New Cost Management Techniques Are Popping Up Around the World

May 16, 2012 by  Filed under: Management 

Organizations attempt to grow their profits in numerous ways. Many times, these attempts concentrate on increasing revenue, which should lead to higher profits so long as the company maintains their profit margins and do not incur additional fixed costs connected with these sales increases. In certain instances, it is not feasible to increase revenues due to a saturated market. In these instances, and in others designed to improve profitability, an organization may seek to implement cost costs to increase profits.

Controlling costs is not just about maintaining the bottom line, it is about raising the upper line as well. By having a lower cost structure, companies can undercut their competition and pickup additional market share in competitive markets. This can allow a company to grow and increase their market share. Increased market share allows many organizations to further cut costs that are fixed, such as executive compensation, thereby leading to additional savings.

Information technology is increasingly available global and maintaining centralized databases where this information can be stored and accessed, through cloud computing software, may lead to lower costs associated with storing and processing information.

Much like just-in-time methods did in the 1980’s, some of the best practices of the world in regards to cost management spread and are adopted around the world. Just-in-time inventory methods were an excellent example of this. This method of manufacturing had goods shipped to a warehouse just before they were used in the production process. This eliminated costs associated with maintaining excess inventory amounts on site which led to lower overhead costs and allowed manufacturers who have adopted this method of managing costs to realize lower costs and to undercut the competition in terms of price. Many manufacturers who did not adopt these methods found themselves effectively out of business or in need of a corporate makeover.

Cost management has been growing in size and scope as organizations continue to become more international in size and scope. Global organizations are more able to allocate tasks to various locals that either have cheaper labor or better access to resources, or through lower effective tax rates present in certain tax locals. Managing expenses on a global scale have led to increased profits as resources can be allocated to divisions in which they are most effectively utilized to provide the highest profits possible for the organization. Adopting to the new global economy is one of the challenges that organizations will be facing now in the future.

Cost management is a major challenge for many procurement departments in large companies; read more articles on our webpage.

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