Cost Reduction Solutions For A Down Economy

Consolidate the number of vendors and renegotiate pricing and terms to reduce costs

. At one manufacturer, we found 12 suppliers across their divisions that provided the same hardware. By consolidating to 2 suppliers, they were able to save $4M annually. Bundling similar services (e.g., leased business equipment) can also prove to leverage purchasing power.

Analyze the efficiency of expense spend. At one retailer, we analyzed specific operations spend to determine the profitability of their business operations programs. This analysis drove more than $5M in annual cost savings.

Reduce overall expense spend. We identified $3M at one retailer in discretionary spend which included annual departmental weekend trips, purchases at specialty retailers and a reduced level in charitable contributions - all of which was accepted by the executives.

Use the total cost of ownership (TCO) to determine materials purchases. One manufacturer reduced on average 5% across all categories for purchases by incorporating these costs into their analysis - unit purchase price, transportation, purchasing and transportation administration, inventory carrying costs, shrink, damages, and warranty costs.

Create new policies. One retailer saved $6M annually by establishing an expense policy (by position/level) and revising a company car policy (optimizing the type of company car and the position that was eligible to receive a company car).

Create a shared services department by combining services/support functions that are shared across the organization - IT, HR, Finance/Accounting, Travel and Procurement. Most organizations experience a 20-30% overall cost savings. One manufacturer saved $15M annually by combining these functions.

Another services company captured $3M by taking an aggressive fresh look at Purchasing - they consolidated purchasing and renegotiated transportation allowing them to fund up-front investments in shared services.

Capital Expenditures

There are several ways to reduce capital expenditures. First, eliminate the need for additional equipment. One business we support in the mid-west was able to remove $2M of additional equipment expense from their capital budget when we moved them to leased equipment over purchasing. In addition, they were able to sell their owned equipment for significant capital expense recovery. One retailer saved millions of dollars annually by utilizing Applied Business Consulting Inventory Management.

Company-wide cost reduction efforts have demonstrated strong sustainable results in a wide range of industries. Achieving meaningful results does not mean you have to negatively impact customers or employee morale. A fresh perspective and closer inspection can help identify those things that have "always been done that way" but don't make good business sense.

Success can be achieved by ensuring executive support, assigning the right resources to the effort, crafting the compelling story and leveraging a proven approach. An organization's size, scope, and culture determine the amount of cost savings.

by: Tom Mann

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