Cost Optimization Services
When an economic crisis hits, demand for goods and services declines and thus company’s cash flow balance deteriorates. First actions that senior management thinks of as some priority measures are:
- Close communication with customers for payments of pending receivables
- Postponing payments to suppliers as much as possible
- Postponing financial debts
- Cut down salaries and wages ve layoff
- Cut down general expenses as much as possible
- Applying for state assistance
These measures may produce positive outcomes for balancing cash flow in the short term. But, this is not sustainable for a long period. if such measures last longer than necessary, it may cause a loss of reputation, loss of customers, loss of good suppliers to competitors, etc. So, there need to take different measures in the long term.
During a crisis, while taking reasonable measures, one of the main actions is long-term cost optimization efforts and stopping unnecessary spending. All functions, such as sales, warehouse, production, and procurement, must be reviewed and evaluated with a fresh look, and the efficiency of machinery must be scrutinized. For example:
- Reviewing the warehouse processes such as general freight acceptance, shelving, inventory system, shipment, packaging, labeling, loading, return, inventory count, and maintenance.
- Inventory (raw material, semi-finished, finished, packaging, and operational) and transportation optimization, decreasing customer reclamations, eliminating work site idle transportation and handlings, etc.
- In collaboration with suppliers, blocking materials that are transported to a company that have defects or are missing or in nonstandard forms
- Reviewing idle spaces in office and factory areas, Simplification of production and warehousing sites
- Shortening order cycle times, decreasing lead times
- Evaluating observations of sales and marketing teams and marketing research as well as customer demand and preferences and reflecting these into the production process
- To increase the ratio of order/customer proposal
- Lean management principles to apply in office works
Additionally, special care should be given to automation activities. Analytical solutions such as ERP, supply chain and production chain, electronic process management software, and customer relationship management (CRM) are a few examples of these activities.
Consequently, decreasing every kind of unnecessary spending in goods/services production processes, including planning and shipment, should be targeted. This unnecessary spending may include production mistakes, overproduction, unnecessary waitings and transportation in production steps, etc.). Also, cost optimization, which targets to affect cash flow and profit positively, can be achieved through analysis of customer needs, redesigning/reengineering production steps, reorganizing production site and processes, production technology optimization, increasing employee efficiency, activity-based costing, determining key performance indicators (KPI) and analyzing performance targets and variances.
In these works that aim to increase your operational efficiency through a corporate perspective and a multidisciplinary holistic look, Teolupus Risk Management and Internal Audit Services are at your disposal.