Published In:
Westpac Good Business Magazine Date Published:
1st February 2004 Author:
Shelley Dempsey
Think of ways to save money in a company and the first strategy that looms is to sack staff - an unpalatable option. However, there's a more positive path to follow.
Staff can truthfully be told their jobs will be made safer by cost-cutting, according to Fred Marfleet, chairman of Expense Reduction Analysts (ERA) Australia, an organisation dedicated to creating fat-free business. "That's the first thing we say when we go into an organisation. We're not here to cut jobs. What we do saves money and that goes straight to the bottom line. And that should make jobs secure."
Wasting time and money can usually be eliminated, says Marfleet. Nearly all businesses can cut hidden costs on overheads such as telephone and internet bills, cleaning costs, freight and courier charges, travel, printing and stationery, he insists.
Established in 1983, ERA is now represented in 23 countries and is recognised as the largest specialist cost managemnet group of its type in the world.
So prevalent is the overpayment for goods and services, ERA Australia estimates they can slash costs sometimes by a whopping 75 per cent.
Solution- Businesses need to identify cheaper and better value suppliers, install a more centralised ordering sytem and most importantly, implement these changes effectively.
"It's not easy to generate a culture of change, but that's our skill," says Marfleet. "If we don't do that, we don't get paid. We try to get a result that suits the stakeholder> If the stakeholders feel they've been part of the solution, then they'll be happy."
The trick is just getting people to focus on the problem, says Denis Stevens, managing director of ERA New Zealand. "A lot of people think of their costs as the norm," he says.
"They don't challenge them. I think by bringing us in as a third party, we're an independent commentator. We make them look at the hard questions."
Surprisingly, rather than resist and object to a culture of change, often employees willingly embrace it. "Staff often say: 'We've always wanted to do this, but nobody's ever listened'", says Marfleet. "All we do is look at procurement and the process of procurement. And once staff understand we are there to help them, most people want to do a better job anyhow."
A case of misuse
Telecommunications companies make up the highest category for overspending by business - and staff mobile phone bills make up a large part of the sting. But staff mobile bills can easily be cut by up to 30 per cent, according to telephone audit specialist John Malone, director of YourPhoneBill. The place to start is to draw up fair company policies for personal calls on mobiles for staff. "By putting policies in place and manging them, savings of 30 per cent are very achievable," says Malone.
YourPhoneBill then monitors staff mobile bills and repots to the business on whether staff are observing the new policies and if they need help to do so. Rather than employee abuse, high mobile bills are a case of misuse most of the time, he says. "It's making a call and forgetting you're on the phone for 15 minutes, which is a $10 call."
Controlling the cost of mobile charges is one of two main ways a small-to-medium business can cut overspending, according to Malone. The other is to get more competitive rates by switching carriers.
ERA Australia has pruned expenditure for thousands of companies in Australia over the past 11 years, ranging from top corporations such as Castrol Australia, Heinz Watties Australia, Valvoline and TMP Worldwide (TMP) to voluntary organisations such as the RSPCA, the Salvation Army and Anglicare as well as various businesses.
ERA New Zealand has helped many companies since setting up in 1994, including TNT Express Worldwide (NZ) Ltd, Plumbing World Ltd, Parkroyal and Centra Hotels, Goulds Fine Foods, Natural History New Zealand and Science Alive.
It is chiefly small-to-medium businesses that are often needlessly and unknowingly overcharged for hidden and overlooked overheads, according to Marfleet.
"I think small-to-medium businesses are more inclined to waste in the overheads area than larger businesses," he says. "The reason is they don't have the large buying power by themselves.
"They also don't have the resources. They don't have people who are reviewing costs, because they're too busy running their core business," adds Denis Stevens.
YourPhoneBill which has been operating for three years, has already recovered millions of dollars in overcharging, by telephone companies in Australia. The telecommunications watchdog has audited around 500-600 firms, about 10 per cent of them are large companies and the rest small-to-medium businesses.
YourPhoneBill can often spot whether there is an error on a phone bill within 10 minutes but recovering money from phone companies takes six weeks to six months, says Malone.
Stick to the plan
Common mistakes phone companies make are to charge for redundant equipment, or to charge client companies at the wrong rate for the wrong phone plan. Sometimes it's just a case of the client misunderstanding the rate at which they are to be charged.
Ad hoc smaller chanrges can often mount up to a substantial cost, says Marfleet. "If you're looking at the cost of ordering print or office supplies or cleaning materials, you've got to have some control over who's doing the ordering and what they are ordering.
"So you've got to agree on what product range you're going to use, what quality you're going to use and who you're buying them from. Procedures are really important, putting in a system of procedures and a system of doing the buying," he says.
For example, recruitment adverting network TMP generated multimillion-dollar savings of 23.6 per cent overall within a few months on overheads such as printing, business travel, telecommunications and couriers. No staff were sacked at all during the cost-cutting process. In particular, TMP centralised printing functions with a printer that offers online facilities to print stationery and business cards.
But change is useless without implementation, says Marfleet. It is important to stick to the plan over a longer period, at least
24 months, to ensure that savings are realised.
It is also important to ensure that businesses choose a cost-reduction analyst who is prepared to stay the distance, he says, pointing out that his company is in for the long haul with a commitment to clients for
24 months.
So how much do these cost-crunchers themselves deplete the bottom line? The standard charge is 50 per cent of the savings made over an
24-month period.
Costs you can save
Common costs which can blow out for
businesses:
printing costs - for brochures, stationery, business cards, catalogues
and the like.
