I can check your water bills for hidden costs.

Since then they have started referring me into some of their clients, so it’s a ‘win-win’ all round. They’re happy, I’m happy and so will their clients be!

Now this situation is even more pressing.

The recent study of 750 small businesses by the Centre for Economic and Business Research (CEBR) reveals that 78% of small business owners identify rising costs as the most significant threat to their company this year. More than two thirds of firms have seen their profit margins hit by increasing costs over the past three years.

However, KPMG, in their authoritative global survey conducted by the Economic Intelligence Unit, report: “Businesses are under constant pressure to reduce costs, yet many find it hard to do so in a sustainable fashion”. The survey included interviews with senior executives in a cross-section of industries and large, midsize and smaller organizations and experts in the field of cost management. It revealed that 9 out of 10 companies are potentially missing out on major opportunities to boost profits.

They found that:

• Just eight percent of businesses reach or exceed their targets for cost-saving initiatives

• One of the single biggest barriers to achieving these targets is the lack of adequate processes to drive cost reduction

• Getting people to assume personal responsibility for cost management is always difficult

The survey concluded that many businesses seem to be aware of this, but too few are acting to redress the situation. Too many firms treat cost reduction as an unpleasant exercise in abstinence; a pressure do the same things only a little bit more efficiently.

KPMG repeated their advice in their recent paper, The Cost Boomerang. “In this environment, businesses that are able to identify and exploit sustainable cost-efficiencies will enjoy significant competitive advantages over their peers: better profit margins, more flexible working capital and a greater alignment for future growth.”

While opening this year’s Financial Director Summit, Professor Doug McWilliams, founder and chief executive of the Centre for Economic and Business Research, caused a sharp intake of breath among members of the audience listening to his speech. He predicted the end of the euro and added that the kind of annual growth Western nations enjoyed in the decade before the economic crisis would unfortunately be consigned to the past. His thoughts cement the position of cost management at the top of the FDs’ agenda – and as something that will be a real leadership issue for the next few years. He stated: “Procurement is an ever more troublesome jewel in the cost-management crown.”

In their ‘Eight Strategies for Surviving the Downturn’, ICAEW offered the advice that “now is a good time to review the structure and cost base of your business critically. Do you have the right business model to see you through the recession and put you in the best possible position to take advantage of the upturn when it comes? If you need to make savings, examine carefully how you can get the best value out of your business and enable your business to emerge leaner and fitter at the end of the recession.”

Finally, they ask – ‘Is outsourcing a possibility?’

In a recent edition of FM World, the Facilities Management journal, Kevin Stanley wrote: “With cost-cutting still an economic necessity, the question of whether or not to outsource services has never been more relevant. Which is best – insourcing or outsourcing? The issue has long been a source of debate. The key drivers of large-scale outsourcing are cost reduction, efficiency and the expertise, knowledge and support gained from a specialist provider. What better time to put outsourcing to the test than in a recession, when every penny counts?”

In the same article, Richard Thompson, Managing Director of PBMS (UK & Ireland) agreed, “I believe it can. In an economic downturn, outsourcing is a smart way to get your organisation moving forward. Managing processes internally can distract an organisation from focusing on growing the business and can possibly contribute to missing out on growth opportunities. Sometimes people fail to act in this type of economy, to create positive change through a new partnership.”

The consensus certainly seems to be turning towards outsourcing cost management.

Established in 1994, Auditel is the premier independent cost and purchase management consultancy in the UK, with over 200 fully-trained specialists. Their services include a free Business Health Check which consists of an examination of all expenditures associated with making effective cost management decisions. This free service coupled with their performance-driven contingency fee model, means the service is totally self-funding. There are no up-front fees, no hidden charges and no extras.

Chris Allison, Auditel’s Managing Director, confirms: “As a result of the recession, we’ve all become a lot more cost-conscious. Everyone understands the need to keep operating expenditure as low as possible. However, to achieve long-term, sustainable savings that take all the direct and indirect costs of products and services into account, you need expert knowledge, buying power and above all, time. With over 3,500 satisfied clients on our books, we can safely say that Auditel’s brand of sustainable and ethical cost and purchase management is playing a pivotal role in that equation.

“Our Total Cost of Purchase ® is a holistic way of reducing and managing the costs of doing business. It enables organisations to lower their business costs year-in and year-out. For 2012, we would encourage our existing clients to take a look at some of the less visible items. Cleaning, merchant cards, stationery, alarms, insurance and janitorial supplies and many others, for example, where savings achieved range from 22% to 64%.”

