Back to Financial Disciplines - Cost Controls

By Sandy LeDuc
LeDuc and Sikowitz

My article last month gave a summary of the budgeting process. It included what seems, in retrospect, like the rather cavalier suggestion that once all the sales and cost information was gathered you had only to "assemble it all and massage the result until it meets management's profit and cash flow objectives".

It was not my intention to imply that this was a simple matter. In today's environment business leaders are squeezed between competitive pressure on pricing and ever-rising costs. Profit must be ensured to guarantee the continued willingness of investors and additional capital for growth. Only one thing will reconcile all these needs-costs must be eliminated.

This exercise must challenge every established process regardless of its past effectiveness. If we look to the notion of "lean" business practices currently being established through reengineering, we find businesses today are aimed at eliminating every scrap of waste in every business process.

An obvious example of such waste is found in the extraordinary cost of carrying inventory. Practices developed in Japan such as just-in-time inventory methods are employed specifically for the purpose of eliminating such waste. Many of these practices translate to professional service practices as well. Likewise, a retailer such as Walmart uses these methods to push inventory responsibility back to the manufacturer.

Technology has made these practices possible through the free flow of information. Inventory software is able to predict inventory needs based on sales and supply information. Walmart uses technology to gather data and inform suppliers of expected movement of inventory.

Strengthening purchasing and receiving positions and the information flowing from those areas can allow the accounting system to pay vendors from receiving information matched to purchasing terms, thereby eliminating the need for invoices and extra paper shuffling. Something as simple as direct deposit of payroll effectively saves steps in the accounting department.

Internal email for enterprise-wide communication; the use of the Internet to send payments to vendors eliminating the cost of processing checks or to receive payment from customers eliminating the cost of making deposits; and Internet banking to eliminate some accounting processes are all examples of technology that can eliminate waste.

Look in every area of your business. Build your technology. Challenge what you "know".

Easy? No! Imperative? Yes!

Winter 2003 -Volume 13, Number 1

All articles are copyrighted by the authors in the year published.