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Helpful Tips from a Cost Reduction Expert
By Stephen Jardon
It’s possible to find ways to cut costs without cutting staff. While reducing headcount can trim the bottom line, it can also compromise a company’s productivity and ability to be competitive as the economy improves. Most companies have already reduced their staff levels to be as lean as possible. However, has your firm fully explored the savings opportunities that are hidden within your company’s common overhead costs?
In the experience of Expense Reduction Analysts (ERA), a worldwide cost-reduction consultancy, most businesses overpay for common overhead products and services by an average of 20%. Overhead expenses amount to 15% of revenue for most companies. Do the math: for every $1 million in revenue earned, a company spends $150,000 on overhead costs. A 20% savings on $150,000 of overhead products and services translates to $30,000 a year – an excellent start to saving a job.
Every industry has its own pricing model that only people with expertise in that particular industry fully understand. For example:
• Merchant card fees – Many companies successfully negotiate the best rate, but few actually transact in the way they are required to for that rate to apply.
• Payroll processing – Chances are your business is paying for features provided by large payroll processors that your company is not using.
• Office supplies – The office supply industry uses a multi-tiered discount approach. Customers are typically able to negotiate a substantial discount on “market basket” items, but may not realize that they are purchasing items that are not in their market basket – and therefore don’t qualify for the discount.
• Printing – Process changes, not sending out requests for bids and choosing the lowest price, is the key to savings.
Here are 12 simple cost-cutting ideas that may be able to help increase your company’s bottom line:
1. Centralize purchasing. You may be buying the same goods from different suppliers, particularly if each department seems to have its favorite suppliers. Centralize purchasing to maximize discounts through bulk purchasing power.
2. Get a second opinion. Obtain alternative quotes on everything. Advise existing suppliers that you are going out to bid and give them a chance to reduce their prices.
3. Call in a bad guy. Don’t allow the person in daily contact with a supplier to negotiate price. Use the good cop/bad cop approach. The “bad cop” removes emotion from the process and the “good cop” can preserve the established, day-to-day relationship with the vendor.
4. Ask for ideas. Take advantage of your suppliers’ expertise and ask for suggestions on how to improve the way you work together. Would ordering weekly instead of daily reduce their administrative costs? Would they split the savings with you?
5. Review product specifications. Ensure that products being used do not exceed requirements. Can you use second-hand pallets for transportation? Recycled toner cartridges?
6. Clean up. Are factory items such as mats being cleaned more often than necessary? You may be able to reduce the frequency of cleaning while still maintaining safety standards.
7. Don’t go to waste. Your garbage dumpsters may be emptied well before they are full. Can you cut back on the frequency of collections? Also, one company’s waste is another’s treasure. Do you produce a by-product that another company would purchase?
8. Consider couriers. Understand how your couriers charge. Local services may be best for early-morning deliveries, while worldwide carriers such as FedEx and UPS may offer lower prices for local delivery of letters and packages scheduled for later in the day. Determine which services will be most effective for you and establish guidelines for your staff.
9. Watch out for automatic renewals. Contracts for leased equipment such as copying machines automatically renew. This automatic roll-over is called an “ever-green clause” and it locks you into subsequent years at the same terms as the original lease. Typically, you must notify the leasing company, in writing, 90-120 days before the expiration date to avoid an automatic renewal.
10. Beware. Service agreements, too, have ever-green clauses and need to be terminated, in writing, during a specific time window. Just to make things confusing, termination notification periods for service agreements vary from the periods used in the lease agreements. The window is typically 30-90 days before the expiration date.
11. Try brand X. Use suppliers’ own-brand products. This can reduce costs by up to 30 percent.
12. Stop the presses. Always use standard paper sizes. Although printing larger quantities at one time means lower per-item costs, if you only need 7,000 brochures, it’s still cheaper to order that number at $3.30 per unit than it is to pay for 10,000 at $2.80. Companies tend to over-order to get the price down but then don’t use the stock.
If you are interested in exploring potential expense reduction opportunities for your business and would like to be introduced to a professional in the field, please contact White Nelson Diehl Evans at firstname.lastname@example.org.
Stephen Jardon is a former CFO and is Director in Irvine, California with Expense Reduction Analysts, a worldwide consulting company that specializes in reducing overhead expenses with fees coming from the derived savings.