Driving the bottom line through a profitable revenue growth is almost always the common objective of every business. This is basically the main focus of course well in the end, if you fail to grow, you are certainly dying. However, some companies need to concentrate as well on controlling their costs. Without having constant vigilance, there is a high possibility that companies will find themselves in an uncompetitive situation together with bloated overhead.
The better way in maintaining the right cost structure is to control them in a more sustained fashion and below, you will be able to learn about it.
Number 1. Renegotiate all contracts every year – for whatever reason, many American businesses are presuming that having several year contracts would lead to lower costs. Sometimes it is but, not always. Not having the contract life to exceed for a year is not the goal of a smart business policy. This is forcing annual bidding or at least, renewal discussion with current suppliers. Instead, having multiyear contract will be in the favor of vendor and even though it demands lots of work, it is sure to give good payouts.
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Number 2. Ask customers – believe it or not, it brings lots of benefits to have annual planning sessions with your customers. Normally, these discussions are focusing on ways to grow a business. But oftentimes, these discussions have failed to address the cost. The customers can suggest ways on how to reduce the cost by talking about the costs holistically. So to give you an example, how to plan jointly to smooth production, how to change the mixture of product to eliminate costly items and then replace them with more profitable ones or how to take the wasted steps out of process.
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Number 3. Match terms with turns – each and every item in your inventory is moving at a different rate. Yet, suppliers typically apply a one-size fits all approach to the payment terms. You are able to reduce your working capital to the minimum only if payment terms were matched with inventory turns of every item. By negotiating about this subject in the contract, it is incenting suppliers to sell the best moving items and to work with you in improving your inventory productivity.
Number 4. Ask vendors to own their inventory – what is better than matching the terms with turns is having the vendors to keep the title to their inventory until it’s sold. In most instances, the inventory acquired from a vendor will be stored in your warehouse for the use in resale or manufacturing conversion to your customers. To eliminate inventory and free up space as well, the best approach here is to consider a Just-in-Time delivery.