If you receive errors when attempting to view this white paper, please install the latest version of
Adobe Reader.
"Founded in 1972, SAP has a rich history of innovation and growth as a true industry leader. SAP currently has sales and development locations in more than
50 countries worldwide and is listed on several exchanges, including the Frankfurt Stock Exchange and NYSE
under the symbol SAP."
Source : SAP
Reducing Costs with Efficient Operations: A Fast Track to More Working Capital
Reducing Costs is also known as :
Reducing Costs,
Cost Structure,
Competitive Pricing,
Operational Efficiency,
Operating Efficiency,,
Competition Based Pricing,
Reduce Cost,
Lower Benefits Costs,
Reducing Business Costs,
Competition Pricing,
Operation Efficiency,
Pricing Strategies,
Pricing Software,
Pricing Higher Profit,
Pricing Solutions,
Pricing Methods,
Product Pricing,
Transfer Pricing,
Product Life Cycle Management,
Value Pricing,
Price Elasticity Demand,
New Product Pricing,
Time Based Pricing,
Suggested Retail Price,
Purchasing Power,
Psychological Pricing,
Market-Adaptive Pricing,
Options Pricing,
Cost Limit Price,
TAKING CONTROL OF YOUR COST STRUCTURE
If only it didn’t cost so much money to make money. That’s
the predicament of many small businesses and midsize
companies. Customers keep demanding more for less – and
those product and service enhancements cost you more
to provide even though you get paid less for them. Larger
competitors often have deeper pockets – plus, they enjoy
economies of scale that you can’t match. Untamed costs
can deplete the precious working capital that’s critical to
your ongoing operations and new expansions.
But there’s a bright side: you can get a
handle on costs by taking systematic
steps to improve operational efficiency.
By instituting efficient automated
processes throughout your organization,
you can reduce waste, unnecessary
overtime, and a host of other cost
factors. Integrated business software
systems put this efficiency overhaul
within reach, quickly and affordably.
As you gain more control of the debit
ledger, both sides of the balance sheet
improve: cutting costs gives you higher
gross margins and enables you to boost
revenues by offering your customers
more competitive pricing and terms.
Saving money helps you make more
money. Plus, changing red ink to
black helps you, your employees,
shareholders, and investors sleep
easier.
WHAT DRIVES UP COSTS?
Some cost drivers (like energy and
commodity prices, interest rates, and
healthcare) are largely beyond your
ability to control. Others, such as labor
and materials, can be effectively managed
and reduced if you know how to
identify and control them. Generally
speaking, rising "controllable" costs
signal inefficient use, even waste, of
resources, including people, capital,
and assets. Controllable cost drivers
include:
• Customer "squeezing" – Why should
a customer pay for custom delivery,
drop shipping, promotions, merchandizing,
and warehousing when your
business can be coerced to pay instead?
Customers are pushing many
costs upstream to producers and
distributors, relying on competitive
pressure to strengthen their demands.
And when customers insist on fixedbid
pricing, the temptation to bid low
in order to win a contract may lead to
frustration as costs outstrip fees. To
identify the true cost of goods and
services sold, you must take all these
concessions into account. Then, you
can analyze whether what you’re
doing to win customer satisfaction
is really paying off.
• Unproductive labor and staff –
People are your most valuable – and
costly – resource. You’re constantly
trying to improve productivity, reduce
redundancy, and eliminate unnecessary
shifts, positions, and overtime.
But you don’t want to jeopardize a
stable, experienced, and loyal
workforce with across-the-board
measures. You need a method to
analyze and manage how you use your
resources and take into account the
real costs and value of your staff and
positions. You also need efficient,
automated processes that reduce
manual tasks, optimize scheduling
and assignments, and enable your
talent to work at a higher level of
productivity.
• Low-yield working capital – Customers
don’t want to tie up their cash flow by
buying and holding your products in
advance, so you need to carry
enough safety stock to meet surges
in demand. That leaves you carrying
the costs of inventory and compromising
your own cash flow. You need
to focus your inventory on key products
and narrow safety stock levels,
still ensuring you can meet demand.
• Inefficient use of assets and
materials – How much can you skimp
on materials before you undermine
the quality of your product? Better to
apply efficiencies in materials management
and procurement to manage
costs. With a haphazard materials
management system, you’re scrambling
just to locate needed materials
rather than negotiating the best prices
from reliable suppliers. You need
a way to consolidate your buying
power and establish a stable network
of suppliers.
MAXIMIZE EFFICIENCY TO DRIVE DOWN COSTS
By helping you to control costs – of
production, maintenance, administration,
and asset utilization – efficient operations
improve the cash position and
financial stability of your company.
