Cost Optimization: Increase Efficiency While Reducing Your Company’s Expenses

What do you do to protect your company during volatile economic times?

During tough economic times, most companies make across-the-board expense cuts. Such cuts that focus only on numbers seem to work in the short term, but the facts behind the numbers may differ.

Companies need to be very careful about expense deductions. Because cuts made without foreseeing the consequences may harm essential operations, it may cause business slowdowns and interruptions. This could harm the company’s core business and risk its capacity for long-term success.

So, is it possible to resist economic fluctuations and achieve long-term strategic goals such as growth, profitability, and customer satisfaction? Where should you start, and what route should you draw for this?

To achieve this, it is necessary to plan an expense, cost, and investment management that will not harm operations and support long-term goals. Such planning can be achieved through cost optimization.

What is Cost Optimization?

Cost optimization is a strategic process that aims to achieve growth, profitability, and customer satisfaction while reducing companies’ expenses and generating savings. In other words, it does not only aim to reduce expenses but also to achieve the company’s strategic goals. Besides, it aims to make the company as efficient as possible in all its operations. In other words, the primary purpose of cost optimization is to provide the company with the highest benefit for each expense.

In short, it does not start from how to reduce current expenses. Instead of a shallow perspective focusing only on expenses, it starts examining the company from the very foundation. It looks in detail at the carrying out of strategies chosen to achieve monetary or non-monetary goals. It begins by comparing which expenses and costs we should incur and which ones we do.

It redefines, simplifies, and optimizes costs. It completely revises the existing structure. In this process, performance indicators should be monitored, and results should be benchmarked. This must be done by getting feedback from internal and external stakeholders. It is recommended to form a team that receives support from employees who know the organizational memory and expert external consultants. In the process:

• Wastes, errors, delays, unnecessary steps, and expenses in all processes are detected and resolved. Especially in the industrial sector, productivity increases are achieved using lean production methods and monitoring processes with data analysis.

• The conditions in supplier contracts and the quality of the goods and services received are examined in detail. Supplier relationships are updated under the most favorable conditions. It is essential to receive goods and services from suppliers at affordable prices and quality in every sector. Examining and optimizing supplier processes will not only improve your expenses and costs but will also strengthen your company in general.

• Customer expectations are examined. Product and service quality is improved for customer loyalty. Especially in the retail sector, customer data obtained through CRM applications are analyzed to discover opportunities for customer satisfaction and sales increase.

• Investment projects will be subject to cost-benefit analysis. Projects aligned with strategies are prioritized, especially in companies that carry out many high-cost projects. It is possible to get rid of the costs of inefficient projects and to carry out essential projects in the most successful way.

• Investment opportunities in new technological systems and equipment are explored. By taking advantage of these, competitiveness and productivity increase methods are determined. Without exception, all companies owe their success to the use of up-to-date technologies. Yet, technology continues to improve. Every technological development brings new business opportunities. More importantly, those not using new technologies may fall behind and fail. So, it is essential to consider the opportunities for using new technologies in every sector.

• The efficiency and profitability of all sales and marketing channels are evaluated. Data analytics technologies have made great progress since the 2010s. Thanks to the ability to analyze extensive data quickly and precisely, the profitability of each sales channel on a product basis and the performance of marketing campaigns can be calculated. Especially in the retail sector, with these analyses and calculations, improvement opportunities for increasing profitability in sales channels are determined, and opportunities to enter new sales and marketing channels are investigated.

In other words, all operational and strategic processes in the organization are examined from top to bottom. The aim is to develop them in a way that supports company goals with the highest efficiency.

What Will Cost Optimization Bring to Your Company?

Cost optimization draws a road map between your operational activities and strategic plans. It is an in-depth work. It allows you to restructure expenses, costs, and investments based on this road map. As a result, all your fees, costs, and assets are restructured to support your goals. So, you can be sure that every penny you spend will contribute to achieving the vision you set for your company.

• Increase in  Profitability: You can direct your resources to more productive areas. By reducing unnecessary costs and analyzing sales channels, you can improve profitability. You can increase profitability by evaluating opportunities to enter new sales & marketing channels.

