Business is a very competitive environment and the competitive edge normally comes from reducing costs. By Gary Shotton #000158

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Reducing Costs

By Gary Shotton

                   Hello, my name is Gary Shotton and I’m here as a part of this global effort to Inspire Better Business. I hope you’ll be a part of this in many ways, today I’m going to talk about reducing costs. You see from accounting standpoint your profit obviously is the difference between your sales volume or your sales revenue minus your cost, and costs can be broken down into your direct costs or and another category of your overhead or indirect cost. But as you go along in your company and you’re trying to make profit one of the best things you can do is to reduce costs. That’s kind of a tricky endeavor because sometimes if you’re not careful you reduce costs by cutting out something that was valuable to your customers. Your customers wish that you had introduced that lack of service or product size or our size of the meal that you might provide. Or the cup of coffee that you might provide that might be, just over the edge you start losing customers.

So I was told by another author this story and I’m going to pass it on that one of the major airlines in the United States, realized that they could save as much as $50,000 per year, on their overall Airlines with all of their flights. If they did one simple thing, they cut out one olive out of the salads, that they were supply. I don’t know if anybody’s going to miss that Holly I kind of doubt it so there’s $50,000 drops to the bottom line, they also decided that when their tract saying up to the port or up to the gate from the outside that in rather than using two engines. They would use just one engine well I’m sure I wouldn’t notice that because I doubt if they’re going very fast so good cut that alone is going to save that airline five million dollar now.

Another one kind of came closer to home to me but the rest of the industries followed suit. There are no hotter meals on many   of the flights and what this airline discovered, is that they took out two or three rows of seats were taken up. Because of the hot meals they were out at seat CIN those rows because see it wasn’t the cost of the meal of the heating that wasn’t the issue. It was the weight the actual added weight to the overall flight overall airplane and I’m in a city that has a lot to do with aviation and I know that the airlines are always very careful, to only add weight to their overall structure their overall airplane the base of the airplane. If it’s only absolutely needed and then there’s new things in composites and the way they can make a structural design that they’re taking weight out. So this removing the hot meal though netted 50 million dollars per year that airline drops to the bottom line. Normally and I’m sure that was also adding back the extra luggage or at extra capacity to haul people and luggage.

Now in my company I must watch cost and this whole discussion is going to hinge upon how good and how professional you are. I did mention these on two other separate teachings like this one was knowing your numbers you know someone in business must, at some point be able to really understand their accounting understand their numbers. Understand how the numbers were derived and you don’t have to be the bookkeeper you don’t have to enter the numbers but as owner or CEO or key person inside your company you better understand your numbers.  Because you wouldn’t know that these things that I just talked about would save that much money. Unless you really understand your numbers, I also taught on job costing and that would be one of those cases again. If you don’t know what it’s costing you to do this job supply this meal fix this person’s, that’s suppose that both the selling a product see in my business, I have to know what the costs are for these parts that you see behind me. We sell these parts and we work always trying to always improve and get a better understanding, of what the cost is. Because we could be selling something under cost, I don’t want to do that another, cost of reduction is saving money thing happened in our company back in 2009. We had a huge economic downturn I had 65 employees the start of 2009 and about the four months later.

I had only 24 employees now that means I left off 41 employees. If my numbers right and that hurt me a lot, I had to tell 41 people that used to work for me they need to go find a job someplace else. Unfortunately, as when there’s not many jobs for anybody else now we had insurance, they had a gap they had unemployment insurance. That I’d paid for so there was a window of time, it wasn’t just out on the street. Because I had to let them go but I had to cut costs you better believe, I brought the core people in we looked at everything and maintained a new standard of cost on certain things example, this is surprises people if you go into our bathroom at the shop you would have yes an air dryer which is fairly common. But a lot of our guys don’t want to put their hands into an air dryer and in the past before 2009. We had added this dispenser on the wall, and we had paper and we somebody would roll out like you know they would roll out like eight feet of paper and little dry their hands. They’d put it over the trash and at the end of the day we had a whole a bucketful a whole big container full of hand wipes.

Well we went out and bought a washing machine and dryer old or used but, commercial grade and we bought white hand rags and we put in our bathrooms. Right there today we put a little clip it’s really the paper clip that has a little spring to it.  We put a nail on it and we put Bob and under Bob we put a little paper clip, we hung a white hand tell that’s Bob’s hand towel. We took on George we put one for George, one for Gary we put one for everybody. And once a week we go in there and pull all those, put them in the wash them, anytime somebody wants another hand to tell them just go get a clean hand towel. But you know at home I don’t wash my hand dry my hands once, and then every single time get a brand-new towel. I use it repeatedly and it’s my same towel we saved. I think about a hundred dollars well about fifty dollars a week well that adds up it was and so we’re looking at cost savings.

Now there’s limits you know, that and if we’re not careful you could overdo it. And you can run people away, I’ll tell it a couple limits I have a place. I’ve got coffee and I kind of don’t like this about this place because I went and I had a cup of coffee, it clearly said 20 ounces and then a few days or weeks after doing this for a long time. Week and months and get my cup of coffee in the morning. I noticed the price on the coffee went up seven or eight cents, well I can buy that I can understand it with seven eight cents up. So, from whatever price it was it’s now seven or eight maybe five to seven cents higher well, I could kind of live with that but then I noticed they changed the cup it doesn’t say 20 ounces anymore. It says large and they don’t tell me what the size and I looked at that compared to the old cup, there tried to them took volume off I started by my coffee someplace else. I’m tired well we got to rematch at this if we’re not careful we’re going to end up with people that are that are upset with us. We have customers you see I wouldn’t go to my customer which is a long-standing customer and try to shave it down too much to give them something less something of lesser quality or lesser size or lesser weight.

I just wouldn’t do that, that’s me but I can look at what I’m doing to produce it. And cost less to get there less for me to make it and there’s where we try to cut our cost. You see our customers want to hear me say to them and I tell them all the time. We don’t have a job and last my customer has a customer, so my customer said we make these parts. We don’t sell them to just anybody they’re not a commodity item, we sell them to one customer and they then assemble them into a final product. And then they sell it to their customer you see if I raise my price too much, I’m too expensive by parts or too expensive I drive the cost of my customer the local company we deal with so that their costs are too high.  Then we’re not competitive against the rest of the world on that product so I try to always what we call cost management partnership. We are asked to, and we bring ideas that will actually make the sales price less it’s another subject, but it fits right in here well I hope this is helpful to you. You’re reducing your cost is going to be important to making profit, I hope you’ll share these are designed to inspire better business. Just being willing to on the bottom of your after you view this right if you’ll just scroll down a little bit you’ll see where you can leave a comment you could hit a button that says I like this boy that helps us because other people see that thank you.