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Costs are still rising – take action before its too late

By 23rd February 2011February 15th, 2022No Comments



Posted by: Lee Freeman

Having been away for a couple of days during half term I returned to my e-mails this morning and came across a couple of articles that intrigued me, and certainly in my mind, provided further justification to employing a professional cost and purchase management consultant in your business.

The first was the result of a survey by KPMG and the Chartered Institute of Personnel and Development which indicated that two out of three employers expected to have less staff in 2011 than 2011.

Now I know statistics can be made to say basically anything you want them to, but this did seem a very large number to me. It also comes at a time when the number of people unemployed is rising and the public sector cuts, which we heard so much about last year, start to bite as well. But are there alternatives? The answer to that is obviously yes, providing action is taken early enough in the process to make a difference. In my recent blogs I gave everybody 13 free tips on how to save money on your essential business expenditure, and by following those tips you will achieve savings. So if you do achieve savings, could this make the difference to making somebody redundant or not.

Let’s consider the facts. On average across the Auditel network we find savings averaging 22% for our clients. If we assume annual expenditure under audit of say £200k, not unreasonable in an SME, this level of savings would equate to an additional profit of £40,000 before our remuneration. With an average national UK wage of say £25,000, this additional money could be used to continue to employ at least one extra person in the business rather than maybe making them redundant. Not only is their salary covered by the additional savings found, but there will be other related savings as well:

  • No redundancy payments to be made
  • No legal fees incurred in ensuring the relevant legislation is followed in instigating a redundancy programme.
  • No loss of the experience of that individual for the business.
  • No need to incur recruitment fees when that person needs to be replaced 6 months down the line when business picks up again.

Taking all of those additional saving into account, it does mean that employing cost management experts such as Auditel is indeed self financing.

One of the reasons why I expect the above survey revealed such a high proportion of companies looking to reduce staff numbers is due to the increasing price of raw materials and this was the second article that caught my eye.

Some of these such as the price of oil are generally outside your businesses control as they are driven by macro factors, such as the unease in the Middle East at present. However although you cannot control the price of oil you can control the impact it has on your business. For example the higher price of crude ultimately affects the price of fuel which will affect your distribution costs, both directly in terms of distributing product to your customers but also indirectly in terms of increasing the cost to your business of having raw materials delivered.

Recent data has suggested that order books for manufacturing companies remain strong but that the majority of firms have stated that they believe they will need to raise prices for domestic supply this year. So what can you do about it? Maybe nothing about that cost itself but you can ensure that all your other costs are under control. This will help free up profit and cash from other parts of the business which can be used to offset the increased costs elsewhere.