Tightening cost and margin controls to weather uncertain times

A decade of blistering change — technology advances, economic uncertainties and rising customer expectations — has shifted the ground seismically for retail, warehousing and distribution businesses.

And there’s only more uncertainty ahead. Probably the greatest threat (or opportunity, depending on where your clients sit) is the growing inroads made by e-commerce.

The arrival of Amazon, in particular, has everyone on edge. According to the Australian Institute of Company Directors, 52% of Australian businesses see Amazon as a threat. Yet only 25% have a plan to compete with the online shopping giant.

With uncontrollable threats to business-as-usual crashing in from all sides, the need to better control what you can control in your client’s business is more vital than ever.

And one area where too many businesses control less than they could? Managing margin and costs.

3 common cost and margin control failings

We’ve worked with a wide range of businesses throughout Australia and New Zealand to pinpoint where they’re vulnerable, and where and how controls need to be tightened.

In fact, we’ve created a whole e-book about it: download HARMONiQ’s Controlling Margin and Costs here.

Meanwhile, these are three areas in particular where I see repeated underperformance — and serious risk to the business as a result

1. Inefficiencies lurking in systems and processes

It is paramount your client’s business technology system stays up to date in order to spot inefficiencies early on.

Technology advances keep rolling in and can make a live-or-die difference to your client’s operations — and ultimately, their bottom line.

Those whose systems and processes fall behind can lose ground competitively, and see margins progressively eroded by cascading inefficiencies like:

  • Excess downtime;
  • Haphazard and un-optimised e-commerce sites;
  • Errors in distribution, stocktake, or inventory; and,
  • Rising customer complaints and defections.

What’s needed today: a thorough and continuous process of technology re-assessment.

Businesses that want to be nimble enough to survive the unexpected need regular forensic analysis of their operations to:

  • Map out and thoroughly understand businesses processes;
  • Break down and quantify cost components;
  • Spot inefficiencies early;
  • Identify risks and vulnerabilities; and,
  • Uncover potential improvements and their financial impact.

2. Not knowing where to invest and where to cut costs

To tighten your client’s businesses cost and margin controls effectively, they need a system that gives visibility of all financial decisions.

Companies that can’t precisely understand, monitor and manage costs and margins can too easily make the wrong financial decisions — and undermine their ability to stay competitive:

  • Opting for short-term financial gains, vs investing in long-term competitiveness and growth;
  • Under-investing in ‘good costs’ — the elements that add value for customers and competitiveness for the business; and,
  • Over-spending on ‘bad costs’ — the ones that don’t add intrinsic value to your client’s business.

What’s needed today: the right metrics and controls to provide a solid business case for your client’s spending decisions.

This requires:

  • Identification of the true drivers of cost and margin performance in your client’s business;
  • A business system that automates their tracking, measurement and reporting; and,
  • A culture of margin and cost optimisation across the entire organisation.

3. Software and systems that just aren’t up to the task

Your client’s business needs to be supported by one cohesive system.

Having production line, inventory, pricing and other systems spread across multiple platforms might once have been manageable.

And for smaller businesses certain simple, cheap, easily accessible solutions seemed to make sense, even if they were cumbersome, error-prone and less than optimal.

That’s just not good enough anymore, for businesses of any size.

A lack of reliable, integrated systems and data isn’t just a headache. It can cost a fortune, hold your client’s business back and even threaten its viability:

  • Monitoring production costs and margin controls becomes imprecise, difficult and time-consuming;
  • The flexibility that staff need to meet the market is hampered;
  • Problems and inefficiencies get overlooked; and,
  • Opportunities for growth or improvement are missed.

What’s needed today: up-to-date, integrated software that provides full margin and cost visibility and control

Very simply – your client’s software and systems need to let them:

  • Monitor and interpret data across the entire operation;
  • Spot problems in real time;
  • Operate flexibly, but within strategically-defined constraints; and,
  • Act swiftly on factors affecting their bottom line

Any of these issues sound familiar?

HARMONiQ has helped a wide range of retail, warehousing and distribution business put in place the metrics and controls they need to make an immediate impact on their bottom line.

Next month, I’ll talk more about ways to implement tighter margin and cost controls in your client’s business.

Meanwhile, why not learn more: download HARMONiQ’s Controlling Margin and Costs e-book.

And if you’d like to see how our system can help your clients gain control and weather the pressures ahead, click here to request a demo and I’ll be in touch shortly.

 

Author bio:

Drew Arthur is the Managing Director of Micronet Systems and is focused on helping business leaders overcome inefficient sales, inventory, and customer relationship management practices by leveraging cutting edge technology.

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