Farnham Maltings is a multipurpose arts and community centre set in the heart of Farnham in Surrey, attracting more than 350,000 visitors a year. With savings achieved of 13% on electricity, 26% on telecoms, 13% on gas, 23% on merchant card fees, 47% on franking machines, and 60% on alarms. General Manager Chris Maddocks, affirms:”I see Auditel as another member of my management team and we’ve got a stream of projects that will keep them busy this year. Auditel offers us lots of guidance and experience and altogether I see the experience as being 100% positive. I wouldn’t hesitate to recommend Auditel to any business, large or small.”

Indirect procurement outsourcing

Indirect spend typically makes up 30% to 60% of the average company’s overheads. Now consider a company with a 10% net profit margin before taxes, every £10 of income translates into £1 of profit contribution. It can either cut costs by £1 or increase income by £10. This simple illustration clearly shows the value of indirect procurement outsourcing.

What is indirect procurement outsourcing?

Outsourcing the management of cost, purchase and supplier management, already an accepted practice in many areas of indirect spend. Companies already outsource their IT, Travel, Print, HR, Security, Marketing and many more other non-core areas of their business. Indirect procurement outsourcing simply consolidates the processes and resources associated with managing these contracted services. Procurement outsourcing is not black and white it flexibly accommodates many options depending on client requirements.

Why outsource indirect procurement?

There are many compelling arguments for outsourcing cost, purchase and supplier management. Firstly, the traditional reason for Business Process Outsourcing (BPO) and secondly some procurement specific reasons. The key business drivers are lack of in-house expertise, achieving economies of scale and lower staff costs. Cost, purchase and supplier management is often decentralised which makes it even harder to build in-house competencies or expertise in any given category of spend. Additionally, purchasing is often just involved in the transaction aspects, as a “middleman” between end users and suppliers, further hindering deep knowledge within the purchasing organisation. Decentralisation also opposes the scale needed to justify investment in best-in-class technologies and tools, and access to lower staffing costs.

Outsourcing indirect procurement provides other specific benefits:

• Increased buying power – a service provider can negotiate better prices.
• Comprehensive supply chain – a service provider introduces clients to a multitude of approved suppliers.
• Access to lower staff costs – a service provider aggregates specific business processes across a number of companies. 

Are you a good candidate for indirect procurement outsourcing?

Most companies are candidates for indirect procurement outsourcing. Very few companies have sufficient spend across all indirect spend categories to enjoy the scale and buyer benefits of an outsourced solution.

So who offers indirect procurement outsourcing?

The good news is there are plenty of companies willing to take on indirect procurement outsourcing work. The bad news is that so many of these companies have very different skills. Finding the right solution for your requirements can prove very challenging. There are many companies who will help you to outsource your procurement but they come at it from many different directions.

• Transaction focused providers – these are primarily software companies that provide automation and analysis tools.
• Category specialists – companies typically focussed on one or a few spend categories. One good example is in printing services, where companies such as Office2Office, HH Associates and Williams Lea offer consulting and outsourcing services to manage the entire print procurement process. Others might be energy and telecoms brokers with similar wrapped up services.
• Comprehensive service providers – there are typically two kinds of providers, the generalists who provide Business Process Outsourcing(BPO) such as Capita, Serco, and Accenture that initially focus on IT, but have moved on to HR, Finance and procurement processes. The second group specialise in procurement and have a strong record of successfully managing cost, purchase and supplier management requirements for many companies.
• Group purchasing organisations – which act as procurement intermediaries. These companies often provide clients with access to purchasing power and some benefits of the comprehensive service providers.

What is the best option?

The key to success is of course picking the right partner. What is the scope? What are the goals? There are many potential partners: but these are the key questions to ask:

• Expertise – does the potential partner have category expertise in the categories to be outsourced? Do they have best practice employed across all the services you require?
• Technology – how much automation will be used to manage the process? Where will the work be carried out? What tools do they use?
• Services – what kind of analysis of spending patterns will be carried out? What level of supplier management will the outsourcer provide? Will a company aggregate spending? Who makes the final decision on which supplier to use? Are they willing to guarantee response times or sign a Service Level Agreement (SLA)? What kind of service will be provided versus spend?
• Supplier network – is service provider increasing or decreasing the number of suppliers by category? How will the service provider determine which suppliers are adequate to satisfy the company’s requirements?
• Savings – who provides the best most sustainable source-to-pay services? Is service provider paid for their performance, i.e. gain share commercial model?
• Testimonials – does the potential service provider have sufficient sector specific references for the magnitude of processes and categories to be outsourced?

Testimonials

http://auditel.co.uk/publish/testimonials/

About the author

Paul Foster is a Partner – Cost Management Specialist at Auditel, the UK’s premier cost, purchase and supplier management specialist, with 200 fully trained specialists, and over 3800 clients. He can be contacted on Mobile: 07964 623920, Office: 01908 990017, Email: paul.foster@auditel.co.uk

Why energy efficiency?

