5 Avoidable Mistakes That Business Owners Still Make

Many departments conduct similar activities or purchase the same items independently, on a small scale. For example, departments often buy supplies without regard to what others are ordering. This prevents the organization from using its combined purchasing power to reduce prices. At one company, a department ordered the very supplies and equipment that others had in excess.

He redefined all the midlevel managers’ jobs, eliminating the need for about 25% of them. Because the job requirements were new, past HR ratings did not matter. He created a process to ensure that the people best qualified for the new jobs got them; the others were released. First, forget about finding a single idea that would radically change the cost structure of your organization or department, thereby solving your problem in one go. (If such an idea existed, it would most likely entail so much risk that the organization would never be willing to implement it.) Instead, you should plan to reach your goal with a combination of 10 or more actions.

IT cost reduction mistakes

Imagine that change was made directly following a major production commitment featuring the old part or process. Now you have two choices—you can finish the commitment as promised and deliver a less competitive product, or you can bite the bullet and aggressively move to add the change to the current release. While you may be capturing standard operating procedures and work instructions early on, it’s important that team members have quick and easy access to the most up-to-date versions of these documents. When people cannot find the latest SOPs, Cost Reduction Strategies they often work from outdated versions, which leads to little mistakes, as well as major quality and manufacturing issues that ultimately require rework or result in scrap. If you feel similarly paralyzed, consider organizing a cross-department audit of all regularly scheduled meetings to figure out which ones can be repurposed, consolidated, or eliminated. At one professional-services firm, such an audit significantly reduced the time that its busiest and most valuable employees spent in meetings, thus increasing their productive hours by 20%.

However, you’ll be surprised at what you can accomplish by investigating how well the work of your department fits with that of the others. (An organization can be inefficient in total even if each group within it is efficient.) So if your goal is 30% or more, you must think more broadly. Many staff functions involve reviewing and reconciling information supplied from a decentralized field operation. Usually, these positions hark back to a time when there were many errors in the data or wide variances from expectations. Even as errors decrease and expectations are more routinely met, most companies continue to devote resources to checking 100% of the data 100% of the time. Consider eliminating the review entirely, conducting it less frequently, or checking just those units with a history of supplying bad data.

Ways To Implement Uid Tracking

Our experience shows that administrative cost-reduction opportunities follow similar patterns virtually everywhere. The lessons we’ve gleaned may not solve your entire problem, but they should give you a substantial jump on it. This is an error we often see with automated material replenishment process such as MRP and other IT-based solutions. Fixing time and quantity may be practical, but it falsely assumes that over time there are no changes in customer demand.

Our sales engineers are experts in automatic asset tracking, tagging and identification,a nd can answer all your questions. Rob O’Byrne is owner and group managing director of specialist management consulting firm Logistics Bureau, based in Australia and southeast Asia. Rob has a passion for helping people and businesses improve performance, and he has a reputation as a no-nonsense consultant who delivers results. Rob oversees the operations of Logistics Bureau Group including Logistics Bureau, Dawson Consulting, Benchmarking Services, Supply Chain Leaders Academy, and a social enterprise called Virtual Well Done.

IT cost reduction mistakes

It’s critical to always keep the future state of your business in mind when it comes to any kind of decision-making; in the long run, this leads to greater efficiency. For example, eliminating maintenance expenditure for a particular piece of equipment may save money now, but breakdowns or errors caused by lack of proper upkeep will cost your business more overall. Also included are the deprioritization of spending on training and R&D, as well as innovative projects with a lot of upfront costs. Ultimately, spending on each of these is what will lead to growth for your business down the line. “Peanut butter spreading” is one of the most common mistakes when cutting costs.

There, she executed the organization’s growth strategy through the marketing of PartnerData’s products and services as well as the design and implementation of all human resources strategies, policies and processes. Electronic change management software significantly reduces change cycle times, keeps all key stakeholders informed of changes, and provides them with an effortless way to signoff or reject a change. All in all, an efficient change management process will help limit rework and prevent expensive scrap errors.

Change The Process

Line supervisors and senior executives may not like being classified with finance and HR staffers, but for this purpose, they should be. To reach 20%, explore redesign ideas that reorganize activities. This often eliminates the lowest-value ones, with moderate impact on other departments. At some point, almost every department in any business will face the need to reduce expenditure while maintaining its functions.

