the performance of which is reported to the general management of the company.

Optimization of income and expenses - procedures that go hand in hand. Uncontrollable expenses will not bring profit to the company, and profit growth is directly related to cost control.

Confusion in concepts

The cost optimization program compiled by the finance department often contains items that are not related to costs.

To create the most effective program, the management team must understand the difference between types of costs.

For example, cost control based on P&L would not be considered cost control.

Cost optimization is one of the first duties in the job description of any financier. While some enterprises are struggling to reduce costs by a fraction of a percent, others could immediately cut the expenditure side of the budget by 20% or more, but for some reason they do not. Let's see, is cost optimization a fashion or a reality?

Reducing or optimizing costs

When trying to cut costs at the stage of laying out the annual financial plan, it quickly becomes clear that straight-line cuts in budget expenditure items do not work. According to the reduced "on paper" articles, most likely, when summarizing the results, there will be an overrun. And why should it be otherwise if all business processes have remained unchanged?

How to start optimizing the costs of the enterprise

The concept of expense is not tied to a period and means a decrease in the value of an asset. Expenses are only those expenses that are related to the financial result of this period. No cost in production activity occurs by itself. Every ruble spent, every decrease in the value of assets is caused by some specific business process. As simple as it sounds, this is the key point on which all effective cost management methods are based.

Each enterprise can be represented as a chain of processes. It receives some resources, which, passing through this sequence, are modified, acquiring the form of a product or service at the output. At the same time, each link in the chain is a specific function, which requires certain resources for its implementation and has its own cost.

Based on this understanding, both cost reduction and cost optimization should start with business process analysis. It is necessary to identify their correspondence to costs, and then solve the problem of reducing the expended resources and increasing productivity. This is what true cost optimization in the enterprise is all about.

Which method of grouping costs is more suitable for the purposes of cost optimization in the enterprise

When optimizing costs in an enterprise, the most common approach is to group costs by structural divisions of the organization. This model can be called traditional, in different versions it represents approximately the same table, with a list of types of costs (rent, wages, taxes, etc.), grouped by departments of the enterprise. Depending on the scale of activity, such tables may be larger or smaller, may have varying degrees of detail and automation, but their essence remains unchanged.

This approach to grouping costs is justified for calculating net profit and evaluating the contribution of each division to it, as well as for some basic analytics. But it is practically useless for the purposes of optimizing the optimization of the company's costs, because such a link to the organizational structure does not tell anything about the cause-and-effect relationships between costs and processes. It allows you to determine the amount of costs, but does not make it possible to manage them, does not give any answer to the question "what to do?".

Another way of grouping - into constants and variables - is better, but also not informative enough. Complicated options with the addition of conditionally fixed and conditionally variable costs, it is even difficult to say which is more, clarify or confuse the picture.

Grouping for the purposes of cost optimization in the enterprise correlates costs with the processes that caused them. Outwardly, it is similar to the form of the income statement and in general looks like this:

• Input cost of raw materials, materials, goods for resale;
• Production costs;
• Financial transaction costs;
• General business and administrative costs.

However, despite the external similarity, the fundamental difference lies in the way the costs are distributed within these groups - not according to the organizational structure, but according to homogeneous functions.

Ways to optimize production costs at the enterprise

To optimize production and some types of administrative and management costs of a company, it is good to use methods of functional cost analysis adapted to a specific situation. The sequence of actions in the general case looks like this:

1. Make a list of functions that are currently performed within the enterprise.
2. To bring into line with each function of the performer, the necessary costs of labor, time and other resources.
3. Identify the most expensive features.

This is the first, formal step, followed by the creative stage. There are no ready-made solutions and recipes for specific activities, just as there are no formalized algorithms, but this is where the success of the company's cost optimization lies:

• find ways to reduce the cost of the most resource-intensive functions;
• identify and eliminate redundant or duplicate functions;
• find opportunities for sharing the same resource by different functions.

If at least some of these solutions are found, it will be possible to reap the benefits of the optimization carried out, redistribute the freed up resources between the most efficient functions, or direct them to other areas.

Even if it is not possible to get a quick effect, the work carried out in any case will be of inestimable importance for the management of the enterprise. The resulting map of functions and their relationship with costs will make it possible to purposefully allocate resources and make the budget system more realistic.

Case Study

In practical work, the methods of functional cost analysis in their full classical form may turn out to be unreasonably time-consuming, it is often enough to use simplified schemes. Let's consider their application on a real example.

Shareholders of the distribution company set the goal of reducing costs by 20%. The analysis showed that one of the most expensive features turned out to be free delivery of goods to customers. Once this function was absent, the goods were not delivered, and buyers received it on a self-delivery basis. The late introduction of such a service has become a strong competitive advantage, and allowed to increase the customer base, significantly increasing its market share. However, then the situation changed, competitors also got free delivery, and now fierce competition made it impossible to either refuse this service or include the cost of delivery in the sale price. Buyers also did not want to pay separately for delivery, because you can place an order from competitors, they will bring it for free.

