Comprehensive Spending Review for the private sector A guide to reducing the cost of business

Transcription

1 Comprehensive Spending Review for the private sector A guide to reducing the cost of business Produced by the Centre for Cost Management

2 About the Centre for Cost Management Expense Reduction Analysts, a global leader in cost, purchase and supplier management, has established the Centre for Cost Management to provide research, expert insights and analysis on key trends, issues and policy impacting the bottom line of private and public sector and not-for-profit organisations A guide to reducing the cost of business

3 Foreword In meeting rooms the length of Whitehall during recent months, civil servants and ministers have been scouring every row and column of their departmental budgets looking for ways to achieve efficiencies and reduce costs. Whatever the political motives behind their decisions, there can be no doubt that the process has been forensic and strategic, and no stone has been left unturned in the quest to identify and eliminate unnecessary cost. Government departments are not businesses, of course, and the parameters within which they operate are completely different to those which you and I in the private sector would recognise. However, the principles of strategic cost, purchase and supplier management remain the same for both and Sir Philip Green was right when he said that the majority of businesses would have collapsed under the sort of inefficiencies he discovered in his review of government spending. Expense Reduction Analysts has joined forces with the Telegraph Business Club to produce this guide which aims to help you do just that. It includes 50 practical and easily adopted tips to help you improve the health of your bottom line across a range of cost categories. All have been contributed by Expense Reduction Analysts team of expert consultants. In addition to making sound commercial sense, the economic climate demands that the cost of business must be reduced in the same way as that of government. I hope this guide helps you in conducting your own Comprehensive Spending Review this autumn. With Deloitte s third quarter survey of CFOs revealing an increasingly uncertain economic outlook and cost control identified as the over-riding priority for financial chiefs for the next 12 months, the time is surely right for those of us in the private sector to take a leaf out of the public sector s book and conduct a Comprehensive Spending Review of our own. Robert Allison Managing Director Expense Reduction Analysts (UK) Ltd A guide to reducing the cost of business 03

4 ADMINISTRATION CONTRACT CLEANING 1. Investigate sending invoices and statements by rather than in hard copy. This will save money on paper, envelopes, printing inks, postage and the staff time to fold/stuff envelopes. 2. Move away from a separate invoice for every order and switch to monthly consolidated invoices. 3. If you are serious about monitoring costs, make sure your accounting software gives you meaningful management information and is open to all managers. 4. Continue looking at cost saving ideas even when you need them the least. 9. Implement a clean desk policy so that the cleaners you are paying can actually do their jobs and it will improve staff productivity at the same time. 10. Tell your cleaning company what you want rather than asking them and their competitors what you need. This way, you will avoid over specification and unnecessary costs. 11. Manage any ongoing contract carefully: make sure end dates and notice periods are clearly recorded to avoid out-of-contract penalties and always tender your services before the roll-over. BANKING ENERGY AND UTILITIES 5. Keep out of the Good Customer blind spot. A bank manager s first priority is to control risk. This means that the clients which do not borrow, or those that never breach their facilities/covenants, often remain tucked away on the back burner where their service or pricing levels are not regularly reviewed. 6. Consider introducing company credit cards for staff. This can bring a number of tangible benefits, including a reduction in the number of cheques issued, cash flow benefit of up to 45 days, a clearer means of monitoring expenses and less administration of small amounts of petty cash. 7. Move away from standing orders, which make reconciliation difficult and attract charges. Embrace direct debits instead, where exceptions are automatically notified and the bank charge per transaction is normally a fraction of the charge for each credit received as a result of a standing order. 12. Keep all equipment well serviced and maintained it will use less energy and last for longer. 13. Instigate a proactive energy management system. Not only is it a green solution, it always significantly reduces costs. 14. Don't just look for reductions from incumbent suppliers when reviewing costs. Investigate the market and benchmark against the industry and peers. 8. Always remember that the person least able to apply cold logic to a purchasing decision is often the person doing the purchasing. 04 A guide to reducing the cost of business

5 FLEET LOGISTICS AND DISTRIBUTION 15. The vast majority of organisations with sizeable vehicle fleets are paying too much in taxes alone. Make this element of your fleet costs a priority for review. 16. Have a clear policy to deal with non-incumbent sales approaches. It s very easy to be swayed by the prospect of a better offer, particularly where shiny new vehicles are concerned. Encourage staff and colleagues to resist these approaches. 17. Your individual purchasing power in any given non-strategic cost area may be minimal. Research ways to aggregate your purchasing leverage with others. 22. In recent years, road freight carriers have tended to regulate their prices by the use of fuel surcharges. Ensure you become familiar with fuel price indices and understand the basis on which your carrier calculates surcharges. 23. Ensure your carrier is doing everything possible to consolidate loads with the consequent pricing benefits. 24. Warehousing has a high fixed cost element. Ensure you have not committed to any long-term liabilities should your business requirements change. Contractual performance targets should also be incorporated with the right to terminate should they not be met. IT PACKAGING 18. Position your IT equipment carefully as poor environmental conditions will affect the life and reliability of your machines and their components and, consequently, will have a significant impact on their energy efficiency. 19. Enable the standard energy saving settings on your computers. 20. Conduct a Technology Asset Review to measure the true value of your asset against maintenance and operational liabilities, remembering to include full life cycle costs, not just initial outlay. 21. Identify and assess all the options available for optimising the efficiency and flexibility of your IT equipment from third party hosted services to Cloud-based systems and workforce management strategies. 25. Determine your production volumes annually. It s always more expensive to order small quantities so plan ahead, order less frequently and let your supplier carry stock, invoicing only when it comes into production. 26. Focus your resources on the design stage as this is where major opportunities for packaging savings occur. 27. Examine your supplier database to see if multiple suppliers can be reduced to just one. This will result in lower levels of admin and processing time, enhanced service levels through more dedicated account management, and better prices via a consolidated spend. 28. To avoid overcharging, check invoices against contracts on a monthly or quarterly basis. A guide to reducing the cost of business 05

