In challenging economic times, such as during the Coronavirus pandemic, many Australian entrepreneurs have faced issues including:
- Inefficient production and manufacturing
- High manufacturing and production costs
- Lack of control over labour efficiency and costs
- Poor production quality management
- Insufficient cost optimisation
Here are actionable strategies to help optimise costs and enhance efficiency for businesses recovering from losses:
Perform Cost Analysis of Your Business
Entrepreneurs should analyse these four key cost components:
1. Raw Material
Often, raw material costs go unchecked. Consider the following:
- Explore alternate vendors or sources for materials.
- Focus on improving product quality while negotiating costs.
- Implement strategies to reduce costs, such as:
- Sourcing materials economically.
- Determining optimal order quantities.
- Regularly negotiating prices with suppliers.
2. Labour Costs
Rather than cutting the workforce, optimise labour productivity:
- Increase overall efficiency.
- Redirect workers to alternative or new products.
- Focus on reducing per-unit labour costs.
3. Variable Costs
These include expenses like electricity, freight, and fuel. To manage them:
- Lower electricity bills by reducing consumption.
- Improve the efficiency of diesel generators to save on fuel.
- Optimise freight costs by reviewing logistics contracts.
4. Indirect Costs
These include expenses for maintaining inventory and other auxiliary costs. Regularly audit and optimise these expenditures to ensure cost-effectiveness.
Prepare to Tackle Difficult Times
Businesses must adapt to unique challenges, such as prolonged shutdowns or decreased consumer spending. Strategies include:
- Creating plans to lift the business out of losses.
- Reducing operational costs.
- Streamlining inventory and optimising labour usage.
- Adopting new technology or diversifying the business model.
Engage Employees in Recovery
Employees play a critical role in reviving businesses. Encourage:
- Increased productivity and extended working hours, if necessary.
- Collaborative efforts to identify cost-saving measures.
- Open communication and morale-boosting initiatives.
Develop a Plan-B
Always have a contingency plan in place. While it may yield lower profitability, it can help minimise losses and sustain the business during tough times. Be prepared to:
- Implement alternate strategies if primary plans fail.
- Engage with your team to formulate and refine these plans.
Leverage Technology
Implement Enterprise Resource Planning (ERP) systems to manage:
- Inventory
- Bill of Materials (BOM) consumption
- Financial operations
- Production processes
Small businesses can explore affordable ERP solutions like Tally, while larger enterprises might consider SAP.
Avoid Forward Purchasing
Forward purchasing may seem beneficial but often carries high risks. Instead, focus on:
- Negotiating long-term contracts with suppliers at reduced prices.
- Building a resilient and adaptable business model.
Stay Updated with Market Trends
Continuously monitor industry trends to remain competitive. This can be achieved by:
- Subscribing to relevant journals.
- Attending industry seminars and networking events.
Maintain Quality While Reducing Costs
Cost reduction should not compromise product quality. Compromising quality can harm your reputation and customer trust in the long term.
Optimise Logistics Costs
Efficient logistics can significantly reduce costs. Key considerations include:
- Minimising time spent in transit.
- Avoiding product damage during transportation.
- Evaluating and renegotiating logistics contracts annually.
By adopting these strategies, Australian entrepreneurs can position their businesses to recover losses and thrive in challenging economic environments.