Rob Allison
Expense Reduction Analysts
Ask the Expert: Priorities for staying healthy
Rob Allison, managing director at Expense Reduction Analysts, shares his views on how organisations in Nottingham can continue to sustain a healthy bottom line with economic recovery predicted to be some way off yet.
Cost savings have been very much on the board agenda since the economic downturn started back in September 2008 and are set to remain top of the agenda following the continuing financial and Eurozone crisis. This was highlighted in this year’s SM 100 poll, a survey of 100 buyers produced by Supply Management magazine, which found that 46 per cent of respondents cited cost cutting as the number one priority for procurement in their organisation.
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 many businesses have undertaken some 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 businesses focus on in in 2012?
Increasing savings potential
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, tend to go unnoticed. 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. 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’ published by Expense Reduction Analysts, 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, offering 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.
Supplier relationship management to boost bottom line
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.
Cost-effective procurement
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 year ahead.
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Rob Allison
Managing Director,
Expense Reduction Analysts
02380 829 737
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