10 Effective Strategies Enterprises Used to Reduce Business Operating Costs and How You Can Do It?

Calibraint

Author

March 16, 2024

Last updated: August 14, 2024

Let’s face it, folks, in the game of business, every penny counts. But between keeping the lights on, your employees happy (and caffeinated!), and that never-ending stream of invoices, reducing business operating costs can feel like trying to squeeze blood from a stone. 

We have the good news, and it’s not about ruthless cuts or sacrificing quality. It’s about getting smart, strategic, and maybe even a little bit… rebellious. And many organizations have successfully executed it. If they can get it right, you can also get it done effectively.

So, traditional business owners take some notes. We’re about to share the ten best ways to reduce business operating costs with technological solutions and run a thriving business – all without sacrificing quality or that classic, brick-and-mortar charm.

1. Renegotiate Contracts with Suppliers 

Imagine this – You’ve been loyally paying a supplier the same price for years, only to discover a competitor just scored a much better deal. Frustrating, right? Similarly, Staples, the office supply giant has been facing a major issue in their supply chain management for years. 

They implemented a strategic sourcing process that focused on supplier consolidation and negotiation. It helped them save millions by renegotiating supplier contracts. By leveraging their massive buying power and exploring alternative vendors, they secured better deals on everything from paperclips to printers. This resulted in the reduction of business operating costs and improved their profit margins. 

So, what’s the takeaway here? 

Don’t be a passive participant in this cost charade! Renegotiating contracts with suppliers is a great strategy for reducing business operating costs. Here’s how:

Gather Leverage: 

Before initiating talks, strengthen your bargaining position. Have you consistently paid on time? Do you order in bulk? Highlighting your loyalty and buying power can incentivize suppliers to offer better rates. 

Do Your Homework: 

Research current market rates for the goods or services you purchase. Armed with this knowledge, you can confidently propose a more competitive price or negotiate additional benefits. 

2. Reduce Waste from every side 

Think of waste as a silent thief, steadily pilfering your profits. It can manifest in various forms – unused office supplies, excessive inventory, or inefficient processes. No matter how well your business is performing, it will be overrun by competitors in no time if you miss out on leveraging the latest technologies.

Despite being a market leader, in order to stay competitive, Walmart keeps utilizing technology to give its vendors and customers additional convenience. The business introduced Eden in 2018 to improve the quality and flow of produce from farm to shelf. If you are still wondering how technology reduces business costs, this integration helped them to reduce over 50% of waste and save $170M annually. 

If you want to identify and eliminate waste in your business operations, here’s how you can do it:

Conduct a Waste Audit: 

Just like a financial audit, perform a waste audit to pinpoint areas where resources are squandered. Analyze everything, from energy consumption to unused software subscriptions.

Embrace the “Lean” Philosophy: 

The “Lean” methodology focuses on eliminating waste while maximizing value. Implement lean principles by streamlining processes and utilizing resources efficiently. 

Digital Transformation for Waste Reduction: 

Digital tools can be powerful allies in your war against waste. A single web app can write a new chapter in your enterprise journey, remember the sustainable success story of Seattle? That’s the level of transformation a digital solution can offer. You can optimize every level across your vast network of stores, significantly reducing overstocking and waste. 

3. Outsource Non-Core Functions 

Have you ever stayed at a Hilton Hotel? If you did, we are sure that you would still remember their guest experience and core hospitality operations. But what if they hadn’t outsourced their on-premise operations and instead focused their internal resources on other functions? 

Their team would have been drowning in a sea of administrative tasks and Hilton wouldn’t have achieved the brand loyalty they have in the current market. That’s what happens when businesses get bogged down in non-core functions instead of focusing on how to reduce cost in business.

Outsourcing non-core functions can be a lifesaver in these scenarios. Outsourcing non-core functions allows you to focus on your core competencies while delegating less critical tasks to specialists. This can significantly reduce business operational costs in the following ways:  

Reduce Labor Costs: 

Outsourcing often translates to lower labor costs compared to maintaining an in-house team for non-critical tasks.

Boost Efficiency: 

Specialized providers often possess the expertise and infrastructure to handle specific tasks more efficiently than an in-house team juggling multiple responsibilities.

Focus on Core Competencies: 

By delegating non-core functions, your team can dedicate their time and energy to activities that directly drive your competitive advantage while reducing business operating costs.