6 PHOTOCOPIERS POSTAGE 29. Ensure the machine you choose is appropriate for your needs. Too big, and the photocopier may not derive its full value; too small and quality and efficiency output could be compromised. 30. Make sure you fully understand the terms of a photocopier lease in particular how long you re signing up for. Ensure that any service agreement for the machine does not last longer than the lease itself. 31. Set all your copiers to mono as default, with colour only being available if specifically selected. On average, mono pages are 90 per cent cheaper than colour. 36. Only use first class mail when absolutely necessary. Second class items posted on a Friday afternoon will arrive at the same time as first class items posted on a Monday. 37. Don t send single sheets of paper in C4 envelopes. Under the Pricing in Proportion rates, these will be charged at large letter rate, when they could be sent as letters, costing you 38 per cent more than necessary. 38. While a franking machine undoubtedly offers a flexible way of sending mail, beware of hidden costs such as topping-up charges, tariff rate chips and ink cartridges which may detract from their value. 32. Use the print function on a photocopier rather than a desktop printer for large print jobs. The page costs for a photocopier can be up to 70 per cent lower than a desktop printer. PLASTIC CARD TRANSACTIONS PROPERTY AND PREMISES 33. Minimise the risk of fraudulent transactions and the associated penalties by protecting face-to-face transactions with Chip and PIN, capturing the required security information for all card not present transactions and utilising recognised security protocols for web transactions. 34. If you regularly serve holders of foreign cards, talk to your merchant acquirer about Dynamic Currency Conversion. It can halve the effective cost to your business of credit card transactions. 35. Challenge all mid-contract price rises and ask the supplier to justify them before they are accepted. 39. Break clauses present a significant risk to landlords who suddenly find themselves re-marketing a property they thought would be occupied for some time. As a tenant, add value to a landlord s lease by suggesting the removal of a break clause in return for a cash flow advantage such as a rent-free period. 40. The rateable value of your property is based on a five-yearly revaluation by the Valuation Office but don t feel you have to accept it without question. Appeal your rating assessment if you believe it is incorrect. 41. Every building needs ongoing maintenance and there are savings to be made not only in the cost of materials themselves but also in the way they are procured. Consider a Vendor Managed Inventory (VMI) solution whereby a supplier might set up shop at your premises and take on responsibility for maintaining an agreed inventory of materials on site. 06 A guide to reducing the cost of business

7 STATIONERY TELECOMMUNICATIONS 42. Hold a stationery amnesty when the contents of stationery draws/cupboards are emptied and pooled. Anecdotal evidence has revealed that some clients have not needed to order additional stationery for up to three months after such an exercise. 43. Switch from branded to own brand stationery, and from premium ownbrand to basic own-brand, until you have reached a price/quality ratio you are happy with. 44. Establish a cost-aware culture, where senior executives lead by example and all members of staff are encouraged to balance value for money against the operational requirements of the items they purchase. 45. Avoid calling 118 (Directory Enquiries) numbers. The same information is available online for free. If the call is necessary, never accept the offer to be connected by the operator you will be charged up to 50 times more per minute than if you dialled the number yourself. 46. When travelling abroad, turn off data roaming on your handset and instead connect to a local WiFi network which is free in many hotels and cafes. Similarly, instead of calling, send texts; even outside of the EU these rarely cost more than 0.25 to send and are always free to receive. 47. You must understand in detail what is being spent before considering what approach to adopt to reduce cost. WASTE MANAGEMENT 48. Segregate and recycle more of your waste. It's cheaper to dispose of waste for recycling than for landfill. 49. Review your waste sorting procedures against current best practice to make sure you are optimising segregation and recycling. 50. Avoid mixing what is classed as hazardous waste with ordinary waste as your provider can, on occasions, legally charge you three times the amount for that load. A guide to reducing the cost of business 07

8 Expense Reduction Analysts is a global leader in Cost, Purchase and Supplier Management consultancy and focuses on reducing operating costs for private, not-for-profit and public sector organisations. Handling an annual supplier spend of hundreds of millions of pounds on behalf of clients in all sectors, the consultants at Expense Reduction Analysts use their significant purchasing influence to achieve optimum value from suppliers, often successfully retaining incumbents and using expert analysis and market intelligence to combat contract fatigue. Expense Reduction Analysts has 170 consultants across the UK. It also has a global influence in more than 35 countries specialising in more than 100 business expenditure categories. For more information, contact Expense Reduction Analysts on: or visit our website at: