Current economic conditions are wreaking havoc on businesses of all sizes. When demand for your products or services are down, revenue decreases.It’s obvious that variable costs decline when volume decreases, but fixed costs allocated to working capital remain, squeezing margins.

So, the question is, how do we take more cost out of the business when some expenses are fixed, at least in the near term?

Short of liquidating hard assets to keep the ship afloat, one response to taking cost out of your business is to utilize the remaining variable resources in a way that they become more productive. Easier said than done, right?

We’ve all heard about the business process improvement and lean strategies that promise to improve productivity by orders of magnitude. But for small to mid-cap businesses, the time and expense of implementing a highly structured cost reduction program of this type is usually not realistic.

Instead, a simple, straightforward approach to streamlining your service or production operations can be implemented without much difficulty. Often referred to as the Valued-added Approach, an activity should only be done if it adds value, i.e., if it meets one of these criteria:

1.    An activity adds value if the customer cares about it.

2.    An activity adds value if it physically changes the thing.

3.    An activity adds value if it is done right the first time.

You may be surprised how many things you find that don’t meet these criteria and are just draining time and resources unnecessarily.This is an important examination of your business and it may be a good time to do it.

In addition to taking direct cost out of your business,the Value-added Approach has other,more sustainable, benefits:

1.    Service or production processes experience reduced cycle or turnaround times.

2.    Quality improves because there is less need for inspection and audit.

3.    Waste is reduced because there is less rework.

4.    Customer acceptance is improved because quality is higher and potentially lower costs that you may pass on are reduced.

And the best part is, you can do it on your own – or make it a job for one of the employees you might otherwise need to layoff. It will pay for itself very quickly.

As a discussion item, I welcome readers to comment with additional input on this, or other, cost reduction strategies so we can all learn each from others’ best practices.

“Laws and institutions, like clocks, must occasionally be cleaned, wound up, and set to true time.”

-H.W. Beecher