Ask the Expert: Sustaining a healthy bottom line after cost cutting
All answers are for general guidance only. Each case must be handled on the individual facts.
Q: How can my organisation sustain a healthy bottom line after two and a half years of cost cutting?
Cost savings have been very much on the board agenda since the economic downturn started back in earnest in September 2008. And according to the recent SM 100 poll, a survey of 100 buyers produced by Supply Management magazine, 46 per cent of respondents cited cost cutting as the number one priority for procurement in their organisation in 2011.
But how do you sustain a healthy bottom line when so many things have been cut already?
Managing the financial aspects of your organisation is, in many ways, similar to a personal fitness programme – you have to keep working hard at it to keep on course and to ensure your organisation is ‘fit’ for profitability.
Whilst there has been major cost cutting programmes, through our experience of working with organisations across the corporate, public and not-for-profit sectors, there is still significant scope to increase the bottom line. So what should be the focus in 2011?
Firstly, we continue to find that there is enormous savings potential from addressing smaller items of business spend, which tend to fall into the bottom two-thirds of the purchase ledger. These items, which can often add up to significant amounts of money, often tend to go unnoticed.
By being aware of the constantly changing supplier market and closely monitoring such costs, which can be as diverse as banking and insurance, utilities, fleet management, logistics, office supplies, and communications, organisations can make a real difference to their bottom lines. For example, assuming a net profit margin of 8 per cent an organisation would have to generate sales of £625,000 to have the same positive financial impact as £50,000 of savings.
In a recent ‘Comprehensive Spending Review Guide’ we published we provided 50 top practical tips on how organisations can make a difference to their bottom lines: from introducing company credit cards for staff, which reduces the number of cheques issued, offers a cash flow benefit of up to 45 days, and a clear means of monitoring expenses; to turning off data roaming on your mobile handset and instead connecting to a local WiFi network, which is free in many hotels and cafes.
Secondly, in my view there will be a rising trend toward Supplier Relationship Management (SRM) in order to control costs. SRM is all about the development of close working relationships between buyer and supplier for mutual benefit. This was exemplified by Premier Foods working with British Sugar - Premier achieved cost savings of £5.7m in two years, whilst British Sugar grew its business by 10 per cent with the food manufacturer and gained improved adherence to payment terms.
Thirdly, we often find that opportunities exist to reengineer procurement functions to ensure a highly cost-efficient buying process. For example, we have been working with the Independent Living Group, which operates residential care homes, to centralise their purchasing. The result is now each home’s requirements are purchased from an agreed list of suppliers and this has helped achieved major annual cost savings, such as 32 per cent on stationery and 25 per cent for cleaning materials.
By focusing on these areas, your organisation can continue to see the benefits of your cost management programme and be well placed for a financially successful 2011.
Follow-up questions
For more information contact:
Robert Allison
Expense Reduction Analysts
3 Meridians Cross,
Ocean Way,
Ocean Village,
Southampton,
SO14 3TJ
02380 829 737
Recent Experts
Services
Dealmakers Services Directory
Directory Find an advisor to help you buy, sell or invest
Property Services Directory
Find an advisor across property services
Commercial Property Finder
Full commercial property listings in the Midlands
Guides
Midlands City View
The news, features and analysis that matter for your city
International Trade
Our guide provides expert analysis on a range of trade destinations
42 under 42 Members
The latest class of the Midlands brightest young business people
- Contact us
- Midlands
- North West
- South West
- Wales
- Yorkshire
- Other regions
- 0121 232 0980
- 0161 907 9711
- 0117 906 5900
- 02920 434500
- 0113 220 4410
- 0161 907 9718
- Insider regions
- Central & East
- Ireland
- Midlands
- North East
- North West
- South East
- South West
- Wales
- Yorkshire