Find hidden costs, enhance your bottom line

Leading the product development and production launch of some of Canada’s most popular foods, I’ve learned there is always an opportunity to save on costs. Here some strategies on how you can find and save on costs that hide in plain sight—in the products we manufacture and the processes that we inherit.

Creating a focus

It is so important to dedicate attention to cost saving by delegating an individual, team, or department to it. Create a strategic focus for cost savings with clear goals and targets, continual communication and a spotlight on achievements. Otherwise, it’s too easy for everyday tasks to sideline a business’ cost-saving work.

Remember: Energy flows where focus goes, so make sure that what you want to get done is someone’s priority.

The magic of observing

The second element to saving costs is to know what’s really happening. When you believe nothing of what you hear and only half of what you see, there is so much you will discover.

Get out of your office and head to the plant floor. Observe everything that is happening within a 3-m radius. Stay there for a while and get to know the processes. Ask why we do it this way or that way. Then begin to count, measure, and inquire.

Repeat this step and see if anything has changed. Are processes consistent day to day or hour to hour?  Determine what is generating a waste of time, materials, and throughput.

In 2015, I visited the restaurant that I ultimately purchased. Java Jack’s Restaurant & Gallery in early August was at the peak of the tourism season in Newfoundland’s Gros Morne National Park. At 10:30 a.m., the place was abuzz. The 15-seat cafe was full. I sat down to watch all the action. First, I just observed. Then I started to count: how many people, what they ordered, how long it took to get their order, who left, how the staff were interacting and more. I spent two hours at the restaurant. Together with the restaurant’s financials and my observations, I ambitiously projected doubling revenue within two years in my business plan.

Finding hidden costs

There are three main places to find cost savings: in fixed and variable costs such as consumables, utilities, inventory and terms; in product ingredients and underperforming SKUs; and in the efficiency of your production line.

Not so obvious

Look at how common areas such as kitchens, lunchrooms, and washrooms are maintained and supplied. Consumables like soaps and towels can be metered. Order only what you need when you need it and no more. Smart thermostats and motion-sensor lights can change how the space is lit. Adjusting thermostats by one or two degrees can save on utility costs. For weekends and evenings, energy expenses decrease when computers, machinery, and vending machines are turned off. This list can go on and on.

Keeping inventories low and ordering only what you need is essential. Your inventory of finished goods and supplies significantly impacts the cash you have to reinvest in the business. If you have a unique ingredient requiring a larger purchase for minimal use, your money becomes tied up, and its use is uncertain. Ordering more for a better deal ties up more immediate cash in hopes of using or selling something later.

Keep inventories low and order only the essentials. This will ensure you have cash to reinvest in the business. Photo © ChrisTYCat / Adobe Stock

You want your money actively working for you. Can you shorten the period before customers pay you? It’s reasonable to expect payment within 30 days rather than 60 or 90 days. Finished goods inventory, especially items requiring special handling or having a limited shelf life, should be invoiced within 30 days. Likewise, on-hand supplies and materials, such as packaging, labels, and ingredients, should be converted into finished goods within 30 days. Payment terms should be negotiated for payment within 30 days, and suppliers should not be paid sooner than 30 days. If you are not paid on day 30, pursue the payment vigorously. Of course, you may be dealing with a savvy businessperson who has also adopted the same strategy and delays payments for as long as possible!

Know the purpose of ingredients

As a career food scientist and Red Seal chef, I can vouch that most recipes are over-formulated, adding band-aids to solve problems that are caused by the process. Even my grandmother’s recipe for date squares contains flour in the crumb and sugar in the date puree. Over-formulation and over-processing are often based on unscientific trial and error with no real understanding of what is causing certain results.

Make sure you know the purpose of every ingredient in your products. Find out if all the ingredients are necessary or if a less expensive alternative would suffice and understand the science behind how a different cooking process can create the same results more cost-effectively.

Years ago, we manufactured a cooked chicken product that contained icing sugar. The sugar helped make the chicken meat golden brown. That same effect could be achieved more readily with a different cooking method. We changed how the product was cooked and removed the icing sugar, resulting in an even better, sugar-free chicken product that sold well. With this one change, we reduced a unique ingredient, inventory spend, cost of goods, and labour costs.

Review your portfolio’s performance

When you’re running a small business, every product must be a moneymaker for you. If you’re creating any product as a loss-leader item, stop. Identify and address unprofitable products, whether due to low sales, high costs, or sentimental attachment. Consider how you can make a SKU more profitable by increasing price, reducing costs or changing the product. Or be bold and discontinue the product.

Every SKU you produce should fit with your existing product lines and make sense with your values and mission. If you’re considering adding a new product, ask yourself if that product will add or take away focus from your business and what you stand for.

It’s expensive to develop and launch new products. Before you do, ask yourself if you’ve tapped into all possible markets and if customers are happy with your existing product.

Check the garbage

When I’m on the processing floor, I always check the garbage to see what is being wasted. Then I examine where and how much garbage is generated and put a dollar value to it.

Garbage costs you money in lost opportunity yield, finished goods, manpower, and the cost of disposing it. The key is determining what is causing the defects that become waste. In my experience, diverting or converting what is going in the garbage will save costs and make money.

Process flow

Costs rack up at each process step—before, during, and after the process. Creating a culture of on-time starts and finishes promotes efficiency. Many other industries measure how often they start and finish on time so the food industry should adopt this philosophy without reservation.

You can save costs by keeping inventories lean, optimizing product portfolio and making the production line efficient. Photo © Катерина Євтехова / Adobe Stock

Consider what the travel time is for a component of your product to get from one place to another. How many transfers occur, creating opportunities for a defect to occur or for part of the product to be wasted. A shorter travel time will speed up the process. Fewer and more gentle transfers will reduce defects and increase yield. Every time a supply or product changes hands, time is spent and there’s a chance for the item to be damaged, adulterated or otherwise wasted.

I observed a chicken nugget production where the breading was brought into the facility and carefully poured into the production machines. The nuggets were punched out of a former and flew down the production line amidst acrobatic transfers losing some breading and batter along the way. The breaded nuggets were packed into boxes beside the garbage bin that filled with globs of breading and coating shovelled off the floor.

Create a set production schedule detailing how much output is expected. In this way, staff and supplies can be allocated correctly (no more or no less than you need) so materials are ready for the production line and people are kept busy.

Finding cost savings is about challenging yourself to think and see things differently. Costs are hidden all around you, even in the obvious places. Challenge why things are done the way they are, understand the role of each ingredient, and explore alternatives or ways to optimize. Your portfolio needs regular review, with a focus on eliminating unnecessary, unprofitable products. Before adding anything new, ensure it serves a real purpose.

Reduce waste by minimizing defects caused by excessive movement and handling. Create an environment where timely starts and finishes are expected. Set targets and demand on-time delivery of supplies to their destination. With a little focus and observation, you can significantly improve your bottom line.

This article was originally published in the Feb./Mar. 2025 issue of Food in Canada.