Lowering the cost of doing business

By LBV

30 Mar 2010

There is no getting away from it. Organisations must spend money to do business.

Yet they are paying more than they need to for essential business costs. Utilities, communications, insurance and waste are just some essential operational overheads.

Few have the time or resources to check every invoice, or keep abreast in a fast moving marketplace, so fail to take full advantage of cost saving opportunities.

Consequently, billions of pounds are wasted in unnecessary expenditure. Managed correctly, a proportion of current spend could be dramatically transformed into valuable profit.

The traditional approach
Hire a full-time specialist! An expensive approach and not an option for most organisations.

In many SME businesses the responsibility passes to office managers, who have little relevant experience and more than enough duties anyway.

As a result, many businesses opt for what appears on paper to be the ‘cheapest’ supplier.

Outsourcing
More and more organisations are turning to outsourced cost and purchase management services.

By doing so, they can access specialist knowledge, eliminate the financial loss of taking key individuals away from their core responsibilities and mitigate the cost of employing in-house specialists.

When considering outsourced cost management, look at the auditing procedure. A consultancy adhering to cost management best practice review processes should include the following:

• A comprehensive review of current expenditures
• A thorough analysis to determine where savings can be made
• A detailed report of recommendations and savings opportunities
• Full responsibility for managing relationships with existing and new suppliers.
• Turn projected savings into reality.
• Ongoing management of services.

Consistency
The key to maintaining best value purchasing is consistency. Effective cost and purchase management isn’t a one-hit wonder.

It needs to be an ongoing activity. Consider it from another angle. Suppose your company has a gross profit margin of 25 per cent. As a result of bringing in a cost management specialist you save £100,000 on your overhead expenditure.

In order to generate this additional profit through sales, you would have to increase turnover by £400,000. Try that line on your Finance Director on a Monday morning!

David Gray, cost management specialist, Auditel.
 

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