4. Embrace SaaS in your business operations 

Technology has revolutionized how businesses operate, and cost reduction is no exception as it plays a pivotal role in business success. Companies that embrace this futuristic trend gain a competitive edge, while those lagging behind risk falling short. Whether it’s enhancing efficiency, improving customer experience, or overall performance, technology is an indispensable tool for businesses of all sizes. 

A good example of technology adoption to stay ahead of the curve would be the deal between Ford and Google. They entered into a six-year deal worth hundreds of millions of dollars in 2021. Google will take responsibility for much of Ford’s in-vehicle connectivity, cloud computing, and other technology services. The tie-up aims to streamline Ford’s operations and accelerate its ongoing $11 billion restructuring plan marking a significant shift for Ford in reducing business operating costs. 

Here’s how leveraging technology can help with your business:

Automation: 

Repetitive tasks like data entry, scheduling, and email marketing can be automated, freeing up employee time for more strategic activities. This strategy will not only reduce business operating costs but also improve accuracy and efficiency. 

Cloud-Based Solutions: 

Cloud computing offers a cost-effective alternative to traditional on-premise IT infrastructure. Eliminate the need for expensive hardware and software licenses, and instead, pay-as-you-go for cloud-based solutions that scale with your needs. 

5. Reduce energy consumption 

The continuous whirring of machines and the hum of lights can have a major effect on business resources. Reducing energy consumption is a win-win situation, benefitting your bottom line and the environment. Here’s how to become an energy conservation champion and reduce business operating costs: 

Conduct an Energy Audit: 

Identify areas where energy is being wasted. An energy audit analyzes your energy usage patterns and pinpoints opportunities for improvement. 

Embrace Energy-Efficient Practices: 

Simple changes can make a big difference in reducing business operating costs. Encourage employees to switch off lights and electronics when not in use, and invest in energy-efficient appliances and lighting fixtures. 

Invest in Smart Building Technologies: 

Smart thermostats and lighting systems can automatically adjust energy consumption based on occupancy and weather conditions. For instance, Siemens utilizes smart building technologies in their offices worldwide. This has resulted in a 30% reduction in energy consumption, demonstrating the role of digital transformation in operational costs reduction.  

6. Review and optimize staffing levels

In a perfectly balanced symphony orchestra, each instrument plays a crucial role in giving you the best experience. But an excessive number of musicians would create cacophony, not harmony. Reviewing and optimizing staffing levels is critical for ensuring you have the right people in the right roles, maximizing efficiency while reducing business operating costs: 

Analyze Workload Distribution: 

Evaluate how tasks are currently distributed among your employees. Are there bottlenecks or underutilized staff? 

Embrace Flexible Work Arrangements:

The rise of remote work offers an opportunity to optimize staffing levels. Consider offering flexible work options to reduce the need for full-time office staff in certain roles.

Invest in Employee Training: 

The role of digital transformation in cost reduction will bring significant results if you equip your employees with the right skills. Let’s say you provide them with a web-based e-learning solution, it can help them to improvise their skills, and take on broader responsibilities, potentially reducing the need for additional hires.  

Embrace the automation: 

Automating your workforce is no longer a luxury; it has become a necessity. As a result, businesses that embrace automation often find that they are able to improve quality while also reducing costs. Cisco Systems implemented a similar program to identify tasks that could be automated and retrain employees to focus on higher-value activities. This helped them reduce business operating costs while maintaining productivity.

7. Reduce Office Space: 

The days of sprawling corporate offices might be fading. With the rise of remote work and collaboration technologies, businesses have a compelling opportunity to reduce office space. 

It doesn’t mean that you should sacrifice collaboration or company culture. 

IBM got it right with a major initiative to reduce office space by promoting remote work and adopting activity-based working models. This strategy helped them to reduce business operating costs and resulted in significant cost savings on rent and utilities. It further allowed IBM to reinvest in innovation and growth. 

With the right strategies in place, you can create a more efficient and cost-effective work environment for your employees. The first thing to remember is there is no one-size-fits-all way to implement. So if you are wondering how to get it done right, you should consider building custom SaaS solutions for your enterprise. 

Here’s how to reduce cost in business operations by rethinking your office space:

Evaluate Space Utilization: 

Analyze how your current office space is being utilized. Are there underused conference rooms or empty desks? 