In this case, some inventory will be in the stock and in the store. Stock outs but also avoid overstocking items that aren’t selling. The information needed to understand your SKU intensity is available in your inventory system’s history file, but you also need to understand what your system is telling you. Tailor your SKU intensity by pulling together sales and inventory information to figure out exactly what’s going on with your inventory.

IT cost reduction mistakes

Chuck focuses on cost reduction and continuous improvement in the supply chain and logistics, with an eye toward lean initiatives. How quickly can you get replacement merchandise when you run low? The longer it takes, the more items you must keep on hand and, as a result, the higher your costs. Implementing a perpetual inventory system will allow you to track sales and inventory movements in real-time—allowing you to automatically re-order stock when it makes the most sense for your business.. Communications at Eyefreight, where she is responsible for marketing strategy and planning. Prior to Eyefreight, Lisa was vice president, marketing and human resources at PartnerData.

Property Identification Tags Explore options for easy identification and tracking of property assets. Reducing your costs can lead to a higher profit — without the need to raise your product price. Unfortunately, making costing mistakes can lead to lower profit . As an accountant, you can make a big impact on your company’s bottom line by addressing these mistakes. In addition to product drawings, it is important that manufacturerscreate and maintain a BOM for each product. Because so many business decisions, like part-ordering, can be driven from a BOM, it is crucial that the information contained within a BOM is accurate and up-to-date.

The 5 Avoidable Mistakes That Cost My Business Money

At times, it requires to redesign the warehouse floor plans and have everything thing at their disposal in one location. To get a better idea of how much additional cost can be related to carrying inventory, APQC reviewed data from its Open Standards Benchmarking in logistics. The data shows a $101 difference between top-performing ($51.89) and bottom-performing ($153.33) organizations regarding inventory value per $1,000 in revenue. For an organization with $5 billion in revenue, this difference translates into $505 million worth of inventory stored in warehouses. ManufacturingManufacturing Explore asset tags designed to last in harsh manufacturing conditions.

Coordinators were valuable to departments whose operations were spread around the country but less so to those nearby. Finally, you’ll want to look back through the past three budget cycles to discover where your department proposed productivity-enhancing suggestions that required small investments. They may have been rejected because of constraints or other priorities (this often happens, for example, when initiatives require systems programming and IT’s resources are tied up elsewhere). Some managers fail to address these problems because of perceived procedural barriers (“HR says we have to document Fred’s underperformance and go through a probationary period—it’s just too much hassle”). We once worked with a company that had given 94% of all midlevel managers the highest rating on its scale during its most recent evaluation period. At first, the HR department said that the grade inflation made it impossible to address underperformers, so the division president took a different tack and re-examined his organization’s structure.

  • When your manufacturing processes have been captured, reviewed, and approved via a controlled documentation and release process, the risk of scrap and rework is greatly reduced.
  • This is especially challenging when it comes to IT, where the mix of people, infrastructure, and equipment complicates the matter significantly.
  • Manufacturers should consider electronic change management software to help eliminate rework and scrap expenses.
  • When the full cost was recognized and charged back to his department, standards changed.
  • I’d reach out to clients with ready-to-go pitches either at the end of a month or right at the beginning of the next, and as soon as they were approved, I’d start on initial outlines.
  • Take a department with 125 frontline workers, 25 first-level supervisors, and five second-level supervisors.

Warehouse / LogisticsWarehouse Labels Explore label options for every warehouse location, including rack labels, long-range signs and bulk storage areas. Shipboard & MarineShipboard & Marine Explore asset tags for use in marine operating conditions exposed to saltwater spray. Label and track your education organization’s property with durable barcode labels.

How To Reduce Logistics Costs: 19 Experts Reveal Ways Organizations Can Cut Their Logistics Transportation And Carry Costs

“In our experience one of the best things companies can do to reduce the cost, complexity, and logistics headaches in general is centralizing their distribution. “Inventory cost is defined as the cost of holding goods in stock. If you’re looking for a way to reduce your inventory cost, chances are you’re stocking too much inventory. Too much on-hand inventory increases your storage costs—thus your cost of goods sold—and ties up liquid cash. Metano supplies intermediate bulk containers to consumer product, chemical and other manufacturing companies who need to move bulk liquids in their production process.

