Companies should constantly be on the lookout for cost-reduction opportunities throughout their organizations. Unfortunately, companies typically either aren’t doing it at all or they have a plan in place that’s not followed.
“The only constant is that pricing is always changing,” says Marc Schwalb, Strategic-Partner at Schooley Mitchell. “Suppliers don’t always inform their clients of new pricing options that could be of benefit. That means companies need to have their eye on the marketplace at all times.”
It doesn’t matter if a company is in a good financial position or is struggling. Identifying cost savings could improve profits and open funds that could be used in other aspects of the business, or get money back to their bottom line without having to increase sales, better positioning them to come out of their financial struggle.
Smart Business spoke with Schwalb about cost saving strategies, and when and how to deploy them.
What’s involved in the cost reduction process?
The first thing for a company to do is look at its own cost-reduction processes, if they exist, and figure out if it is something that the staff can really execute. Do they have the time to dig into operational expense monitoring? Or are they stretched thin with core responsibilities? In some companies, roles have been eliminated and absorbed by those in other departments. Does somebody like that have the bandwidth to spend the time to do this?
It’s also a question of expertise. Does the employee know what standard pricing is in the industry? Are they networked with other people in their industry to get a sense of what other companies are paying? Also, do they have any tools, such as specialized software, that can help them catch billing errors among pages and pages of information? Or are they doing everything by hand?
Outside help is available to companies that lack the resources to identify and deploy cost-saving strategies. Companies are best served by a cost reduction firm that can take an objective approach, considering first what’s best for the business, rather than a broker relationship that has financial ties to certain suppliers.
Also, explore the relationship options. Does the company want a one-shot deal to reduce pricing? Or would it prefer to continually work with the partner to help monitor for billing errors and ongoing expense reduction opportunities?
How long does the process take?
A cost-reduction firm is going to analyze months of invoices and establish a benchmark of the pricing at the moment. Then they’ll negotiate with incumbent and alternate providers to find better pricing. This process, on average, takes about six weeks depending on the size of the business and its complexity.
When a company tries to do its own cost reductions, the process can get hung up — individual staffers are now dividing their time between finding costs savings and their core responsibilities, so often cost reduction gets put on the back burner. Or, the staffer might do little more than reach out to a couple vendors and ask for quotes. The process tends to become a much less thorough and much less expertise-driven exercise.
What is the benefit of an ongoing relationship with a firm?
When companies establish a relationship with a cost-reduction firm, they receive regular savings summary reports that detail the actual savings for the period. The firm will also make regular recommendations on where pricing could be reduced or cost savings realized.
These relationships can often span multiple years, allowing the firm to look at everything and make ongoing adjustments as opportunities arise. Annually, they can conduct a more thorough re-examination to find other areas for reducing costs. And because there’s a relationship, the firm could conduct that re-examination sooner if a major change occurs or a significant opportunity arises.
It’s also good to work with an outside partner because people within a company can form personal relationships with vendor reps that delay or even prevent a change. A third party can take an unbiased approach to the cost reduction process. ●
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