Embrace Activity-Based Working: 

Shift from a traditional desk-centric layout to an activity-based one. This creates designated areas for different tasks, such as focused work, collaboration, or brainstorming.

Explore Co-working Spaces: 

For businesses with a flexible workforce, co-working spaces offer a cost-effective alternative to traditional leases. This allows you to pay only for the space you need when you need it. 

8. Negotiate Lower Rates with Vendors 

Consider your vendors as valuable partners, not just passive providers of goods or services.  Negotiating lower rates with vendors is a strategic dance that strengthens your relationships while saving you money.  Here are some steps to conquer this negotiation game:

Gather Leverage: 

Before initiating negotiations, assess your bargaining power. Ask yourself – are you a loyal, high-volume customer? Highlighting your loyalty and buying power incentivizes vendors to offer better deals and helps with reducing business operating costs. 

Shop Around and Compare Prices: 

Don’t hesitate to compare quotes from multiple vendors. This knowledge will equip you to confidently propose a competitive price when negotiating with your preferred supplier.

Focus on Mutually Beneficial Solutions: 

Don’t always aim for the absolute lowest price as operational costs reduction strategies should benefit both parties. You can consider longer payment terms or sign a multi-year contract in exchange for a good discount. 

Take Amazon for example, it is renowned for its aggressive negotiation tactics with vendors.  Amazon leverages its massive buying power to negotiate significant discounts on a wide range of products, allowing them to offer competitive prices to their customers.

9. Reduce Travel Costs 

Business travel can be a significant expense. But packing should be your only stress! As we discuss some of the best ways to reduce travel costs and keep your business on the move without breaking the bank:

Embrace Video Conferencing: 

Technology like video conferencing platforms allows for productive meetings without the need for in-person travel. This can significantly reduce travel costs associated with meetings, training sessions, and client pitches. It doesn’t mean that in-person meetings and conferences will disappear but you can cut down a major chunk of business operating costs. 

Promote Remote Work: 

For certain roles, remote work can eliminate the need for regular commutes. This translates to cost savings on transportation and allows businesses to tap into a wider talent pool geographically. Salesforce promotes a “remote-first” work culture. This approach paved the way for substantial cost savings as their web applications are efficient enough to get the work done. 

Optimize Travel Routing and Timing: 

Utilize travel booking tools and platforms that help you find the most economical flights and accommodation options. Planning trips in advance and considering less expensive travel times can further reduce costs. 

10. Implement Preventative Maintenance 

After getting your dream car, would you neglect the routine maintenance? Obviously not as it can lead to expensive breakdowns. The same principle applies to your business equipment and facilities. Remember, consistently reviewing and optimizing your operational costs reduction methods is an ongoing process. Implementing preventative maintenance is a proactive strategy that prevents costly repairs down the road.

Develop a Preventative Maintenance Plan: 

Create a maintenance schedule tailored to your specific equipment and facilities. This plan should outline recommended maintenance tasks and their frequency.

Invest in Regular Inspections: 

Schedule regular inspections by qualified technicians to identify and address potential problems before they escalate into major breakdowns. Boeing’s Insight Accelerator emphasizes preventative maintenance throughout its production process that ultimately reduce business operating costs which includes the risk of costly in-flight repairs and groundings. 

This is one of the major reasons for their popularity in the aerospace industry. Here is an overview of the feedback they received.  

If you want to avoid spending a fortune on fixing major flaws, train your employees on basic maintenance tasks to identify potential issues and prevent minor problems from snowballing into larger ones. 

It’s time for you to act 

The relentless pursuit of cost reduction doesn’t have to be a zero-sum game. By implementing different digital transformations explored in this blog post, you can significantly reduce business operating costs without sacrificing quality or employee morale. 

Remember, these strategies are just the first steps on your cost-conquering journey. You need professionally developed state-of-the-art digital solutions to move forward and our team can help you with every step of your journey. 

Embrace Calibraint’s data-driven approach, as we continuously monitor your every step, and fine-tune your strategies as needed. With a commitment to cost-consciousness and a dash of creative thinking, we can transform your business into a profit-generating machine, poised to dominate the ever-evolving marketplace, whilst reducing business operating costs. 

So what next? Talk to our business consultant today and reduce business operating costs from every corner to watch your business thrive beyond your competitors – like a breeze!

Calibraint

Author

March 16, 2024

Last updated: August 14, 2024