How any company can increase profit without increasing its product/service price? Originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Profit = Revenue – Cost
So if you want to increase your profits you can either increase your sales price of product/service or decrease the cost of the producing the product or cost of providing the service.
This is done my optimizing the cost at different points in the value chain by reduce wastage and hence minimizing the costs. The following can be taken into account while doing so:
1) Procurement/Sourcing strategy
This is the part where in you buy your raw materials that are required to produce a product/service, e.g.: you need chemicals to manufacture perfume. You can re negotiate the prices of the raw material from the vendor or change the raw material to a low cost one to reduce the cost. Vendor management and sourcing strategies play a key role in this.
This part pertains to converting raw materials to finished goods. This can include using a lot of waste reduction techniques such as Kaizen, 5S etc along with inventory management, process optimization to reduce costs.
In service industries a time study of the processes may be done to improve the process and save costs. Ex: It can be as simple as each cubicle having a dustbin instead of centralized dustbin to save time.
3) Outbound Logistics
This part relates to delivering the product/service to the client/customer. Here a lot of techniques such as network optimization, Fleet rationalization, Economic order quantity etc can be worked out to reduce costs.
Forecasting: this gives you the demand of the product which is very crucial since the amount you produce or the number of people you hire to deliver a service will depend upon this.
One superb example is of Collaborative Planning Forecasting and Replenishment (CPFR) between P&G and Walmart. Here Walmart sends the data about the usage of P&G products in its store, as soon as the amount reaches a minimal level P&G replenishes the product. This helps in reducing a lot of logistic costs as P&G sends shipments only when required and Walmart also has an advantage that it never runs out of products.