As we continue to hear about the reduction of the jobless rate and the continued growth of the economy, we will no doubt soon be bombarded with articles and reports on business growth. Many of these articles are based on the premise of investment versus cost cutting and containment. Thus was coined the popular phrase, “you can’t cut your way to business growth, you must invest to grow.”
Unfortunately, this statement is misleading; here is why.
Successful businesses focus not solely on growth, but on increasing profitability. Profits can only be increased if costs are understood, controlled, and where necessary, eliminated. Like the tide rolling out on a sandy beach, once the cushion of sales has been depleted all that remains are unmovable stones of cost and expense, which slowly erode profitability.
To create sustainable, steady business growth, ensure the following 4 areas are reviewed, reduced, and monitored on an ongoing basis.
1. Who profits most from your growth?
Who are your key suppliers, and what confidence do you have that the pricing you are receiving is as low as it should be based on your volumes and loyalty? Just because a supplier offers you a 5% “preferred customer” discount, doesn’t mean they aren’t offering everyone else the same discount.
2. Too many suppliers = too much money.
Reduce your sources of supply; consolidate volumes with fewer suppliers to increase buying leverage. Increased leverage equals reduced pricing, fewer suppliers to manage, and a better opportunity to control quality.
3. Freight = Fixed Rate Except If Goods are Heavy or Take up space.
Whether you ship full truckload or less than truckload, there is virtually always a more efficient means to deliver product at a reduced price. Even if your freight travels solely by courier, sourcing from brokers or joining a consortium is sure to reduce your cost of acquisition. Always keep an eye on the ever changing “fuel surcharge.”
4. Lots of inventory, short shipping constantly.
Do you have high inventory levels, but seem to consistently short ship to your customers? Focus on reduced changeover times and increased production efficiency to improve flexibility and reduce finished goods inventory. Sell unused raw materials back to the supplier or recycle; either method will provide a source of revenue greater than paying to store the material.
Before starting your journey to growth, get a handle on costs. Eventually the tide will roll out, and if costs have been ignored, the once submerged rocks are sure to sink your boat.
© Shawn Casemore 2011. All rights reserved.