1.Focusing more and more on cutting indirect cost.
There are many types of indirect costs in the construction industry, right down to the cost of an office Christmas party for your staff. There are several larger monthly operating expenses that are easily adjustable with no change in service or quality. What we have found is that utilities, phone, internet service, insurance and document services, like book keeping, have been the best areas for contractors to cut major operating cost. Many companies have been able to cut as much as 70% on indirect operating cost. With 85% of all contractor projects running over budget, being able to cut any none related project cost is a company life saver.
2. Plan ahead when Buying Materials.
Failing to plan ahead when buying materials, prevents your company from getting the best prices on any material, keeping your cost high. When working with contractors, we found that many would get staff go to a local hardware store to get materials. This approach is convenient but very cost ineffective. Giving your team 3 days to shop for the best material pricing, can cuts your material cost by as much as 20%.
3.Leaning out their Inventory (just-in-Time)
Remember Inventory is money you can’t spend. Try to keep your stock at a minimum. Understand the longer you hold on to access inventory, the higher the risk the inventory will fall victim to shrinkage i.e broken, lost or stolen. The first place to lean inventory is your standard material. If its a common material that is often used, track the usage and you can start scheduling inventory hauls to replenish this recurring inventory. This takes a little of structure and discipline but the long term cost saving are huge. When putting a great system in place you may see as much as 25% of inventory cost being cut. Leaning out your inventory will cut your shrinkage and biggest operating cost, rent. If you begin to run a very lean inventory, you no longer need all of that storage space you have. Imagine if you could cut your rent in half just by putting a “just-in-time” leaning system in place. A little effort in the beginning can have a major impact on increasing your net profit.
4. Outsourcing your Cost Strategy to an Expert
Just like a Financial Advisor advises on how and where to invest your money to make it grow, you have companies that work on advising and managing where to cut cost and save your money. Similar to financial advisors, these companies do not make money until you save money. Most often there isn’t an upfront cost for these services and it is a great value added. What they do for you:
- Look for volume discounts.
- Regularly review your vendor contracts.
- Centralize your services if possible.
- Shop around for new vendors.
This may not seem time consuming, outsourcing to an expert, who knows where to get the best deals, certainly will save you valuable time and operating cost.
5.Building a Contractor Network
Many material vendors are constantly raising prices. Remember everything is negotiable. Every time you buy material from a vendor it is a new negotiation. With a little networking in your industry, you can find where your access cost is coming from. Once found, go back to your current vendor and explain to them the pricing you found for the same material/service. There are two great things about doing this. finally, You will often get a better price and your vendors will be more mindful when pricing.