• Increase in Operational Efficiency: You can identify unnecessary and time-consuming processes and operations. You can detect hidden problems and solve them. In this way, you can increase the operational speed and efficiency of your company.

• Improved Financial Health: Your company’s financial health improves thanks to a more flexible and sustainable budgeting process. All business processes, as well as financial processes, operate with higher efficiency. So you will be better prepared for unexpected crises and financial difficulties.

• Increase in Competitiveness: Allows you to allocate more resources for new opportunities. Additionally, implementing these opportunities agilely supports your competitive strategy.

• Improvement in Decision-Making Processes: Your company’s financial processes become more transparent and understandable. Also, your company gains the ability to quickly adapt to changing market conditions and updated strategic goals. This way, you can make more informed decisions and put them in place faster.

• Increase in Customer Satisfaction: Reducing costs allows you to provide affordable products and services by understanding customer expectations and optimizing business processes, product and service quality increases. You can increase customer satisfaction with reasonable prices and higher quality.

• Growth and Increase in Market Share: More practical use of resources supports your growth strategy and market share targets. You can increase your share in existing markets. Thanks to increased competitiveness and a financial structure suitable for growth. Improvement in your decision-making processes will help you decide about entering new markets.

• Increase in Employee Success and Satisfaction: By examining business processes, training needs and opportunities to gain knowledge and skills that will increase the efficiency and success of employees as a team are identified. With the implementation of these opportunities, employees’ motivation, efficiency, loyalty, and ability to act as a team will increase by eliminating disruptions in business processes and providing simplicity in information flow. In this process, cost optimization helps the company management to realize their leadership vision in implementing human resources practices appropriate to the corporate culture.

How to Perform Cost Optimization?

Cost optimization is a process that requires the participation of all decision-makers and management in the company. It is not a process that finance or other departments can carry out without the strategic guidance of senior management. Top management should create an expense management culture aimed at achieving strategic goals. The application steps of the process are as follows:

1. Strategic Alignment: It must be assured that cost optimization efforts align with strategic goals. For this, short and long-term goals should be determined.  Everyone should know that we should work together as a team to optimize things in line with the strategic goals.
2. Cooperation between Departments: Cooperation and coordination between departments should be encouraged throughout the process. Project teams should be formed where employees from different departments come together. Experts experienced in cost optimization, and consultants should provide project management support to these teams.
3. Gathering Data and Information: Data and information regarding the financial situation and expenses of the company should be gathered. Financial statements, expense reports, cost reports, supplier contracts, stock records, and all similar reports and documents should be used. If there is more than one information system, ensure all of them are included in the work. The accuracy and completeness of the data should be confirmed by contacting all stakeholders.
4. Expense, Cost, and Investment Analysis: All expenses, costs, and investments should be detailed. Their importance in the company’s operations should be understood. A cost-benefit analysis should be made for current and planned investments. Their alignment with strategic goals should be measured. Standard criteria for these measurement studies should be determined, and consistency should be ensured in evaluating investments.
5. Determination of Optimization Opportunities: As a result of the analysis, all expenses, costs, and investments are understood in detail. Based on this information, a list of optimization opportunities is created.
6. Evaluation and Prioritization of Opportunities: The feasibility, risks, and contribution of each opportunity to the company are clearly stated. Opportunities are prioritized in line with the strategic goals.
7. Creating an Action Plan: An action plan determines who will implement approved opportunities, when, and how. Information flow reporting methods and progress schedules should also be specified in the plan.
8. Following the Action Plan: The plan’s operation should be followed, and the results should be measured with support from key performance indicators. The program should be updated when deemed necessary. Lessons learned from the plan’s operation should be recorded and used to make the process more efficient. Naturally, implementing the decisions made will require overcoming many different challenges in the field.

Contact us to start a cost optimization project aligned with your strategic goals and achieve successful results with expert support.

You can also access our article that provides guidance on strategic management, which is very important for the success of cost optimization, here.

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