Cost Cutting – Part 1: Why Does Traditional Cost Cutting Fail?

Traditional cost-cutting fails in many companies. So how do you get the most out of your company? This is one of the most common questions that Joel McGinley, Managing Director of Hubtek, regularly receives.  

It’s not so much about how much money you can save, but more about how much value you can create.

Joel McGinley, Hubtek/TranStrategy Partners Managing Director

The real problem is the rising cost of labor combined with the loss of productivity.  On one hand labor, and labor costs (such as the employee’s expectations of how much money they will make), are increasing dramatically. On the other hand, we see a downward trend in how much profit businesses are realizing. It is evident that when companies experience rising costs and shrinking gross profit, they have a real problem with maintaining profitability levels. 

So, what do companies typically do? The traditional answer is they cut costs and eliminate workers, because most of the funds are spent on labor. These days, 50% to 70% of gross profit represents the total cost of labor, so it does not make sense to expect to get profit increases from cost savings because getting rid of employees is a short-term approach that produces some negative consequences: 

  1. Current employees experience burnout because they have more pressure in their jobs. 
  1. Businesses have fewer people doing more work, so the quality of work is affected. 
  1. The company ignores inefficiencies on behalf of saving money. 

All of these factors can and do lead to a poor image, loss of customers, and inefficiency. In other words, traditional cost-cutting is not working for most logistics companies today. 

Come back for the second part of our blog next week. We invite you to watch our Webinar On-Demand “Cost Cutting Done Right: 2021 Update

Webinar On-Demand!

Hubtek is a workforce optimization solutions provider for the Logistics and Transportation Industry. We help companies optimize their processes, accelerate their growth, and boost their positioning in the marketplace. We invite you to discover how you can increase your bottom line through our co-managed Talent (Nearshore Staffing), Intelligent Process Automation (TABi), and coaching and training platform (ProfitQuest).  

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