Expense Reduction: the timing has never been better! Lycia Rettig, Director Expense Reduction Analysts 804-517-9863.

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Presentation transcript:

Expense Reduction: the timing has never been better! Lycia Rettig, Director Expense Reduction Analysts

Which is easier to do? Reduce expenses by $1 or Increase sales by $10?

Why All the Focus on Reducing Expenses? Current economic conditions are presenting challenges for most companies. Difficult to increase sales for most companies. Can be an alternative to personnel reductions.

Some Expense Management Challenges For Companies Staff and Management has limited time to address non-strategic costs Employees with limited purchasing experience make the buying decisions No benchmark data No time to monitor Believing suppliers are looking out for their best interests Five companies with same supplier don’t get the same price Title Believe they’re doing an excellent job of cost control on their own Level playing field between buyer & supplier is a misnomer Multiple suppliers Multiple order points Expense Management Challenges Supplier loyalty doesn’t equate to best price or service

Suggestions to Reduce Expenses Set expectations for cost reduction. Identify target areas and maintain a focus on them. Understand all components of the given expense area you are reviewing. Understand the benchmarks for your expenses. Ask others in your circles of influence what they are paying. Negotiate with your suppliers. Ask them for ways to reduce your costs without the need to create additional Competitive Tension in the market. Measure results, monitor for continued savings, react if not going as expected Take advantage of association discounts. Eliminate paper. Consider moving to electronic billing and statement mailing. Ask your employees for cost saving suggestions and reward them!

Analyze 4-8 weeks per category Define Options 4-8 weeks per category Implement and Monitor Implement and Monitor Best Practice Process Overview

General & Administration Operating Expenses Expense CategoryERA Average Savings Freight 18% Merchant Card Fees * 33% Office & Break Room Supplies * 35% Packaging 21% Production Printing 14% Small Package Freight * 20% Voice & Data Communications * 26% Waste & Recycling 29%

Credit Card Processing Fees  Do you know your true credit card processing costs? Not just the discount rate but the net effective rate with all of the fees included. Do you know if you are being surcharged for certain transactions because your procedures haven’t been updated to meet the current processing rules? Do you have the proper number of terminals and access points?

Office and Break Room Supplies  Buying name brands or house brands? House brands can often save up to 30% or more for a similar quality product.  Be cost vigilant. Establish a contract list with your supplier (80% rule). Recycled toner cartridges. Delivery / ordering options. Paper grade and stock. Binding choices. Color vs. black & white documents.

Overnight Small Package Freight Services  Are you using and paying for the appropriate service type? Ground services will generally deliver next day within 400 miles only without a service level guarantee. Is 10:30 a.m. delivery really required? would 3:00 p.m. be okay? Industry secret: more than half of the items scheduled for 3:00 p.m. are delivered by 10:30 a.m. Is next day absolutely necessary? Do you have a parcel audit and automated credit program in place for late deliveries?

Voice & Data Communications  Have you done a comprehensive review of your voice and data communications services? Can you reduce the number of suppliers to achieve greater discounts? Is this the best option for your situation? Can you leverage new technologies to reduce your costs? Are you using all that you are paying for? Lines, information & reporting.

Consider Retaining the Services of a Consultant Consultants have access to proprietary benchmark data (price and service) across a wide range of expense categories. Knowledge is power – using a consultant puts a category specialist on the client’s side of the table and that levels the playing field between clients and suppliers. They do the work – YOU make the decisions!

Appendix

Steps in Comprehensive Expense Reduction Planning, Concentrating on Non-Core Operating Expenses Identify components of Non-Core Operating expenses. Start with P & L and Comprehensive Supplier Analysis. Establish an overall set of expectations for cost reduction. Develop a strategy for each expense category over a minimum threshold. Define expectations for each person that will participate in the process. Measure results.

Analyze 4-8 weeks per category Define Options 4-8 weeks per category Implement and Monitor Implement and Monitor Complete analysis of your business and requirements Process: Select and manage suppliers and prepare recommendations Implement solutions, measure and monitor ongoing Activities: Define scope Obtain data Understand data Know requirements Benchmark Identify Potential Suppliers Test the Market (RFP) Analyze the data Make recommendation Negotiate Supply Agreement Implement recommendation Monitor Compliance - Ongoing Best Practice Process Overview Deliverables: Baseline Report Recommendation Report Implement & periodic review

Consider Retaining the Services of a Consultant Consultants have access to proprietary Benchmark Data (price and service) across a wide range of expense categories. They know the types of deals/incentives currently being offered in a given market Knowledge is power – using a consultant puts a category specialist on the client’s side of the table. They know the industry tricks in the bidding process and thereafter. Consultants level the playing field between the clients and suppliers While each client’s requirements are unique, outside consultants bring large aggregate $$$ opportunities to them. Clients receive excellent supplier attention and focus – the suppliers know that if they perform poorly they may not be on the next RFP bidders list. They do the work – YOU make the decisions! Assisting with implementing and monitoring a new supply agreement should be a key consultant role. This also allows you and your team to focus on revenue generating activities