The financial impact of effective COGS management : A Case Study
This is a potential example of how a small retail business specializing in handcrafted items was able to reduce cost of goods sold (COGS). The company achieved this by negotiating better deals with suppliers and using an improved inventory management system.
Business overview:
This retail store specializes in selling handmade items, like jewelry, pottery and fabric. It is owned by a small family and has been around for several years.
For more than 10 years, the business has been doing well due to its prime location which is a popular destination for travelers. Additionally, it has retained its dedicated customers and also attracts frequent foot traffic.
Problem:
The business’ profitability was suffering due to its high cost of goods sold (COGS). Much of the expense was charged by multiple suppliers who supplied their handcrafted products at expensive rates.
Furthermore, the manual inventory system utilized by the company made it hard to accurately monitor costs and construct reliable financial predictions.
Solution:
To battle the rising expense, the business owner opted to execute a few strategies to decrease their cost of goods sold (COGS):
- Negotiate better deals with suppliers: To get better deals on handcrafted products, the business owner started networking with suppliers and negotiating deals. This resulted in more affordable prices as well as advantageous payment terms. Establishing strong ties with suppliers was a successful venture that improved the business’s bottom line.
- Implement an efficient inventory management system: To streamline inventory tracking, the business owner invested in a new inventory management system. This automated many manual tasks associated with tracking goods and enabled the business to better control expenses & make accurate financial projections.
- Diversify suppliers: The business owner wanted to expand their product range and secure competitive prices, so they sought out additional suppliers. Having multiple vendors not only diversifies the selection of products available, but also gives them more clout in bargaining power.
Results:
These efforts produced a 15% reduction in COGS, significantly increasing profits and enabling the business to invest more in marketing & other growth-promoting programs. This then led to greater success for the organization.
The integration of an inventory management system has enabled the business to gain better control over their expenses and make more precise fiscal estimates. This in turn, helped facilitate astute decision-making.
Conclusion:
Through this case study, we can see how a small retail outlet successfully lowered costs and increased efficiency by negotiating better agreements with suppliers and instituting an advanced inventory control method. This resulted in improved profitability for the business.
If you’re a small business looking to save money and increase profit, these strategies can be invaluable. They provide a way for you to reduce costs and maximize your profits.
