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First, determine which category each expense belongs to. Expenses are usually classified according to whether they are fixed or variable does the cost vary according to production, and direct or indirect is the cost directly linked to a product or service. Select the two or three expenses that have increased the most, or those that you think you can reduce, and focus your cost reduction efforts on them. From you can find the best deals now.

For example, for most manufacturers, labor and cost of materials are the main components of variable direct costs. Optimization of supply, operational efficiency and value-added production are very useful in reducing variable costs. Here are some additional tips to cut costs:

Explore procurement options

Review each of your external expenses, and try to renegotiate better deals or find new suppliers. In manufacturing companies, the supply of products and services can represent up to 80% of total expenses. Many companies get their supplies largely from acquaintances. However, even if it may be necessary to call on its network for certain products and services, it is certainly not the only way to buy. Find out if other companies are offering the same thing for less. You must assess the whole market with objectivity, and not immediately contact your usual supplier or its neighbor.

Optimize inventory management

Excess inventory can be a major source of unnecessary spending. To control and reduce storage costs, check periodically for excess or obsolete inventory. Make sure stocks are better suited to demand and, in the long run, adopt just-in-time production.

Make more use of technology

Explore information technology. They can offer user-friendly and affordable tools to increase productivity and reduce costs.

Use dashboards

Measure your performance continuously using dashboards to integrate cost reduction into your corporate culture. Dashboards based on key performance indicators will allow you to assess the results of your cost reduction initiatives.

Go green

Greening your business is a great way to cut costs, as well as boosting employee morale, improving your image and protecting the environment in your community. You can especially turn off lights and machines when you are not using them, reduce your water consumption, give up paper, buy energy-efficient equipment or even ensure that the equipment is maintained regularly. In order to maintain its energy efficiency, extend its service life and reduce repair costs.

Keeping your business costs down is a definite advantage in business. However, in a competitive and volatile market, entrepreneurs need to find the best strategies to reduce costs and optimize management processes.

Controlling your costs has become as important a priority as increasing your business revenue. That’s why performing an internal expenditure assessment and understanding how your processes work is the best way to identify unnecessary costs and establish an effective program that will deliver lasting benefits for your business.

Measure your costs

Before creating an action plan to reduce your costs, you need to do an evaluation of your business expenses. Once the data has been collected, do a detailed analysis of your expenses from the most relevant or the largest to the least relevant. This analysis will allow you to identify any hidden costs that certainly affect your results.