Published In:
The Australian Financial Review Enterprise Section Date Published:
29th September 2003 Author:
Mark Fenton-Jones
A global cost management consultancy that shows companies how to reduce spending is taking the licensing route to expand its Australian business.
"Most, if not all, organisations overspend significantly on their business operating costs," Expense Reduction Analysts chairman Fred Marfleet said.
ERA said companies that could reduce their business operating costs and free up profits tended to have three characteristics.
First, they had no centralised purchasing system. Each department had its own favourite suppliers and purchasing processes.
Second, they purchased in an ad hoc manner instead of exploiting bulk purchases. For example, stationery was purchased at different times of the year from different suppliers.
Third, they stuck with the same supplier and trusted they were getting value for money.
"One longstanding supplier to a company was blatantly overcharging by up to 35 per cent," Mr Marfleet said.
He said a lack of time to research the best deal was one reason companies overspent. Another was that a company might purchase an item once a year, whereas ERA was constantly in the market. "We deal with suppliers every day of the week but clients may tender only every one or three years," he said.
ERA's fee is based on 50 per cent of the savings achieved over the life of an
24-month contract, with tiered reductions for big amounts.
Estimated average savings are between 17 per cent and 22 per cent, although they can be higher. ERA does not receive a brokerage fee from suppliers.
ERA, which has 40 associates in Australia, has about 400 fast-growing small to medium enterprises and 50 larger businesses as clients. Their turnover ranges from $5 million to $50 million with a minimum expenditure in each purchasing category of $50,000 a year. In the UK, ERA has about 120 cost-cutting categories compared with 15 in Australia. To meet the anticipated growth - 25 new clients joined last month - it is licensing new associates.
Turnover to June was $7 million. ERA expects to sell between 50 and 70 licences and has sold 43 licences to associates.
Associates tend to have worked in professional services firms, with an average age of 50. Mr Marfleet said recruiting staff would have required a major capital injection, which it could not afford because of the way clients were charged.
The licence fee is $45,000 plus $30,000 for training and software. The annual royalty is 15 per cent.
