Reduce Costs Expenses are a recurring concern in business, understandable when the goal is to maintain and grow market relationships. Budgetary restrictions are one way to reduce these expenses, but they're not always straightforward, nor are they the most appropriate decision in certain scenarios to optimize results. There are several ways to achieve this reduction, whether through budget control, customer service level management, cash flow management, or even innovation, although other approaches exist to achieve this goal.
Budgetary control is a management tool widely used in companies to align spending and revenue routines with Strategic Planning definitions, using Key Performance Indicators (KPIs) as indicators of the level of alignment. This tool reveals the direction the company is heading and compares it to its planned direction. This tool guides managers toward optimizing the cost and expense structure, reducing the break-even point, and maximizing profits, among other benefits.
It's worth noting that budgeting is an activity that integrates all departments, providing greater opportunities for knowledge dissemination, resulting in a more informed calculation of figures for the tool, which significantly adds value to the business. It's through this mature integration that financial modeling can be added to the budget—meaning changes to budget variables generated by various departments within the company, seeking the best scenario that results in economic and financial reports more aligned with the Strategic Assumptions. Additionally, when budgeting is carried out using ZBB (Zero-Based Budgeting), this further strengthens the ability to achieve Strategic Planning goals.
This is due to the fact that the OBZ has as its basic premise the constant review of processes, the review of the cost of each activity, in addition to the separation of essential costs/expenses from non-essential costs/expenses, a separation that is fundamental when deciding which cost should be reduced or eliminated.
Delighting customers should be a business's primary objective, as it is the foundation of its continued success. This is the focus of a complex set of variables that must be addressed to meet expectations regarding costs/prices, quality, service, and more. Within this context, it's clear that, while cost reduction is a constant pursuit for companies, other customer service-related variables exist that, if properly managed, can be just as rewarding as cost reduction.
This is the service we call Customer Service Level and its perception is obtained through the analysis of the Factors that add value to the transactions of a business such as: Availability of Stock, Operational Performance, Reliability and MarketingTo measure Stock Availability, you can check, among other measures, the frequency of stockouts and the shipment of complete orders, both associated with Purchasing and Transportation policies, and when well managed, help reduce the need for financial resources.
To measure Operational Performance, one can monitor service speed, consistency of average activity times, flexibility for unpredictable situations, and the level of process failures—all of which ultimately create business value and customer satisfaction. Measuring the reliability of what is offered is verified by maintaining a standardized quality of the product/service, or by the quality of the information about the product/service offered.
And to get an idea of the impact of Marketing you can check the distribution point, the price, the company's value and its history, variables that give personality to the business. Optimizing the aforementioned measures, constant in the four factors (Availability, Performance, Reliability and Marketing), all of them lead to an increase in the Customer Service Level, which results in an improvement in the Business Result, either through Cost reduction, or even through the retention and acquisition of new customers.
Cash Flow Management, understood as the process of monitoring the inflows and outflows of highly liquid financial resources, presents itself as another way to optimize the use of resources, which can ultimately also be seen as a search for expenditure reduction (costs and/or expenses). Shortening the Economic Cycle (time between the Acquisition of Goods and the Write-off of Stock per Sale) helps reduce storage costs.
Reducing the Financial Cycle (the time between payment to a supplier and payment from a customer) is essential for reducing Working Capital Requirement (WCR), which contributes to lowering financial costs for banks. Negotiating payment deferrals to suppliers, negotiating early receipts from customers, and increasing inventory turnover (renewals) are strategies that should be defined in conjunction with sales strategies, as this combination generates financial health by reducing WCR.
Furthermore, bank interest rates should be reviewed whenever possible to continually reduce costs. It's also important to avoid taking out recurring loans to pay off overdue debts, as this simply represents a swap of one debt for another and will certainly only worsen the financial situation.
Another way to pursue cost reduction and improved or maintained results is through the practice of innovation. Innovation can be understood as the act of giving a resource the capacity to have a purpose, generating wealth. Several opportunities arise to promote innovation. One of them can be identified in the facts. unexpected observed in a business, which should be used for analysis and interpretation, but never disregarded or rejected, as there may be a discovery of a scenario conducive to economic-financial growth.
Another opportunity for Innovation is the perception of a incongruity, caused by an event that should have generated a certain result and ended up generating the opposite. There is certainly an underlying motivator that needs to be discovered, that is, it is a new opportunity to perceive improvements. Innovation can still be perceived by need of changing a process, improving it, replacing its restriction point and adding new knowledge, which will certainly generate cost reduction.
Be aware of the need to change in business structure can be a great opportunity for innovation in the market, as it's always important to be willing and prepared to abandon paths that seem safe at the moment in favor of a reinvention that will bring greater business sustainability over the long term. After all, it's common for established companies to view market opportunities as threats, while less established market players see them as opportunities.
Considering everything mentioned so far, it can be stated that cost reduction is intrinsically linked to a range of best practices, from financial and budgetary management, permeating customer service, and monitoring innovation opportunities. All of these lead to optimized results, which gives the business a greater ability to remain in the market.
BIBLIOGRAPHY
BOWERSOX, Donald J.; CLOSS, David J. Business logistics: the supply chain integration process. 1st Ed. São Paulo: Atlas, 2010.
CHRISTOPHER, Martin. Logistics and supply chain management: Creating Networks that Add Value. 2nd Ed. São Paulo: Cengage Learning, 2009.
DRUCKER, Peter F. Innovation and Entrepreneurship. Reprint Ed.: Harper Collins e-books, 2009.
GITMAN, Lawrence J. Principles of Financial Management. 12th Ed.: Pearson Universities, 2009.
Author: Carlos Filho – Cost Coordinator – Ceará Steel Group
Carlos has been with the Group for over 13 years. He holds a degree in Accounting from UFC, a specialization in Financial Administration from UNIFOR and a Master's degree in Administration and He holds a degree in Controllership from UFC, with a dissertation focusing on Customer Service Level. He has worked in Cost Management for 18 years, working in the food, music, metallurgy, steel, and forestry industries. Throughout his career, he has participated in projects related to control, improvement, and information and process management in areas such as inventory, production, OPEX, production costs, acquisition costs, and budgeting (volumes and costs), among others.
EN 
PT_BR 
