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discussion of focus on overhead expenses - advantages of reducing costs and reasons why businesses often miss this opportunity
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Finding hidden dollars…
Mary Crawford, DirectorExpense Reduction Analysts(904) 254-3110
Finding hidden dollars…
Mary Crawford, DirectorExpense Reduction Analysts(904) 254-3110
2Copyright Expense Reduction Analysts 2008
Presentation Overview
Why all the focus on reducing expenses?Why all the focus on reducing expenses?
Opportunities for cost reductionOpportunities for cost reduction
Expense management fallacies and challengesExpense management fallacies and challenges
Expense management strategiesExpense management strategies
Best practices in expense reduction process Best practices in expense reduction process Best practices in expense reduction process Best practices in expense reduction process
Outsourcing can help Outsourcing can help
3Copyright Expense Reduction Analysts 2008
The World is Flat…. The Pressure is ON!
World forces are driving prices lower
Customers commoditizing ALL products
Competitors are is keeping ALL expenses as low as possible to gain pricing advantage
4Copyright Expense Reduction Analysts 2008
Non-Core costs Rarely Get Respect
Payroll Relate
d Costs 35%
DirectCosts 35%
Non-CoreCosts 20%
Senior Mgmt focuses on revenue growth, margin integrity and controlling payroll and direct costs
Senior Mgmt does not have time to focus here
5Copyright Expense Reduction Analysts 2008
Trends Within Mid-Sized Companies
Typical firm applies strategic sourcing to only 1/3 of spending
Insufficient sourcing costs U.S. firms $134 billion per year
Source: Aberdeen Group. Tim A. Minahan, "Sourcing in the Mid-Market: The Supply Management Echo Boom". 2006
Lack a formal sourcing or
procurement organization
Lack a formal sourcing or
procurement organization
Uncertain how to begin strategic sourcing initiative
Uncertain how to begin strategic sourcing initiative
0%0%
20%20%
40%40%
60%60%
80%80%
100%100%
38%38%
50%50%
6Copyright Expense Reduction Analysts 2008
CFOs Recognize the Issue…
67%
50%
59%
78%
Believe managing indirect expenses is animportant strategy for improving their business
Said “lowering costs from suppliers” is one of their biggest challenges in expense management
Lack aggregated data to negotiate with Suppliers
Believe they are not getting the best prices
CFO Magazine
7Copyright Expense Reduction Analysts 20087
OfficeSupplies
FactorySupplies
TransportFreight &
Parcel
RecordsMgmt
PayrollProcessing
Fees
Non-Core Savings Opportunities
TelecomVoice &
Data
Printing
Cleaning Service & supplies
Waste &Recycling
Leasing
Temp Labor
MerchantCard Fees
Packaging
Insurane
8Copyright Expense Reduction Analysts 2008
Typical cost reductions by expense category
9Copyright Expense Reduction Analysts 2008
Column1
Current20% CostReduction
IncreaseSales
Revenue $ 100 $ 100
$ 140
Direct operating costs $ 35 $ 35 $ 49
Labor costs $ 35 $ 35 $ 49
Non-core indirect costs $ 20 $ 16 $ 28
Net profit $ 10 $ 14 $ 14
20% cost reduction or 40% increase in sales revenue both yield a 40% increase in Net Profit
Lowering Non-core Costs Can be VERY Profitable…
10Copyright Expense Reduction Analysts 2008
Staff and Management has limited time to address
non-strategic costs
Staff and Management has limited time to address
non-strategic costs
Employees with limited experience makingbuying decisions
Employees with limited experience makingbuying decisions
No benchmark data
No time to monitor
No benchmark data
No time to monitor
Supplierslooking out for you
Supplierslooking out for you
Dreaming that 5 companies w/same supplier get same price
Dreaming that 5 companies w/same supplier get same price
Believing you can do a great job in all cost categories
Believing you can do a great job in all cost categories
Assume a level playing field between buyer & supplier
Assume a level playing field between buyer & supplier
Multiple suppliers-
Multiple order points
Multiple suppliers-
Multiple order points
Expense Management Fallacies/Challenges
Thinking supplierloyalty equals
best price/service Expense ManagementFallacies & Challenges
Expense ManagementFallacies & Challenges
11Copyright Expense Reduction Analysts 2008
Analyze Analyze Recommend Recommend Implement and Monitor
Implement and Monitor
Complete analysis Of business and requirements
Process: Select and manage supplies and prepare recommendations
Implement solutions, measure and monitor ongoing
Activities: • Define scope• Obtain data• Understand data• Know requirements
• Look for new Suppliers• Go To Market (RFP)• Analyze the data• Make recommendation
• Negotiate Supply Agreement• Implement recommendation• Monitor immediately and ongoing
Best Practice Process Overview
12Copyright Expense Reduction Analysts 2008
Best Practices
Gather and analyze the data
Know the category/industry and market pricing
Reduce supplier risk
Go to market, then analyze results
Negotiate well
Implement quickly
Monitor afterwards
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Special Considerations in Tough Times
• Watch tier discounts thresholds
• Be mindful of minimum volumes
• Cultivate a relationship so business can get help later (if needed)
• Do the math – looking at upside and downside
• Use the leverage before signing/switching
• Read the T’s and C’s carefully
• Know what contract terms are negotiable
14Copyright Expense Reduction Analysts 2008
This Process Yields Predictable Results
Our statistics show:
Savings in can be achieved in 90% of projects
An average cost savings of 20% can be achieved
Expect to realize over 100% of predicted savings
*Based on over 14,000 Worldwide ERA projects over 14 years
15Copyright Expense Reduction Analysts 2008
What to Expect IF Outsourcing Used
Outsourcing expectation Deep category expertise and experience
Detailed analysis with clear baseline pricing
Access to aggregated (benchmark) pricing data
Transparent earnings - disclose any commissions/incentives
Implementation support
On-going auditing of results
Compensation based on delivered success
The result should be: Much faster completion (by capturing lost savings)
Much more savings (from using experts & benchmark pricing)
16Copyright Expense Reduction Analysts 2008
Expense Reduction Analysts
• Global consultancy focused on reducing G&A/non-core operating expense
• Network of more than 700 consultants worldwide, with 250+ in the United States
• Proprietary benchmark data from more than 14,000 cost-reduction projects
• Acts for the client – no vendor/supplier agreements
• Contingency based
− Paid from savings generated
www.expensereduction.comwww.expensereduction.com
No savings – No feeNo savings – No fee
17Copyright Expense Reduction Analysts 2008
The ERA Process
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Do the Techniques Work?
Client Category % Saving
Texas Mfg Merchant Card 65%
FL Medical office Office Supplies 24%
SC Mfg Payroll 35%
FL Golf Course Chemicals 10%
FL Restaurant Payroll 16%
FL Chamber Merchant Card 35%
19Copyright Expense Reduction Analysts 2008
Effective Expense ReductionRequires:
1. Detailed spend analysis2. Benchmark pricing information3. Category (and procurement) expertise4. Time and resources5. Auditing of the results
THANK YOU
20Copyright Expense Reduction Analysts 2008
Mary Crawford
Expense Reduction Analysts is a world-wide organization of over 700 consultants in 30 countries with expertise in over 40 expense categories. Mary is one of 250 consultants in the US.
Mary’s background is in operations analysis, maritime, aviation and medical office management. Mary specializes in client management,
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