Smart bosses know the impact of costs on their operations. And they may even have a good sense of where more improvement is needed. But their main aim, when markets are growing, is to promote and sustain that growth. So they shape the supply side of the business to enhance service to the customer and to achieve economies of scale through higher volumes.

But now times are turbulent, and the agenda is very different. Volumes are in decline. Financial markets are unstable. And international competition is fierce. There is real pressure on margins and profits. So it is vital to put cost reduction at the top of the agenda. Lots of firms will have to control and cut costs simply to survive.

And when there is a need to cut cost quickly, the entire infrastructure and cost base in the supply side is the obvious place to look. If the supply chain is under-used, profitability is threatened. Skilled executives recognise that, to survive, they need to act fast. And they make the most impact when they draw up a plan to cut the costs of assets, processes and the organisation, and then take steps to realise the savings. This is their chance to set new goals and demand new abilities throughout the company. But all this can go sadly awry in the research, planning or execution. That is why the main risks need to be assessed - and managed out. The priorities need to be understood - and shared. And for that, a framework based on experience is required.

The companies that do best in the drive to cut costs stand conventional business thinking on its head. Out goes the old emphasis on products and revenues. In comes a new focus on customers and profit. The result is processes that reap the full potential profit from every customer. How do they do it? By applying systems that keep track of transactions throughout the business.

Our work with clients to drive down costs and set up efficient processes has turned up a number of home truths. And the successful businesses are the ones that manage to embed these straightforward disciplines in managers' day-to-day tasks. We offer these as touchstones for executives who are, or who soon will be, trying to cut costs.

Profit should always be the first charge against sales. This sets the costs that the firm can afford.

Any business that does not keep its eye trained on profit will end up making a loss.

Any business, system, procedure or person left undisturbed for three years will have become inefficient.

Managers should treat all overheads as variable. If volumes fall, overheads should be cut even faster. If volumes rise, overheads should be held.

Costs should be regarded as core - adding value to products and customers, support - needed to maintain the organisation, and improvement - required to change and improve the business. This change of mindset helps managers in their approach to restructuring.

It is structure that mainly determines the overhead cost of a company. Its design should reflect and put into effect the plan for the business.

People tend to elaborate rather than simplify their work. So resources cluster on tasks that have only a slight impact on profitability.

Any activity managed on technical criteria will make a loss.

The optional extras that people demand can double the cost and timescale for any development.

Our recent booklet, "Managing Costs", shows the strategic nature of costs and their impact on profit. It draws on the experience gained from our work in large businesses over the last 35 years. It sets out frameworks for tackling different types of costs, and deals with techniques such as value analysis, activity-based costing, and zero-based budgeting. And it shows how to put the plans into action.

Will companies be able to cut the costs that they need to without damaging the capabilities in the supply chain that they have taken such pains to build up in the last ten years? And will they retain the right structures to meet the challenges once the economic cycle comes round to growth again?

Callum Moy works in supply chain strategy and operations at Collinson Grant.

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