ARTICLE (Part 2 of 5):
Low Hanging Fruit: Cost Savings At Your Fingertips
©2002 Dee
McCrorey The
expression "low hanging fruit" comes from the idea that
something within our reach is the easiest to get. This
month we look at four practical ways for recognizing
ready-to-pick cost savings.
Outsource Your Non-Core Services
Look first for outsourcing opportunities of non-core
services, i.e., ones that are not instrumental to your
business survival but which are essential to conducting
your business. For example, consider outsourcing any
number of customer service tasks such as survey management,
problem resolution and follow-up, or even entire call
center. A solid partner provider can manage aspects
of your business more efficiently and cost-effectively
because it's core to their business, whereas it's a
secondary focus for you.
One way to determine whether a service makes for a good
outsourcing target is to review business results in
the past year that *didn't* meet objectives and/or budgetary
requirements. Conduct informal Request for Quote (RFQ)
to determine if a vendor might be able to deliver better
results at a more attractive price point.
Other outsourcing opportunities could come from in-house
services where costs get billed back to your department.
We recommend that clients conduct informal RFQs at least
biannually to ensure that their internal providers remain
competitive in both pricing and services.
Consolidate
vendors and/or services
Just
as important as looking for opportunities to outsource
parts of your business, it's also important to review
existing value-chain providers to see if it makes sense
to consolidate service requirements to one, possibly
two, vendors who may be providing the same or similar
types of services. This allows you to:
-
Streamline your operations.
-
Free up resources in managing a myriad of vendor
relationships.
-
Re-negotiate pricing given that the supplier will
receive a larger chunk of business.
-
Reduce indirect costs associated with backend processing
and payments to multiple vendors.
For
example, let's say you currently have five vendors providing
a myriad of web services to your company. One vendor
provides primary web services while the other four suppliers
each handle different aspects of your business due to
their unique product offerings and/or ability to deliver
their services at a lower cost.
This could be the right time to re-negotiate terms and
conditions, i.e., pricing, with your primary supplier,
while also looking to consolidate your remaining web
services vendor base. Your primary vendor may be willing
to lower their costs to you in exchange for a bigger
piece of the pie. One of the alternate suppliers may
be willing to negotiate more aggressive terms and conditions
if given an opportunity to win more of the business.
Don't
Bloat The Budget - Tie Spending To A Result
Padding the budget. It's a pervasive strategy throughout
the business world. It works like this. You ask for
more funding than you need - and know you'll ever
need - and look like a hero or heroine when you "come
in under budget". Asking for what you need, to deliver
the results you say you will requires real business
savvy. The more you know about your business the better
you can forecast and manage it.
Consider trying a different tactic instead. Ask for
what you need, deliver on what you promise. Capture
and report your YTD and quarter-to-quarter savings
of your spending versus deliverables. Show your capability
in sustaining your business and spending within your
means, i.e., a non-bloated budget. Track, measure,
and report your ability to grow your business, improve
service levels, and/or introduce innovative solutions
to your customers, then see how your intellectual
capital grows.
Your budget dollars (pounds, yen, marks) should deliver
results mapped to your company's strategic direction.
Results need to be quantifiable with a way for you
to both track them and to determine if your spending
is out of line against the plan. This will allow you
to course correct as needed.
Capital, project, and sustaining budget dollars need
to be tied to expected results, a quid pro quo business
arrangement with spending approval given in exchange
for measurable results. Too many annual plans receive
budget approval without
the following:
-
Measurable results being part of the
equation.
-
Historical evidence that deliverables were met.
Manage Double-Dip Projects and Failed Programs
"Double-dipping" refers to programs and projects replicated
within organizations. Once discovered, though, the more
difficult challenge is to change the status quo.
How often do you see business unit managers cutting
redundancy from their budgets and willingly reducing
their employee count? Although it may be the right thing
to do for the company, it's also one of the thorniest
to identify and toughest to implement. Given the current
anemic economy, managers may be less likely to shrink
their "fiefdoms" or take actions that might have people
asking why they "didn't catch the redundancy sooner."
A real lose-lose situation.
A second challenge entails knowing when to "cut your
loses" before continuing to spend more money on a failed
program. This takes a certain amount of courage to do
and political savvy to pull off, given that the action
may require communication outside your business unit.
The allocated dollars in the plan will both reduce your
overall budget, and may raise validity questions of
the original project plan.
A different way of handling these situations is to look
for ways internally to redirect the wealth and make
managers look like heroes. Some years ago we led an
operations audit team that identified a number of redundant
programs within a Fortune 500 company.
During the audit we spotted a strategic, company-wide
initiative that appeared to be under-funded but well
managed. The project team was stretched beyond what
they could manage and at-risk of not delivering their
high-impact projected results. Our audit team recommended
shifting funds from one of the duplicate programs to
this particular initiative.
We also showed the manager who released the funds how
to report this action as a cost-avoidance savings, given
that additional funding would not be needed for this
strategic project. The net result - the manager who
"sacrificed" some of their funds was praised by senior
management, our audit team achieved its objective, and
the strategic project team received their funding -
creating a true triple win.
That's it for this month. Be sure to keep watch for
the low hanging cost savings around your places of business!
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