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Positive action to manage the cost of doing business: insider secrets

By 25th June 2013No Comments

Let’s face it, doing business these days is expensive so, with the economic downturn lasting longer than predicted, organisations throughout the UK can no longer afford to carry on with ‘business as usual’.

Positive action is required just to maintain position, let alone grow, and when markets are slowing or shutting down completely, all effort must be focused on your core business activities.  But this means vital non-core activities, such as cost and purchase management, are often sidelined because resources are stretched. Is this something you can really afford to leave until the economy picks up?

Cost management is not an exercise and much more than simple cost cutting!

Instead of just finding cheaper suppliers, or obsessing with headline price, it is important to take account of both direct and indirect costs associated with making good decisions and instil a continuous process that makes sure your eye doesn’t get taken off the ball. The Total Cost of Purchase® , for example, is the most effective process there is for sustainable cost management, and includes audit, analysis, decision-support (the right quality and service matters), implementation and ongoing monitoring.

Line by line exercises risk missing the big picture and fossilise existing ways of working.  Why worry about the price of toner cartridge when your document management strategy has never had attention? A few pence off your fuel costs is nothing if your vehicles are driven badly and making unscheduled journeys, you’re running huge H&S risks, and your insurance premium is skyhigh; or you have an expensive IT or marketing director managing your mobile phone fleet.

Agile organisations must really ensure what, and how, they buy contributes to enabling their goals. Reducing wastage by analysing what you really need is an important step to manage the cost of doing business  Data intensive categories need special software tools to do this properly and efficiently. An understanding of whether your needs are changing is important to thinking forward and adjusting your purchasing accordingly if you are not to pay over the odds for variations or non-core basket items. With as many as one in five bills being wrong, having the detail means that suppliers can be challenged for past overcharging.

Size isn’t everything.  Economies of scale are useless if you have the wrong spec and need a bespoke solution. A specialist with strong strategic relationships in the supply chain may well have preferential rates, cut a better deal or be able to go anywhere in the market and come up trumps.  Of course, if like us you have a massive client-base (over 3,700 in fact), then you can have your cake and eat it.

Framework suppliers may not offer sufficient innovation.  They have their place where procurement cost and process are overriding considerations; but in todays’ competitive market, they may just be too pedestrian in what they offer if they result from meeting a poorly defined brief some time ago.

Remember, it’s your needs that are paramount.  Where markets, tariffs and technologies are always on the move, existing suppliers can be most responsive to a switched on customer armed with the results of detailed spend analysis at a mid-period review.  I am often amazed how often new suppliers will buy out existing contracts, take over outmoded assets or compensate the cost of a change, if you only ask.

Incentives really matter and must be aligned to yours to serve you right.  So seek out an independent and impartial advisor whose advice is always based on what’s best for their clients.  If they are truly on your side they will be happy to include your particular “buying group” or incumbent supplier in amongst other trusted firms that they know can really deliver, in any wider tender exercise.

One expert is all you need if they have unrivalled access to experience and know-how.

Experience across the broadest spectrum of business cost areas, including communications, energy, business consumeables, printing, insurance, merchant card fees, waste, fleet management, tax credits and postage and many, many more, means that one advisor – with cost-effective access to an extensive set of experts and strategic partners and fantastically knowledgeable suppliers – will be well placed to match your needs.

Working right across the purchase ledger, and driven by your priorities, they will be able to add value to organisations of every type and size.  This is regardless of whether you have in-house capability that can be well-supported with cutting-edge techniques and deeper market knowledge; or where you simply recognise you need to outsource. Look for success stories that demonstrate breadth and ask how your specialist will minimise the impact on your people.

Payment models are just that, nothing more. Focus on the value first.

There are lots of ways to ensure your advisor gets rewarded appropriately for his expertise and services i.e. for knowing where to look, and being able to implement successfully with a trusted supplier on your behalf, for ongoing monitoring and for being willing to work on a performance-only basis.

If you are more comfortable with a reduced expense than an additional consultancy budget line then make this clear, but insist on complete transparency.  A range of fee options including contingency and retainer means that a solution can usually be found to suit your needs.  It’s well worth taking time at the start to really concentrate on where and how the value is being added.

Open your mind to a relationship for the long term.

Move away from a transactional approach and your strategies will be better underpinned by your expenditure. In over 13 years we’ve saved Pizza Express over £4m for example.

Imagine an extra member of your management team entirely focused on sourcing, implementing, reviewing and managing the best purchasing solutions for your organisation?  That’s what our clients tell us it feels like to have us on board, and it’s a great way to work too.

A good advisor will help your own people to become champions for good cost management  and be happy to be an unsung hero – so there really isn’t any need to be fearful or defensive.  Seeing really is believing, so make a start and win their hearts and minds.