SME: Building a cost-efficient business

Promoting competence in your business’ plan of action will go a long way in ensuring that your resources are utilised wisely.

  

A good – and sustainable – way to manage spending is to make your firm more efficient. This is especially important in the current environment in which, on the one hand, margins are under pressure and budgets tight and, on the other, technological innovations are driving real opportunities for efficiency.

There are three types of efficiency gains:

  • Cash-releasing efficiency gains, which reduce the cost of an activity without impacting its output in quality or quantity;
  • Time-releasing efficiency gains enable your existing staff to deliver more output;
  • Non-cashable efficiency gains enable you to deliver higher quality output without increasing resources.

Bear in mind that efficiency gains should not compromise the quality of your products or services, as this would compromise your business in the long term. When reviewing your options, you need to take into account the impact of a cash or time efficiency gain on service levels, quality and customer satisfaction in comparison to your current position.

KNOW YOUR BUSINESS

The first step in improving your firm’s efficiency is to know your business and, in particular, its commercial situation – its most and least profitable customers, most and least profitable products or services, cost of supplies, and administrative costs.

Having a good handle on this information will help you identify the most likely sources of efficiency gains within your firm, pinpointing the areas where you can streamline processes, eliminate redundancies, increase productivity or outsource non-core tasks. Taking this methodical approach will further enable you to focus on the gains that will not adversely affect your production in terms of quality or quantity, while freeing resources for the activities with the strongest growth and revenue-generating potential.

A lot of inefficiencies that can be found within firms are logistical: by reviewing and rationalising your processes in production, delivery, administrative and support services, you can maximise economies of scales, remove duplication of tasks, minimise stock and inventory costs and improve delivery.

TRAIN STAFF AND UTILISE TECHNOLOGY

Another key factor is helping your staff become more efficient, through appropriate training, so they can perform better at their current tasks and to enable them to take on new challenges, but also by reducing their paperwork, freeing them up to focus on their core activities, generating revenue and improving client satisfaction levels.

A third tool you can use is technology, at all levels of your business, from automating your production lines to implementing software for administration, logistics or customer relationship management, or putting in place electronic order and delivery systems to sell your products and services. This will reduce manual processes, time spent on them and errors made, while freeing time for your staff, giving you better tools to know your clients and serve them efficiently, and making your operations more scalable.

Finally, putting in place an effective procurement policy will enable you to buy resources at the best possible price, first and foremost in terms of production input, but also for production tools, and all your other needs down to office supplies. You can also outsource non-core activities, but when negotiating with these and other long-term suppliers, remember that it is critical to have partners and providers you can rely on over the long haul, and to think of future evolutions when discussing contract terms.

HOW TO ACHIEVE EFFICIENCY

Below are some examples of potential efficiency gains you can look to achieve:

  • Reducing staff, where fewer people can achieve the same results;
  • Putting in place a procurement policy and renegotiating contracts with your suppliers, to purchase goods or services in a more cost-effective manner;
  • Reorganise the work space so you can accommodate more staff without having to buy or rent out larger offices (or use a smaller space for your existing staff);
  • Review your processes, particularly complex ones, to simplify them and eliminate redundancies;
  • Find the right technology to automate production, delivery, administrative and/or support processes;
  • Train your staff to enable them to deliver a better service, or to take on new tasks;
  • Reduce administrative tasks and paperwork to free up staff time for value-added activities.

To maintain a lean operation over the long term, keep control over and oversight into your processes, clients, sales and performance as your activity develops.

© ZAWYA 2020