Cost control and margin management are critical processes in any business, but often attacked through varying means. In the case of wholesale distribution for example, margins are often decided by the manufacturer, and distributors are tied to this set pricing. Moving more stock becomes a constant objective, but overlooks tactics such as storage projections or market trends, which could identify which goods are fast moving or economical to store. As a result it's often also difficult to approach cost control in a way that makes sense for your business model.
However, this certainly doesn’t mean that strategies for improving your cost management are out of reach - you just need to know where to look.
What makes cost control a challenge?
In addition to rarely being able to set your own margins, there are a few other issues that you may have run into with your cost control efforts. If these sound familiar, don’t worry: You definitely aren’t alone. Here are three strategies you can apply to improve your cost control and your profits.
Before we get to those, though, let’s take a look at what may be holding you back:
- Siloed cost data: Let us be the ones to tell you - spreadsheets and other systems that keep your cost information separate are not your friend. While these may appear to help organise and categorise expenses, individual cost tracking methods may also prevent you from having the full picture of your costs.
- Overlooked areas: Speaking of not having the full picture, another problem can quickly arise when stakeholders don’t take into account all the different areas in which their business incurs costs. As RDX Sports pointed out, it’s important to factor in cost components like labour (including seasonal staff), stock losses, packaging and distribution expenses, low quality or low production costs, and general overhead expenses. Any missing pieces here can result in skewed cost estimations, which can impact your ability to adequately control your costs. After all, you can’t manage cost areas that are in your blind spot.
- Outdated systems: Siloed data is one thing - but if your business is still using legacy systems to track and measure your costs, you’re painting yourself into a corner. A study from Mint Juras found that only 58% of distributors used a fully integrated ERP suite to run their business. Others (28%) were on their way, with integrated finance and accounting solutions alongside other, siloed applications. Another 14% were only using finance and accounting apps, and had legacy processes in place for other operational areas. As Mint Juras researchers pointed out, distributors without integrated ERP technology in place (including especially that last 14%) were running with “huge operational gap[s].”
What benefits can cost control measures bring?
Now that we’ve taken a look at the bad, let’s move on to the good. Some of the benefits that businesses reap when they are able to properly control costs include:
- Improved profits: This is an obvious one, but worth discussing nonetheless. When you’re able to cut unnecessary expenditures and better manage the costs that you must incur, you’re able to turn those losses into profits, and put some of that money back in your pocket.
- Improved labour and inventory management: Labour and inventory are no doubt two of your largest (and most important) cost components. When you have better insight into how much you’re spending in these areas, you can optimise everything from your staff scheduling to the inventory levels that you keep on hand.
- Access to game-changing data: These days, it’s all in the data. When you improve the cost control measures you use, you also open the door to more accurate and up-to-date data pertaining to your overarching business costs. This data is ripe for analysis, and you can leverage it to support executive decision-making, gain a better understanding of your supply chain partners and customers, and beyond. And the possibilities for further cost control improvements are nearly endless when you have the right data on hand (and not siloed in spreadsheets or separate systems).
How an ERP helps you get there
There are a few important strategies that you should apply to your cost control methods- and wouldn’t you know it, all of them require a best-in-class ERP solution like NetSuite.
Here’s the thing - in order to improve your cost control, you need an advanced, integrated and accessible solution that gives you access to your cost component data. NetSuite checks these boxes and then some, enabling you to have the most in-depth visibility into your most critical cost areas, as well as the smaller expenses that make a difference to your bottom line.
Once you have a solution like NetSuite in place, you can improve cost control in a few ways:
- See everything from a single, unified view: This may not seem like a big deal, but how many sources do you need to consult for just one board report? A system like NetSuite has delivered 50-80% improvement in visibility for those in wholesale distribution. You might be surprised by the time and effort you’re able to save with your cost calculations and controls when you don’t have to switch between different spreadsheets or systems to get the full picture. What’s more, getting rid of extra software subscriptions that you don’t need is a quick win.
- Create your own cost reduction KPIs: ERP systems like NetSuite put you in the driver's seat, and allow you to establish your own tailored expense dashboards and analyse these with your unique KPIs. This way, you can prioritise your cost controls to tackle the low hanging fruit first, and embark on larger cost reduction projects later on.
- Take control of your inventory: Improve your inventory management costs by identifying just the right time to release backstock, as well as which items are your slowest movers.
And this is just the beginning.
Connect with us at Fusion 5 today to see how we can help you unlock the best savings and improve your cost controls with NetSuite.
If you want to work through whether an ERP is right for you download our Navigating Change Worksheet