I have the opportunity to travel the world with my job, and this has provided me with firsthand experience of the challenges facing many or our customers and prospects. I don’t know about you, but I’m not feeling great about the global economy right now.
For starters, plummeting oil prices may be a good thing for you and me at the pump, but they’re terrible for the many nations in which the economy pretty much revolves around oil exports. Think Venezuela, Ecuador, and Colombia.
Meanwhile, the strengthening of the U.S. dollar is making it difficult for many nations to maintain a good balance of trade. A strong dollar means other nations won’t have as much buying power when they purchase U.S. dollars with the intention of trading with the U.S. And buying hard assets, or foreign goods that are priced in U.S. dollars, become even more expensive for economies with weakening currencies.
Quantitative easing is still going on around the world. And political instability threatens the economies of some nations.
In short, it’s difficult to forecast healthy economic results in just about any geographic region or industry.
So, how is it that several major banks have recently posted record profits?
The Not-So-Secret Secret to JPMorgan’s Success
Just days ago, JPMorgan announced that its annual profits had reached a record level. The situation over there is so good that the company’s CEO, Jamie Dimon, was paid $27 million in fiscal 2015, an increase from the mere $20 million he made the previous year.
What’s interesting is that JPMorgan didn’t pull this off by raking in more money. They did it by cutting costs.
According to a USA Today article, JPMorgan cut headcount by 3% last year. The article notes that Morgan Stanley and Bank of America are planning on reducing headcount costs too, by laying people off or moving jobs to cheaper cities.
JPMorgan hasn’t been the only winner. The Wall Street Journal reports that Citigroup achieved a 21% increase in profits—despite a decline in trading revenue—largely through aggressive cost reductions.
How to Do What the Best Banks Do
There’s nothing magical about what these banks achieved. In fact, their stories bear a lesson for companies in just about any industry: when topline revenues look like they’re going to remain flat, cutting costs can still catapult you to new levels of profitability.
So, look for the low-hanging fruit in terms of cost reduction—and then pick that fruit as soon as possible.
The supply chain is a prime area most companies should look at when looking to take out cost. First of all, this is a huge cost area, and even modest reductions can have a meaningful impact on the bottom line.
Take a look at your warehouse. All of that inventory sitting there is probably your largest expense next to headcount. Rather than cutting heads—and having to deal with the human casualties, not to mention the severance pay and potential legal issues—why not cut boxes?
But don’t just cut inventory blindly. That’s a recipe for throwing your manufacturing schedule off kilter or creating a situation where you cannot satisfy customer demand. Impacting sales and customer satisfaction levels is not the best approach to reducing cost!
Instead, rely on supply chain planning software. With the right solution in place, you can actually forecast with a great degree of accuracy how many of each inventory item you’ll need to meet future demand, and exactly when to order these items. You can actually increase your customer service levels at the same time you’re cutting inventory.
Sure, there’s a limit to how far you can slash expenses. But keep in mind that every dollar you cut from the budget is a dollar in hand right now. That’s totally different from a dollar you hope to earn in six months or a year, depending on how well your new marketing campaign works.
Make the Smart Play: Cost Reduction
For many companies, and in many regions, 2016 is going to be a dogfight for profitability. That’s why it’s absolutely critical to invest only in the areas that bring the greatest promise of payback. Cost reduction is the sure thing, the smart play.
Demand Solutions gives you the supply chain planning tools to start squeezing expenses out of every aspect of your supply chain operations. And if you want to get started reducing costs without making a large up-front investment in implementation and hardware, you can access the platform in the cloud.
Whatever you do, don’t just aim to survive 2016. Make this your year to thrive.