Every month bills come in, someone will hopefully review them (but more often than not they are only given a cursory glance), and then they are paid – usually without any question. You may pay quickly or delay sending a cheque for as long as the vendors will accept but in the end they all get their money and business goes on. Unfortunately this leaves you open to spending more than you should on your overhead expenses.
At ERA Canada we often find that many organizations just don’t have the resources to perform regular reviews of their overhead costs. Their staff are running full out on getting their day to day tasks done and there just isn’t anything left in the tank to dedicate to analyzing costs. The result is that most businesses suffer from ‘profit leaks’. That is, money that is legitimately being paid to suppliers but with some time and knowledge they could be reduced, sometimes significantly.
ERA Canada has saved our clients millions of dollars by using our detailed knowledge of the industries that make up the overhead costs incurred. Our solutions use many tools to quickly identify and expose those areas of your business that could be leaking money.
Here are some tips that will help you plug some of your profit leaks:
· Understand that saving money is a corporate responsibility – it must be part of the organizations culture. Adopting an ‘every penny counts’ attitude from the top executive on down creates prudent fiscal management.
· Question Every Expense – there can be no sacred cows. One of the biggest challenges that we face in delivering savings is resistance to change. People become comfortable with their sales reps and maybe even get the odd set of hockey tickets as a thank-you for their business. Questioning expenses is part of the culture of prudent fiscal management.
· Communicate – make sure that employees understand why cost reduction is necessary and how the process will work. Get your employees involved in the process from day 1, provide regular feedback throughout the process and celebrate major successes.
· Challenge your vendors - this is probably the single piece of advice that will provide the greatest payback. Make your vendors prove that you are getting the best value and don’t take anything they tell you at face value - investigate.
· Educate yourself – learn as much as you can about the various industries as you can. In particular, find out what their major input costs are and start tracking them. This will give you significant leverage in any negotiations if you can quote price reductions on their main input commodities.
· Build relationships – it is important to build mutually rewarding relationships with your suppliers but be careful, too much familiarity can breed unnecessary expenditures and wasted money.
· Reward your people for a job well done – let your staff know how the company has been successful as a result of their cost reduction efforts. Also, share some of the savings with those who have contributed to the process. You are effectively letting your suppliers pay to motivate your employees to save the company even more money.
Always keep your vendors working for you to find more ways to reduce costs or improve processes. Remember that that vendor management is an active process, if you take your eye off the ball your costs will most certainly start to creep up again. Also, know when to call in the experts. If you don’t have the resources or expertise in a certain area it pays to bring in someone who does. In our business we see many companies that say we can do it ourselves and we watch from the sidelines as they continue to overpay for goods and services because they don’t have the market knowledge.
