“Cost Reduction” Is it a bad idea?

Author Name: Shafeeq Muhammed

Linkedin Profile: https://www.linkedin.com/in/shafeeqmohd/

✔️Startup CFO ✔️Strategic Cost Reduction ✔️Internal Process & Audits ✔️ $1 million value added.

 The tiger by the tail to most of SME’s at its growth stage are Cost Management. Recently one of my clients is playing hard to maintain its margin even though having a good turnover. They have brought few cost reduction policies like cutting employee incentives, bringing overtime or extra duties, reduced quantity to the value paid by customer further added the fuel to fire by losing reputation in the market

Cost reduction is no more a solution but a strategic cost management does. “The cost has to be reduced without losing the strategic position of the firm”

let me explain it. when computed product wise profitability of the said client, found that one product is actually selling on the loss which is sucking the profit. The accounting records not tracking your product wise profitability but an overall profit. A root cause analysis in sighted that quantity offered is much higher than competitors which is mounting losses.

Now the task is to reduce quantity without losing the impression on existing buyers. Brought an innovative packing which reduces the quantity but adds more attraction with a few bunches of flowers inclusive in the product. The flowers are much cheaper in the market compared to product count. This has attracted more customers and an additional segment of customers who buy to gift this product to others. An increased turnover and cost optimization by 15 % of the production cost was the result.

A benchmarking the production process with other similar industries pulled trigger into the automation of a major labour-oriented job which saved 4 % to 5 % of production cost.

an overall margin increased to 15-20 % from a margin of 8%-10% over a period of one year. Do you feel there is room for reducing cost further ? are you not happy with monetary spending in your organization? Get a consulting for cost management without compromising your strategic values.

Connect me at vk.shafeeqmohd@gmail.com for any assistance or to know how cost consulting was key to our client’s success.

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