Methods for Cost Reduction

In the previous article of the 'Store Manager Job Series' titled 'How to Create Store Numbers,' I touched upon methods for store managers to increase company profits.

As I mentioned then, to 'increase profits,' you must either 'increase sales' or 'reduce expenses.'

It is easy to understand if you plug numbers into a formula and compare them. B is the case where sales are increased, and C is the case where expenses are reduced. In both cases, profits have increased.

Ideally, both should be done simultaneously, but this time I will focus specifically on 'reducing expenses.' While the previous article was from a store manager's perspective, this one keeps in mind 'what small and medium-sized enterprises should do.'

<Grasping the Current Situation>

First, look at the profit and loss statement among the financial statements sent from the accounting department to investigate where, what kind of expenses, and how much is being spent. You must grasp the current situation.

It will be easier to work if you classify and examine items by fixed costs, variable costs, and cost of goods sold.

<Fixed Costs>

Fixed costs are expenses that always occur every month regardless of whether sales are high or low.

Rent is a significant burden, so it is an expense that should be examined, such as whether there is a cheaper office location or if a more compact space would suffice.

Increasing remote work or focusing on online meetings may allow you to downsize your office or reduce transportation expenses.

Electricity bills can sometimes be lowered by switching power companies. It is worth looking into.

If there are unnecessary landline phone lines that are not being used, canceling them, reviewing mobile phone plans, or introducing low-cost SIM cards might help keep costs down.

If there are software license agreements that are not being used, you should cancel them.

You should consider whether ineffective or wasteful advertising can be eliminated.

You should also organize insurance policies that are outdated, do not match current circumstances, or are redundant.

<Personnel Expenses>

Personnel expenses are also fixed costs that occur in a certain amount every month. They account for a significant weight among expenses.

When people talk about cost reduction, some immediately try to cut salaries or lay off staff, but this should not be done lightly.

This should only be done as a last resort, at the final stage where the company would otherwise go bankrupt.

Employees will likely not be convinced either.
The company should have plenty of other things it needs to do.
After all, management also bears the responsibility for the stability of their employees' livelihoods.

If expenses are reduced but employee motivation drops, it could lead to a decline in sales rather than an increase, and may even result in customers leaving.

As shown in D in the previous diagram, revenue will ultimately decrease.
Therefore, labor costs should not be reduced, but rather approached with a focus on seeking efficiency.

Let's have computers handle tasks that can be automated as much as possible, such as accounting, customer management, and inventory management.
Outsourcing is also a method worth considering.
It would be good to respond flexibly by diversifying employment forms, such as part-time workers, temporary staffing, and contract employees.

<Variable Costs>

Variable costs are those that increase or decrease every month depending on sales and business volume.

Costs for paper and ink for copying and printing can be reduced if digitalization is promoted.

Simply reducing unnecessary meetings or simplifying multi-stage approval processes can have positive effects on time, expenses, and morale, such as by reducing overtime.

Regarding procurement, if you can obtain quotes from multiple companies, periodically review even established suppliers, or negotiate discounts through bulk buying or long-term contracts, you can lower prices, which means lowering expenses.

<Inventory>

Among the financial statements, isn't the amount in the merchandise column of the balance sheet too large compared to sales?

Let's check the appropriate inventory levels for each item.

Items that are clearly dead stock due to excess should be disposed of immediately.
Holding onto them only puts pressure on cash flow.
You should get rid of them even if you have to push a little to lower the price.

Procurement must also be limited to amounts that match sales while checking sales trends.
Even if you buy more at a lower price, it will just become dead stock if it doesn't sell.
If it remains unsold and you end up throwing it away, it becomes a complete loss and puts pressure on profits.
This is where the skill of the procurement staff is put to the test.

<Utilizing Subsidies>

It is also necessary to check if there are any subsidies from public institutions that can be utilized.
If you can receive support, you can significantly lower costs.

<Summary>

As I mentioned regarding labor costs, cost reduction is not just about simply lowering expenses.

If you cut costs poorly and it results in decreased efficiency and takes more time, it will indirectly lead to an increase in labor costs.

This cannot be understood just by looking at the numbers.

If we end up causing burdens or inconvenience to our customers, we risk losing even our future sales.

Having talented personnel leave due to restructuring is a significant loss for the company.

For management, securing stable future profits is just as important a responsibility as achieving short-term gains.

Please also take a look at my previous articles.

Furthermore, it is important for all employees in the company to participate in these efforts, establish them as continuous activities, and share cost-consciousness throughout the entire organization.

By investing the savings into areas that lead to further value creation, such as incentives or new challenges, a virtuous cycle of growth is born.

Thank you for reading.
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I look forward to your continued support.

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