Document Management Software And Cost Control

Can document management software help control costs? Before we answer that question, let us try to get an insight into the real significance of cost control.

After sales volumes, costs are significant in generating profits. In a competitive market selling prices tend to be inflexible; you have to sell at the market prices.

That means you have to control costs to achieve profitability. By controlling direct costs of sales you increase the margins on each unit sold. By controlling fixed establishment costs, you make it possible to recover these with the margins on a lower volume of sales.

Now let us see whether document management software can help control these costs.

Ready Access to Information Helps Cost Control

Good document management software contains components to capture all kinds of documents and retrieve these in little time. You would thus be able to store, say, spreadsheets for different cost categories and examine the details.

You can review cost trends: compare them with relevant volumes and against budget estimates. Such reviews would focus your attention on problem areas like a sharp increase in costs per unit produced or per time period.

Investigating further, you can identify the factors that contribute to the deviations from standard. In most cases, you can also take remedial action that would bring costs back to desired, or at least more-acceptable levels.

It's systematic use of information like the above that helps achieve control over costs (and other business result areas).

Let us now take a broad look at some major categories of costs and the factors that influence their levels.

Material Cost Is Likely to be the Major Constituent of Merchandise Costs

If you're a retailer, the costs you incur for buying merchandise and getting it to display racks is your major direct cost. If you are a manufacturer making some product, the costs of materials that go into the product are likely to be the major element of the production cost.

Even a small percentage reduction in these costs is likely to have a significant impact on your profitability. A good document management system helps you retrieve and review the performance of different suppliers.

Some suppliers have consistently-supplied goods of dependable quality while others might be responsible for frequent rejections on quality grounds leading to cost increases.

You will also find that certain suppliers are able to supply reliable quality materials at lower costs. By cultivating your relationship with these suppliers, you can procure all or most of your supplies from these suppliers, leading to a reduction in costs.

Without document management software that lets you select what you want when you want, you have to depend on scheduled reports that pile up on your table (and probably remain ignored).

Fixed Establishment Costs Might Not Be All That's Fixed

We tend to view establishment costs like rent, depreciation, etc. as permanently fixed. However, a close review might reveal possibilities for reducing these costs to some extent.

There might be idle facilities like plants for which no profitable use is foreseen. By disposing of these, depreciation costs can be reduced. Other idle facilities like floor space can be rented out or utilized for some profitable activities.

A close review, facilitated by good document management software, can reveal such possibilities to management.

By reducing fixed costs in this manner, it becomes possible to lower the "breakeven point" - the point at which fixed costs are fully recovered through gross margins.

Other Cost Categories Can Also Benefit From Serious Reviews

Marketing costs, payroll costs, costs of power & fuel, etc. might also prove capable of reduction. While scheduled management reports give an overview of trends and deviations, it's the details available on the documents that provide specific guidance for actions.

And it's the document management software that really makes reviews of document details a practicable proposition. If you have to visit filing cabinets and search through folders every time, this kind of review is quite likely to be neglected.

Conclusion

Good document management software makes it practical to go into details when management reports reveal adverse trends and deviations. If you use the components provided by the software to focus on major cost elements like materials and marketing costs, it's quite likely that you'll find possibilities to reduce costs and improve sales margins to a significant extent.

Any improvement in sales margins leads to earlier and greater profitability.