10 WAYS TO BOOST YOUR COMPANY’S VALUE: Practice #8: Reduce COGS expenses


Practice #8: Reduce COGS expenses

Rather than waiting for commodity prices to increase, take an overview of all your inputs to your cost of goods sold (COGS) per product. If you are a manufacturer, raw material price movements can dramatically affect profits from period to period. The way to win this battle and reduce COGS is to focus on the following:

  • Raw material input flexibility
  • Strong supplier relations
  • Process automation

Raw material input flexibility means you have tested new, cheaper raw material inputs with customers and found a sustainable quality alternative. If you generally buy large quantities of raw materials from the same supplier, ask that supplier to investigate cheaper high quality substitutes and experiment with these to see what works with customers. If your supplier doesn’t seem to be on the same page, investigate getting another supplier. Also consider signing a supplier contract with stipulated pricing for discounts on volume, and term of the agreement.

Ideally you should have deep supplier relationships where both you and the supplier have a significant stake in the outcome should something go wrong or input prices increase suddenly. Any supplier not willing to work with you is pause for concern in reducing COGS going forward. In fact, it is a best practice to have at least three suppliers for every key input material of COGS, enabling you to keep each one honest, productive and competitive when it comes to serving your needs.

Finally, consider your relative competitive position when it comes to process or “throughput” automation. This is the speed and cost of producing or completing a single product or service sale. Since capital costs are down in this economy, consider funding new equipment that can increase throughput substantially, reduce bottlenecks and gain a competitive edge going forward. Even though investing in capital projects in an uncertain economy is daunting, with all things considered, now is a good time to take advantage of equipment manufacturers’ and service providers’ discounts and financing, before a renewed consumer confidence increases prices.

Check in for part 9 on boosting company value by investing wisely in R&D.