The common thread is the need for a
clear understanding of how you can
improve your cost structure, and a plan
to execute that improvement. Once
inefficiencies are identified, you can
target improvements, such as:
- Automating processes
- Compressing cycle times
- Eliminating errors in order fulfillment
- Streamlining inventory
- Procuring materials at better prices
- Optimizing staffing and resources
- Controlling credit and debt
Automate Processes, Reduce
Labor Costs
People can only be as productive as their
working environment allows. An automated
system can relieve your staff of
routine, error-prone tasks and direct
workflow toward greater productivity
and higher-value activities. For instance,
in a service environment, your resources
should be doing just that – providing
better client service, not spending time
on nonbillable administrative tasks.
In addition, consider using a good system
to track employee skills and training
levels, so the right talent is available
when opportunities arise. You can also
limit overtime by scheduling employees
more efficiently. Embedded controls
can alert management to overtime issues
that might indicate scheduling problems,
so you can correct the problem before
the next production or work cycle.
When you have a unified, integrated
business system in place, you can promote
process excellence, automate
routine and administrative tasks, and
enable your people to be more efficient
and productive.
Streamline Operations, Compress
Cycle Time
Time is money. If it takes you a week to
fulfill an order when it should take a
day, your faster competitors will seize
the advantage. Order fulfillment is an
example of a key cycle that can be
compromised by inefficiencies from
many sides – such as order entry, picking
and packing, delivery service, and
staff training and scheduling. Rather
than trying to evaluate and overhaul
each step separately, you can quickly
achieve superior processes by using a
unified business system. You’ll bring
best practices, speed, accuracy, and
efficiency to your core cycles – from
sales through product or service delivery
to invoicing and cash receipt – in timely
fashion.
Eliminate Redundancies and
Waste
"Waste" can mean everything from
redundant manual processes to
manufacturing defects, reworks, and
excessive SKUs. Waste can be found
not only on the shop floor and in the
warehouse and loading dock, but
also in administrative, purchasing,
and other business activities –
how much added revenue did that
promotional campaign really
generate? Bad debt is a corrosive
form of waste.
With a unified view across operations,
sales, customers, and financials, you
can assess business processes
company-wide and identify and prioritize
opportunities to reduce waste,
redundancies, and costs.
Built-in controls and alerts keep your
operations focused on efficiencies.
Automated alerts can notify decision
makers when costs in a particular area
may be trending higher, in time to
evaluate options and identify ways to
keep costs in line.
Put Cash to Work in High-Value
Initiatives
You have limited resources, so you
want them earning maximum returns.
With the clear information you gain
from a comprehensive, integrated business
system, you can analyze investment
strategies and select the right
combination of initiatives that will maximize
profitability. Whether you use your
cash to expand into new markets, move
manufacturing to lower-cost areas,
develop new services, or increase
product marketing and promotion, you
can do so with confidence that you will
be applying your resources to yield
maximum return.
The results on your bottom line will win
the confidence of your shareholders,
investors, and board members.
SUMMARY: INVEST IN COST MANAGEMENT
It seems like a paradox: spend to save.
But by investing in a unified, integrated
business management system, you can
institute operational efficiencies that will
identify the cash sieves in your organization
and help you stop the drain. When
you gain control of costs, you raise your
gross profit margins and strengthen your
competitive position. You boost revenues
by offering better prices and terms
to your customers. You increase your
cash reserves and free up resources to
invest in strategic initiatives. You enable
your employees and assets to work
more productively. As you gain a clearer
understanding of all the ways you can
improve your cost position and develop
a plan to execute those improvements,
you build an efficient operation – and
your bottom line grows.
The SAP® portfolio of comprehensive,
integrated business solutions, designed
specifically for small businesses and
midsize companies, helps you take
control of your cost structure. With
these solutions, you can cut costs to
achieve higher gross margins even as
you increase revenue by offering your
customers more attractive pricing and
terms.
SAP Can Help You Cut Costs – Affordably and Easily< h3>
SAP® Solutions for Small Businesses and Midsize Companies
When it comes to the widely varying
needs of small and midsize
businesses, one solution doesn’t fit
all. SAP offers a portfolio of flexible
and affordable business management
solutions designed specifically
for the fast-changing needs of
small businesses and midsize
companies.
With SAP® software, you gain a
standardized, proven solution platform
– enabling you not only to run
your entire business efficiently but
also to predict the costs and outcome
of your IT investment. SAP
solutions can be deployed readily
and affordably, so businesses
focusing on cost containment can
quickly improve and realize measurable
returns. By integrating and
streamlining the entire business
operation across sales, customers,
financials, and operations, SAP
solutions help drive operational
efficiency, enabling you to better
control costs.
Cost control is critical to being able
to offer competitively priced goods
and services. SAP can help you better
control both fixed and variable costs
by unifying systems, providing built-in
controls and alerts, and producing
up-to-the-minute, accurate reporting
for all parts of your business.
Trusted by more than 25,000 small
and midsize customers around the
world, SAP brings the industry experience
and range of solutions it takes
to help companies control costs,
increase profits, stay ahead of the
competition, and succeed.
For more information, please visit
www.sap.com/solutions/sme
/index.epx.