Save your business money with cost reduction

I must admit that I have worked in and around Procurement for the past 30…...

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I must admit that I have worked in and around Procurement for the past 30 years or so, though by way of redemption I have also run businesses globally, and more recently have with a couple of business partners formed a successful consultancy business founded on cloud principles (everything drawn from third parties; technology to independent contractors). In our business we have essentially outsourced everything, this has allowed us to start the business with very limited capital and very quickly grow it whilst servicing a range of multi-national as well as national customers at competitively, whilst delivering very fast to a high-quality standard.

I have seen cost reduction and cost cutting from both the corporate perspective, often founded around right sizing, as well as the procurement end of the lens, working commercially with third party suppliers to secure the strongest deals.

My biggest learning is that people in businesses often seem to lose a perspective on value for money. As a CEO, I worked for stated ‘people need to treat company money like it is their own’. Often they don’t, especially in bigger organisations. Having started my own business, Odesma, I can confirm I treat every penny like it is my own – gone are fancy hotels, high cost technology solutions, expensive centrally located offices and the like.

Clearly when it comes to reducing costs in a business there remains a continuing trend for re-organising and reducing headcount as well as cutting budgets across the operation to shore up the P&L, meet shareholder expectations and so forth. I accept fully this has to be done, however from my personal perspective there are a range of proactive actions that can be taken to deliver cost reduction whilst maintaining the essence of the proposition to the end customer successfully.

I would posit 5 major opportunities for maintaining a highly competitive cost base:

Effective procurement

Often over looked, or misunderstood a professional approach to managing third-party spend will deliver typically 11-13% in price savings across the total spend. Over a longer term collaboration will deliver double this number without detriment to quality and service

Customer Profitability Management

For most organisations potentially only 20% of the customer base actually provide target return. This is sometimes a product of over-zealous selling with too limited understanding of the actual cost to serve, and for longer term customers changing dynamics affecting deal profitability. All organisations should regularly review each customer’s profitability and either eliminate loss making customers, re-negotiate or create get well plans

Harnessing new or bleeding edge technology

The B2C world is heading towards convergence with B2B. Businesses continue to operate in the old World, whilst the new world now offers solutions on an on-demand call off basis with no tie in at low cost. Freeware / Open Source is prevalent, on demand solutions are readily available ie Google mail, CRM solutions at a fraction of the corporate cost with greater security. New suppliers entering the market offer much stronger easy to use interfaces at a fraction of the current cost.

Outsourcing non-critical activities

There are a range of on shore, near shore and off shore service providers covering a range of non-core services, from telephone call handling to financial transaction management on a per transaction or fixed fee basis much more effectively than in-house functions. In the UK, there are businesses of all sizes providing these services and most at a fraction of the in-house cost.

The flexible workforce

Like outsourcing, utilising experts on-demand is possible thanks to the range of highly talented interims and fixed term contractors. Not all business tasks need a full-time resource, supplanting permanent staff with non-permanent can be highly cost effective.

All of the above are elements of my approach to business and I can contend I have directly experienced and deployed to my business.

Written By Ed Cross, Odesma

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