During difficult economic times, or when a business's financial health is unstable, every business needs to focus on cost reduction to survive. Below are six top solutions that, in our opinion, any business can implement to cut expenses without compromising the quality of products or services provided to customers.
1. Reduce labor costs.
Even if a business doesn't choose to cut staff, there are many ways to reduce labor costs during a challenging economic period. Requiring employees to work overtime means the business has to pay double the normal wage for each overtime hour.
Instead of paying overtime, businesses should try to reorganize work schedules and avoid overtime altogether. Some employees might prefer to start work earlier, while others might prefer to finish later. These solutions would allow them to complete their tasks during regular working hours without incurring additional costs for overtime.
Another way to reduce labor costs is to encourage employees to minimize their sick or personal leave. Whenever an employee has to take sick leave, the company will need to find a way to fill that position, either by requiring other employees to work overtime or by reducing shifts and productivity. Either way, sick and personal leave days are a burden on the company.
Some companies have successfully implemented reward programs for employees who do not take sick leave for a year or six months. For businesses, the cost of rewards is more economical than the cost of allowing employees to take sick leave.
2. Increase safety
Increasing initial investment in workplace safety will help businesses significantly reduce operating costs. Consider all the costs and losses, both direct and indirect, that arise when an accident occurs in the workplace, including:
- Medical expenses
- Insurance premiums increase
- Productivity decreases while employees are on leave.
- Investigating the cause of the accident costs money and time.
- The cost of shift work and the time spent by that employee.
- Work morale has declined.
- Damage to company reputation and public relations costs.
- Fines and court fees from government agencies in some cases.
Therefore, increasing safety measures and preventing workplace accidents will first and foremost reduce costs for businesses.
3. Procedures for evaluating and ensuring effectiveness
This is a good time to review all procedures and workflows to cut down on unnecessary tasks. Are overlapping tasks causing the company's staff to put in twice the effort to complete a given job? Can the company reduce the number of photocopied documents and save on paper and ink costs? Can the company encourage employees to reduce printing by saving documents in digital format instead of hard copy? Are there any processes that have become redundant but employees are still spending time completing? Are there methods to complete tasks more efficiently?
Businesses need to consider ways they can save time and money. Consider saving energy by turning off lights at night and cleaning the office only every two days instead of daily. Working more efficiently saves valuable resources.
4. Reduce damage to equipment.
Equipment damage impacts business costs in two ways. First, equipment damage reduces productivity while the equipment is being repaired. Depending on its importance to the overall process, damaged parts can cause the entire business's operations to lose productivity for a period of time. Second, equipment damage incurs ongoing repair costs that include labor, repair time, and replacement parts.
In the long term, ensuring employees follow proper procedures to avoid damaging equipment can significantly contribute to cost savings for the company.
Before serious and costly damage occurs, businesses need to regularly inspect and maintain their equipment so that damaged parts can be replaced.
5. Find the best supplier.
Businesses need to ensure they are receiving the best service for their necessary supplies. Therefore, taking the time to find the best supplier can save businesses a considerable amount of money.
For example, if a business could buy paper for only 10 VND less per ream (500 sheets) with the same quality, how much money could it save in a year? If the business buys 100 reams of paper per month, it would save 12 million VND per year. If this cost-saving measure is implemented per product by switching suppliers, the business could save a significant amount annually.
Clearly, this form of cost saving can be applied effectively based on scale, and larger businesses will save more, but any business can save by switching to a cheaper supplier.
6. Measures to encourage employees to reduce costs in the long term.
Many companies implement policies that allow employees to contribute to cost savings over a specific period. This encourages and motivates employees to work more efficiently, reduce workplace accidents and damage, and contribute to cost reduction, rather than placing the entire burden on management.
For example, if employees can reduce costs by up to 250 million VND per month, the company will save 1.5 billion VND in six months. If the company spends more than 50% of that savings on employee rewards, it will still save 125 million VND in six months. Enabling employees to contribute 10 to 25 percent of these savings will benefit the company even more, while still encouraging employees to reduce costs for the benefit of the business.
There are many ways to reduce business costs. With each cost-saving measure, company profits will increase even more, mitigating the impact of the global financial crisis. Cutting costs now can ensure the survival of businesses during difficult times, and this can still be applied when the economy recovers.