Putting energy prices and the environment at the top of your agenda is a smart environmental and business practice. Reducing energy consumption will reduce greenhouse gas emissions and operating, manufacturing and consumption costs.

Action plan

1. Set a company energy policy – by making energy efficiency a part of operational procedures and a consideration in every business decision.
2. Perform an energy audit – to assess where energy efficiency can be improved.
3.  Implement energy-efficiency recommendations.
4. Encourage employee participation and innovation – educate employees and introduce easy-to-follow energy-efficient practices.
5. Introduce financial incentives for employees to come up with energy-saving ideas.
6. Track energy costs both before and after energy improvements – information creates your next set of action plans.
7. Optimise energy in manufacturing processes and activities – improves competitiveness!

The bottom-line

According to insolvency firms one in three companies is “regularly” reaching their overhead limit, highlighting rising financial distress among businesses – energy cost efficiency is a necessity!

How do you know if your business is as lean and as efficient as it should be?

We can help

Established in 1994, Auditel is the premier independent cost and purchase management consultancy, with over 200 fully trained specialists. With over 3,800 satisfied clients, we can safely say that Auditel’s brand of sustainable and ethical cost and purchase management is playing a key role in helping our economy.

Find out how to reduce your operating costs in a sustainable way, contact:  paul.foster@auditel.co.uk

Case Study:

Download a PDF copy of the case study.

Left to right: Laurence Fitch, Auditel Consultant; Jon Moore, Chief Executive, Moor Park and Ruth Dawe, Auditel Consultant

Auditel have been on Moor Park’s radar since being recommended to Chief Executive, Jon Moore, in 2008 by a business contact. He recalls, “Following a good exploratory meeting to discuss where improvements could be made, I gave Auditel the go ahead to look into a number of areas.”

The main cost areas covered by their agreement were: utilities, telecoms and dried and frozen foods.

In phase one of Auditel’s analysis, savings of 34.9% were identified on fixed line telecoms and this was followed by 9.9% on catering costs – mostly dry goods. Auditel then turned their attention to mobile phone costs and delivered impressive, ongoing savings of 45.3%.

Although in contract at the outset of their investigations of Moor Park’s expenditure, savings on gas and electricity, which Auditel had identified at the outset have now also been realised. Over four sites the savings on electricity varied: from 5% at the Mansion, to over 30% at each of the other three sites. On gas, Auditel have also lowered the cost by 17.3%.

Naturally, Jon is delighted with the savings and talks of Auditel in glowing terms. “I have been very impressed. They are a pleasure to work with and I can tap into and refer to their knowledge, confident that I will be getting good advice.

“The money they have saved us has been reinvested in low voltage lighting in the Mansion, which in turn will deliver further savings which can be reinvested.

“Auditel have really benefited our business with their specialist knowledge, advice and awareness of our needs. They have become an outsourced member of our management team.”

Savings Breakdown:

Telecoms
- Fixed line 34.9%
- Mobile 45.3%
catering 9.9%
Electricity
- Company Properties 34%
- Irrigation Pump 35.3%
- Main Building 5%
Gas 17.3%

Download a PDF copy of the case study.

• Grow
  Striving to achieve the next level of growth in turnover and profitability? Business Doctors suggest the Top Tips for continued success.
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  Auditel reviews how to tackle spiralling costs, reduce financial waste and improve operational efficiency to enhance business performance and profitability.
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Event details:

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Energy consumes 5 to 20 percent of overhead costs. This is spiralling upwards as tariffs continue to increase in 2012 and beyond. Organisations MUST therefore find a way of mitigating this in order to remain competitive.

Wake up ….you must pay attention to energy efficiency!

The trend is towards a cheaper, greener more sustainable future and you need an active corporate energy strategy.  If you don’t adjust, you may find many clients who demand environmentally friendly products just going elsewhere.

Energy management is a serious issue

According to the Deloitte resources 2011 US Study, 90% of companies have set goals regarding electricity and energy management practices. 76% have goals related to reducing electricity cost/consumption and 71% have goals targeted at improving the efficiency of the building in which they operate. These goals are significant, typically aiming for an average of 25% in electricity or cost reduction, most often with a 2–3 year time horizon. 56% of the companies have goals aimed at improving profitability through electricity reduction.

What have you done?

Energy strategies are about hard-core business decisions and not fluffy green issues. You need to understand how to compete in a rapidly changing world, better asset utilisation, smarter use of technology and much tighter management of the entire supply chain.

Your future depends on it!

If you have an energy policy and strategy document, that’s a great start. You need to understand how to transform your organisation and have a plan in place to achieve it – otherwise you may not be around tomorrow.

Is there anything you would like to add – I welcome your comments – Did you find this article useful – Please share with your network and provide feedback!