Strategies to control costs in times of high inflation

With inflation’s impact on the costs of raw materials, commodities, labor and shipping, trying to control costs at your organization may feel like you’re climbing up a downward-moving escalator.

But even with higher supplier prices across the board, it’s possible to fine-tune your strategy to control costs.

A good first step is to ask your accounting team to generate a report of all transactions from the last month, grouping them by vendor, then identifying the costs as fixed (not related to selling your products or services) or variable (directly tied to revenue).

Knowing what’s fixed and what’s variable can help to streamline planning, negotiating, and budgeting and forecasting.

Ideas to control costs

Experts suggest reducing variable expenses by:

• seeking out volume discounts/rebates. If a vendor allows you to purchase larger quantities of goods at a discounted rate, it’s a good idea to do so if your cash flow can support it. If a supplier doesn’t offer this option, but you have a good relationship with them, it may be time to ask.
• reviewing vendor contracts regularly. Instead of automatically renewing vendor contracts, maybe it’s time to shop around for other suppliers that might have more favorable terms. An annual or biannual review of your contracts can give Finance an idea when existing contracts expire and when to set reminders to start looking for a better deal. The review should also include monitoring contracts for data completeness and correctness, and compliance.
• encouraging collaboration between Finance and Purchasing. Does Purchasing know about any early-pay discounts or trade spend initiatives that are available? Establishing a preferred vendor program can increase your buying power.

And even though fixed costs don’t change much, you can control costs by converting fixed costs into variable ones. Some possibilities:

• Simplifying and consolidating operations. This can include subleasing unused space in your building(s), renegotiating the terms of your lease or finding a more affordable location.
• Improving workplace energy efficiency. Turning off lights and equipment when they aren’t in use, using LED light bulbs and installing a programmable thermostat may seem like very small changes. But because energy costs are increasing, these changes can add up to big savings over time.
• Changing compensation structure. Instead of laying off employees, is it feasible to convert any pay structures to variable (e.g., tied to revenue)? Sales staff may accept a lower base salary if there’s a higher commission, for example.
• Outsourcing. To control costs from salaries, benefits and employment taxes, it may be time to closely examine the various job roles at your firm and determine which add value and what areas of skill are essential to have in-house. Are there roles that can be outsourced to another business partner to control costs? Are there any work activities that can be accomplished with automation, robotic process automation or artificial intelligence?

By taking a closer look at the data from your company’s transactions report from the previous month, you can analyze where money is being spent, and possibly who’s spending it. But when prices are high, it’s critical to have financial accountability and additional spend visibility by cost category, business process, function and business unit. An automated spend management solution can provide Finance with greater insight into spending data, and flag savings opportunities and compliance issues in real time.