Our task was to reduce the cost of the function. During the analysis, we studied all the factors influencing its implementation:

• geography of orders, distance from the central warehouse, delivery time;
• time, frequency, order volumes, number of customers;
• factors of seasonal growth and decrease in demand;
• procedures for collecting applications and their formation in the warehouse;
• geographical location of competitors' warehouses and their terms of delivery.

As a result, the following solutions were found and implemented:

• the territory of the company's activity (several regions) was conditionally divided into zones based on the number of customers, their geographical proximity and the total volume of deliveries;
• a delivery schedule was drawn up with different intervals for different zones, depending on the above factors;
• free shipping has been canceled at several locations;
• loading and unloading regulations were developed, the warehouse operation mode was changed to reduce the total delivery time;
• the closing time for accepting applications for the next delivery has been introduced;
• an economically justified minimum order size for free shipping is calculated and set.

The result of all these measures was a reduction in transportation costs of the distribution company by 30%, and, moreover, the delivery volumes not only did not decrease, but even increased.

Methods for optimizing the company's overhead costs

General business expenses most often serve to fulfill the function of supporting the activities of the enterprise as a whole, and cannot be decomposed into component processes that could be analyzed as described above.

In such cases, the most reasonable way to optimize the costs of an enterprise is to standardize the selected relative and absolute indicators, for example:

1. The average cost of 1 m 2 of office space.
2. Average office space per one office worker.
3. The average amount of utilities per one meter of rented area.
4. The average cost of equipment per workplace.
5. Average consumption of stationery and household goods per employee.
6. Revenue attributable to one employee of the administration.
7. The number of clients per employee of the administration (sales, accounting, etc.).
8. The share of salaries of administrative personnel in the total payroll.

And many other indicators. The scope for creativity here is unlimited, it is only important to maintain a balance so that the pursuit of some indicators does not lead to a deterioration in the performance of other functions or subtasks. For this scheme to work, in addition to the coefficient system itself, you need:

1. Appoint responsible employees who can influence their value.
2. Set indicator values ​​as KPI these employees.

Of course, this implies that the indicators must be real and measurable, and the calculations must be transparent and understandable for both parties.

Optimization of financial expenses

In the proposed concept, all costs associated with cash flow are classified as financial. In addition to direct banking services, this includes a number of other costs, usually considered general business or administrative. A complete list of financial costs can be as follows:

1. Settlement and cash services.
2. Currency transactions and currency control.
3. Interest on loans and borrowings payable.
4. Services of payment system operators.
5. Services of non-bank payment agents.
6. Acquiring.
7. Collection.
8. Maintenance of fiscal registrars and OFD services.
9. Salaries of cashiers, a current account accountant, a special official for compliance with 115-FZ.
10. Some types of taxes and contributions.

At first glance, this grouping may seem unusual, but in reality it establishes a more precise correspondence between costs and functions than the traditional classification.

Despite the fact that these are the costs of one group, approaches for their optimization require different ones. Some of them are initially tied as a percentage to the volume of cash flow, while others, on the contrary, are fixed and do not depend on the turnover. In these cases, optimization methods are limited to finding the most profitable offers on the market for similar services. Another part of the costs can be made dependent on cash flow through KPIs, thereby eliminating unproductive costs.

Reducing interest payable

Most of all, the amount of interest paid for the use of borrowed funds depends on the financial policy pursued by the enterprise. Despite the fact that the cost of borrowed resources in most cases will be close to the market average, the company can influence the amount of borrowed funds and terms of attraction. These two factors determine the final effectiveness of the use of external financing. The way to optimize this type of costs lies through the reduction of the duration of the financial cycle.

The financial cycle is the process of transferring the organization's funds first into raw materials, materials or goods for resale, and then the reverse process of converting finished products into money in current accounts and at the cash desk. The starting point of the financial cycle is payment to the supplier, and the end point is the receipt of payment from the buyer. The duration of the cycle - the time elapsed from the beginning of the cycle to its completion - is directly related to the need for borrowed funds. The longer the financial cycle, the greater the dependence of the enterprise on external sources of financing. Therefore, in the general case, reducing the duration of the financial cycle is a goal, the achievement of which will lead not only to optimization of the amount of fees for using loans, but also to an increase in the efficiency of the business as a whole.

Summary

In conclusion, I would like to draw attention to the fact that significant and sustainable cost optimization can only occur as a result of business process optimization. It is unlikely that it will be possible to significantly reduce any single type of expenditure without changing anything else around. Almost always, this requires a change in all processes associated with this function. But if successful, there is an additional gain in efficiency by eliminating redundant functions, reducing the need for resources and redistributing them. Further development of this model will be the transition to business process management through cost management.