It is rarely possible to achieve cost reductions of 20% unless you remove a significant portion of the work content from the department. It’s never a good idea to attempt to do the same work with 20% fewer people. Take a department with 125 frontline workers, 25 first-level supervisors, and five second-level supervisors. The all-in cost of each supervisor is 50% higher than that of the individuals she supervises, and the average span of control is five.If you cut the frontline staff by 20% and left management alone, overall cost savings would be just14%. But if you reduced the supervisory ranks by the same percentage, thus keeping the average span of control at five, your savings would go up by nearly half, to 20%.

IT cost reduction mistakes

Fruitful areas to examine include paper, photocopying, personal computers , and furniture. You should strive to eliminate any work for which the cost exceeds the value . This will allow you to separate the decision to eliminate tasks from the identity of the individuals who conduct them. You can then determine which people are best suited for the new jobs.

To cut 30% or more, pursue cross-department and program-elimination ideas. But remember that they have the greatest potential to be organizationally disruptive. First, don’t expect to reach your target with a single big idea. Second, match the kinds of opportunities you examine and implement to the degree of cost reduction required. Some costs, such as electricity and management overhead may be mostly fixed, but with a variable component if volume changes significantly (e.g. adding an additional shift). However, batch conveyance might be necessary to reduce the cost, and the rate of supply will not equal to the rate of pull.

Ignoring Customer Feedback

Incorrect BOM information can result in ordering the wrong parts—and if the parts can’t be returned or used in other products, they become scrap for the company. Reducing administrative costs by 10%, or 20%, or 30% is a daunting task, but take heart. If you start now and stick with it, you will find enough ideas—and the right ones—to reach your goal. Finally, you should seek out opportunities to tell other departments how they are overserving you.

Any and all product data handed over to your CM must be current and correct so he or she can build to spec; failing to do so is a major cause of rework and scrap. Many small to mid-sized manufacturers believe their documentation bases are covered if they’re capturing designs in a CAD tool. Both experience and research indicate that idea generation improves through multiple iterations. So, even if your recommendations are not due for a month or more, you should identify ideas today that could meet the full goal. You will find that the ideas improve each time you do this, because you will see new possibilities and discover the limitations of your earlier ideas.

Keep Operations Efficient With Barcode Asset Tracking Tags

This is especially challenging when it comes to IT, where the mix of people, infrastructure, and equipment complicates the matter significantly. I took some time to look at different payment options and realized that ACH transfers and some third-party sites like Wise would allow me to receive payment without any fees. The next best option was my invoicing software’s credit card fees, which were 2.9% + $0.30 for cards, except American Express . Wire transfers https://globalcloudteam.com/ were often not cost-effective unless the invoice was over $1,600. If they wanted to use a single source, a company would have to thoroughly evaluate a bidder’s ability to provide the service and whether the carrier has the stability not fall into bankruptcy within the timeline of the contract. If the winning bidder fulfills the needs of the company, and has been fully evaluated, a company could gain significant transportation savings using a single carrier.

Getting To 20%: Redesign Ideas

If they are not below market, consider holding the average pay increase in your department to 1% or 2% less than last year’s company average. Combine activities like training days and celebrations into single events, and cross-schedule the use of outside resources. Overhead should be incurred for only three purposes—to enable your direct activities, increase their effectiveness, or lay the groundwork for growth. And each kind of overhead should be held to a different standard. To get to 10%, go with incremental ideas that do not significantly disrupt your organization’s or department’s interactions with others. It allows critical tasks to be completed far more quickly and with less risk of failure.

When done correctly, it will enable your business to weather difficult times. It can even be leveraged into a strategic win, one that leads to greater efficiencies and overall cost-effectiveness. Online Computers will help you navigate such a critical and often sensitive undertaking to ensure that you get the most value out of cost-cutting.

If you are hunting for savings of 30% or more, you may have to challenge even the most sacred of cows—and you may be pleasantly surprised at the outcome. One professional-services company that prided itself on hiring and developing the best talent was reluctant to change its approach to interviewing, selecting, and managing the performance of its personnel. But the billable hours consumed by such activities were simply too numerous to ignore. An extensive review revealed that most of the related HR paperwork added to the time burden but did not improve results. Further, in the hiring process, three interviews by the best interviewers more accurately predicted a candidate’s eventual success with the firm than up to six interviews by less-skilled interviewers. The company restructured these activities in light of what it had learned, both decreasing the hours spent on them and increasing employee satisfaction and performance.


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