Pierre Veyrat

How to Reduce Operating Costs: 10 Practical Tips

How to reduce operating costs in a fast and effective way with these 10 practical and effective methods, check out the list.

The question of how to reduce operating costs is a common issue for many companies, especially in times of market contraction and a down-turned economy. The reduction in operating costs is a task that requires a lot of discipline, and therefore a BPM technology is suitable.

One example is the introduction of a Shared Services Center that allows the company to be organized with a vision of Services Rendered, either internally or externally. This view generates more rationality in the consumption of resources by consolidating information and standardizing procedures, always focused on efficiency and effectiveness.

Also, here are some more examples of how to reduce operating costs. Use them as a “benchmark” for your company.

But in addition to a formal investigation of how to reduce operating costs (which requires proper and careful planning), if you want to start some research and start making changes, we have prepared a list with 10 tips on how to reduce operating costs, just for you.

10 Ideas for How to Reduce Operating Costs

1. Ask for ideas about how to reduce operating costs from employees

If you understand the process and are working every day with it, you can get to know that process very well. The idea, though, is to define exactly what information is being asked and guide the flow of information. For example, with a list of well-directed questions: How can we reduce energy costs? How can we reduce the use of paper? How can we minimize the purchase of office supplies? etc. A good idea is to use an IT tool and set up rewards and incentives.

2. Find ways to reduce waste

There’s waste during the production process, such as metal shavings, wood chips, strips of paper etc. These are difficult to remove and require careful study. A possible process transformation could help. You could also use BPM tools for this.
Other types of waste can be avoided with internal marketing campaigns, suggesting everyone to turn off the lights and turn off their computers when not in use, print double-sided, use water rationally, etc.

3. Find alternative suppliers of materials

Can you find another material with similar performance, preferably identical, that can replace those already being used by the company? Strategic purchasing “procurement” techniques can greatly help in your quest for reduced operating costs.

4. Renegotiate contract terms and conditions

It’s not just your company that is facing difficulties if the economic scenario is unfavorable. It’s time to use its bargaining power with your suppliers, who don’t want to lose sales, by trying to improve the conditions of payment, prices, etc.

5. Turnover inventory faster

This measure reduces the “working capital” needed to keep your business running, allowing a more rational allocation of these funds, being more economical.

6. Try to reduce the financial cost of purchases

Have you considered negotiating discounts by paying cash? Of course, we need to account for and study the best alternative depending on the interest rate and cash availability, but a good discount can be interesting for both parties: you spend less and your supplier is paid faster.

7. Purchasing economic lots: use this concept!

The cost of storage can be significantly reduced if you use the method of purchasing lots. The formula used for it uses variables like demand, lot size, the cost of the order, inventory and average unit cost.

8. Move the business to another location

It seems radical to promote the reduction of operating costs that way. But logistics costs, tax, personnel displacement and even absenteeism can be reduced by moving address. However, its planning should be very careful.

9. Outsourcing

Usually, it is suggested that activities that do not represent the “core business” of the company can be outsourced. These are activities such as security, hygiene, and cleanliness, meals, etc. that’s because the scale with which they are performed by suppliers may represent an excellent opportunity to reduce operating costs.

But do it carefully: see how to ensure quality when outsourcing processes, here.

10. Renewal of machinery and equipment

Machines have a useful life after which their operation becomes very costly and unproductive. Also, new technologies can represent higher quality for your products, timely production and reduced use of inputs. Of course: only a detailed study can reveal whether this type of acquisition is positive in the pursuit of lower operating costs.