ERA Legal services bulletin Sep 2012

Some explanation for this can be found in CroweClark Whitehill’s Solicitors Benchmarking Survey2012, which found that the average number oflock-up days has not improved significantly overthe past year – with 41% of firms experiencinglock-up in excess of 150 days.

Earlier in the year the LMS reported that non-salary overhead costs per fee earner had grown2.6% year on year, bucking the downward trendseen in the last few years. This may, in part, be

Legal Services BulletinSEPTEMBER 2012

COMMENT FEATURES: see overleaf

DOCUMENT STORAGE

when did you last review it?

BUYING GROUPShow they can hurt your bottom line!

In its latest quarterly surveythe Law Society’s LawManagement Section (LMS)reported a deterioration infirms cash flow positions.

A quarter of firms reportedoperating within 25% of theiroverdraft limit, whilst a sixth offirms were operating within 10%of their overdraft limit on aregular basis.

PRACTICE TIPSGOODBYE DX?ERA continues to examine physical and electronicseen in the last few years. This may, in part, be

explained by the additional COFA and COLPregulatory roles (largely adopted by FinancePartners) diverting resources and attention fromthe management of costs and suppliers.

These trends represent a challenge for PracticeManagement staff, particularly where modestprofits and a poor working capital position canbring pressure from the bank.

Naturally, firms can make efforts to improve theirposition in a number of ways. It makes sense todeal with foreseeable cash outflows such asbonuses, taxation, VAT and quarterly rentalpayments by converting work in progress todebtors and then collecting debts promptly.

Pro active cash flow management ought to be astrategic objective for firms, and should have abearing on the type and mix of work undertaken.

Needless to say, some of the most effectivecontributions to pro active cash flowmanagement can be derived from reviewingcosts, processes and exploring outsourcingopportunities ensuring sustained best value.

Jason AdderleyT: 0121 602 1445M: 07824 449 577E: j.adderley@erauk.net

The Editor

Jason Adderley is a consultant Partner with ERAspecialising in managing programmes of work forlegal and professional services firms.

He has 17 years experience of working withsolicitors and other professional consultants as aclient and as a service provider.

ERA continues to examine physical and electronicalternatives to DX. There are some excitingdevelopments in this market which we’ll report in afuture issue.

OUTSOURCINGIt’s not just non-salary overheads under review,increasingly ERA is carrying out feasibility studiesand implementing outsourcing projects particularlyin the areas of Print and Back Office functions.

EXPEND A LITTLE ENERGYOn finding how much you pay your energy broker(you do pay one way or the other!) Do you have aformal agreement in place? Are your energycontracts managed pro-actively or just at renewal?

WHEN ‘BUYING GROUPS’ CAN BE BAD FOR YOUR BOTTOM LINE

DOCUMENT STORAGE

Derek Hodd, an ERAspecialist in documentstorage looks at thechallenges in securinga competitive deal.

The storage, cataloguingand retrieval ofdocuments and records isa real “chore cost” – aslong as the files andboxes are collected,stored and, if need be,returned then theproblem is sorted.

What’s in it for the Service Providers?

Naturally, document warehousing gives theprovider the opportunity to rent the squarefootage of the premises a number of times over,by the installation of racking to access the airspace above the floor area.

Change of a provider entails moving accumulatedboxes and files and so is not undertaken aslightly as changing electricity supplier: thestorage companies know this and therefore canexpect to enjoy a long period of engagement,often at ever increasing unit costs.

This means that, along with some largeinternational and national players, there are anincreasing number of independent players. Whilstthis leads to potentially better buyingopportunities, at the same time it creates a

Buying Groups have been around for many years inthe legal sector. They can be advantageous to smallerfirms allowing them access to a readily tenderedpricing structure that in many circumstances theymay be unable to achieve without substantial timeand effort, if at all.

For medium sized and larger firms the advantagesare far less clear. Whilst some Buying Groups are co-operatives run on a non-profit basis, many areremunerated by their ‘preferred suppliers’. Allsuppliers have a limited budget for discounts andpromotions, so any remuneration to the BuyingGroup is, naturally, unavailable to directly benefit themembers being served.

Furthermore, since all members are given access tocommon pricing structures, the normal competitiveadvantages that larger firms enjoy are negated.

Perhaps more importantly, the qualitative nature ofpurchasing can suffer; a move from your currentsuppliers to a Buying Group’s set of ‘preferredsuppliers’ could represent a slash and burn approach.

Think about how sophisticated buyers procure from

WHEN ‘BUYING GROUPS’ CAN BE BAD FOR YOUR BOTTOM LINE

Jason AdderleyT: 0121 602 1445M: 07824 449 577E: j.adderley@erauk.net

opportunities, at the same time it creates amarketplace with widely varying servicestandards, charges and contract conditions.

How can ERA improve your deal?

Initially we profile the present storagearrangements, and undertake a rigorous reviewof the current contract. Often the contract hascreated a contingent liability which the client isunaware of and is an area that ERA works toremove.

Selection of suitable storage providers requiresstorage conforming to British Standards for fireand humidity control, suitable recordmanagement systems as well as good servicelevels.

Advice is also provided to enable clients toassess their internal risk management andcorporate controls relating to recordmanagement; the use of electronic storage canalso be reviewed, where required.

Being cost management specialists, thesavings we identify range from significantto extensive. In a recent case we were ableto demonstrate like-for-like savings ofalmost 50% on a six-figure annual spend.

Think about how sophisticated buyers procure fromlegal firms – they tend to work with firms they know,like and trust. At ERA over half of our projects resultin firms remaining with their current supplier onbetter terms, even if that supplier may not be thecheapest.

More worryingly, silo-based procurement through aBuying Group can act as a brake on innovation andconvergence. The implications of buying decisions inone area may open up opportunities in others .

For example, where a Buying Group may offer acompetitive deal on renewing a photocopier andprinter fleet the optimum solution for a firm may beto consider outsourcing some elements of print,completely replacing desktop printers with multi-functional devices, using the opportunity to integrateprint with billing software, introducing new rules-based software, changing the grade of paper used orchanging the nature of the contract for hardware.

You could say the difference is between beingtactical and strategic. As procurementprofessionals, at ERA we’d always emphasisethe latter.