There are many ways to reduce corporate expenditure without having to cut staff, argues Richard Wong, Principal, Ascent Partners
As staff are generally a major corporate cost category, whenever there is a need to trim costs, the opportunity to find victims presents itself.
However, it is not easy to determine accurately how many employees can be cut without affecting the quality of service, or company efficiency, etc. In fact, there are other expense categories which, if trimmed properly, can generate comparable cost savings.
As there are costs involved in an expense reduction project, carefully planning the scope and selecting the right overhead cost items to begin with is crucial. The 80/ 20 rule always helps to focus on what is important. This rule says: pick the 20% of items that constitute 80% of the total cost, to study.
Here are some common areas suitable for cost reduction:
- Printing has a high hidden cost. To keep its cost under control, a proper print management system, which standardises design, reduces variety and supports bulk purchases, is a prerequisite. Establishing a good relationship with contract printers could also help to reduce unnecessary costs.
- Office supplies is a highly varied category where there can be big price differences among similar items. Opportunities exist for the rationalisation of supply types and choosing cost-effective brands.
- Record keeping expenses could be reduced by choosing cheaper storage media and means. Introducing a record retention guide could eliminate unnecessary recordkeeping costs.
- Courier costs can be minimised by focusing on specialists, making best use of satchels and defining regular schedules in the contracts.
- Communication, in particular telecommunication, is a very competitive market. Always keep a lookout for what the market is offering and be prepared to change to better systems and better technology. At the same time, make very sure all available discounts from the current suppliers are received.
- An energy audit can identify inefficient and high consumption areas. Major saving opportunities include air-conditioning and compressed air efficiency improvements, power factor correction and heat recovery from process heating. There are also energy reduction management systems that can be installed.
- Bank fees can be renegotiated as no bank wants to lose their existing good customers and there are so many other banks that want to gain new customers. On the other hand, not many companies would want to change their bankers and therefore negotiations should be mainly with your incumbent bank.
- Having the right service plans means reviewing all existing service plans and thinking twice before signing any new plan. As it is now very difficult to increase prices, many suppliers build traps in the service plan. Monitor and negotiate a price to ensure you get the best deal. It is not necessary to sign an ongoing service for a piece of very reliable equipment; on-call base maintenance is always cheaper.
- Vehicle expenses covering maintenance, fuel and insurance is always a prime area for cost cutting. If the vehicle fleet travels across states or countries frequently, arrange maintenance in the lowest cost area of their journeys. Most oil companies offer fleet discounts. Putting drivers with good driving records on new vehicles could help to reduce insurance premiums. Changes in policies can also bring savings to cost categories:
- Travel expenses can be reduced significantly if there is a disciplined pre-booking policy in place, especially for air travel. Making bulk purchases would also be cheaper.
- Insurance has grown more and more expensive after the September 11 terrorist attacks. It is not unusual to find a multinational company using one standard policy for a whole region. This may not be cost-effective for certain countries due to special local risks. It would be cheaper to choose policies by local insurance companies which are better suited to the local environment.
- A review of office and space standards can help to put more people in a smaller office space. Encouraging an open plan can result in flexibility for future changes to be made, thus making substantial savings on renovation bills.
- Cash can be needlessly tied up in inventory. It is important to do some demand forecast exercises so that less merchandise or stock can be kept without the danger of being unable to meet customers’ demands.
- A supply and demand policy which trims unnecessary demands and aggregates purchases could reduce spending.
- Paper is expensive to buy, maintain and store. There should be a policy in place to encourage reading and storing electronic information, and restricting the number of printers.
- A recovery audit identifies errors in bills due to duplication, payment mistakes, non-compliant contract terms or price mess-ups.
Many senior corporate executives feel they have done enough in cost cutting after trimming departments and rationalising procedures and headcounts. They tend to overlook all these overhead costs, because it is not immediately obvious that savings can be made in these areas.
In fact, many overhead items are related to special trades, and they could be too complex for non-trade personnel to see cost-reduction opportunities without performing a thorough analysis of requirements and the trade tariffs. Getting help from the appropriate specialists could produce unexpected reduction results. Adding up all the reduced expenses in the overhead items can result in a significant amount of savings!
Richard Wong, Principal
Richard is a career cost-reduction professional with 30 years’ practicing experience. Prior to his consulting practice, he worked for a number of blue chip companies in the manufacturing, telecommunication and financial sectors, and was mainly responsible for introducing and monitoring effective cost-reduction and control programmes. If you have any questions on this article, Richard can be contacted at firstname.lastname@example.org.
Richard recently delivered a seminar on expense reduction for the HKICS ECPD programme. Information on forthcoming ECPD seminars is available on the HKICS website www.hkics.org.hk.