Daily Archives: June 5, 2011

Cost Cutting – Let Us Count the Ways

A recent article over on the CPO Agenda on cutting it fine noted that there is more to cost cutting than just hammering down price. In fact, it noted that, in most companies, the following seven options are available:

  1. Avoid
    The best way to cut cost is not to spend money in the first place. Improve forecasts, shape demand, and eliminate need (through process transformation), spend will fall, and savings will rise.
  2. Reduce
    Finding a more energy efficient or water efficient manufacturing process will reduce costs, as will one that reduces the amount of (wasted) raw materials required.
  3. Reuse
    Find multiple uses for a product beyond its initial application or self life. Reuse an old desktop machine as a print server.
  4. Recycle
    Any production waste that can be recycled for other purposes will save money (and increase the bottom line if the scrap can be sold) as will any products that can be reclaimed from the end customer for reuse or recycling at end of life.
  5. Recover
    Retrieve discarded products from the customer at the end of life to remove precious metals from the products or components from a computer or piece of electronics equipment.
  6. Treat
    Apply treatments to products or processes to make them last longer and reduce costs.
  7. Dispose
    Dispose of unused or unwanted assets (in a sale if possible) and lower costs.

And the article is 100% correct. The question is, when will the rest of the world see that it’s not just negotiating a price break.

Quick Hit Cost Savings Projects

Since it’s impossible to get away from cost reduction, inspired by a recent SIG article on Strategic Cost Management: The Survivor’s Playbook to Savings, which listed the following high-impact projects for same year savings:

  • Software Maintenance-Rate Reduction
    Identify all of the maintenance contracts, annual spend, and maintenance percentages. Develop a standard maintenance agreement and standard percentage for annual maintenance, require an exception appoval process with senior management involvement for any alterations, and focus (re)negotiations on highest savings opportunities. Savings of 5%+ is not uncommon.
  • Software Maintenance-Elimination
    Eliminate maintenance on all non-critical systems or all systems where annual maintenance cost is low. (In the latter case, even if the system is critical, it will cost less to re-instate the maintenance on a system at a later time if it is required than to pay maintenance on all such systems.)
  • Legal Services-Hourly Rate Reduction
    Most legal firms raise costs annually regardless of competitive market conditions. (Threaten to) conduct a sourcing exercise and watch rates drop quickly.
  • Legal Services-Bundles and AFAs (Alternate Fee Arrangements)
    For general legal services that are project or task oriented, and not litigation oriented, bundles or AFAs can save the company a significant amount of money.
  • Desktop Printers-Elimination
    Shared multi-function devices, with password printing, are much cheaper to operate than individual desktop printers.

here are a few more quick-hit cost savings projects that will generate cost savings if the organization has not run them (recently):

  • Marketing-Print
    Unbundle print from creative services and then run a quick sourcing project. Significant cost reductions in the 10% to 20% range (or more) will quickly materialize when printers are being faced off against each other.
  • Office Supplies-Live SKU Guarantees & Price Checks
    Everyone knows that a quick auction will drop prices across the board, but most category experts also know that the vendors make this back by raising prices a few months down the road when they think no one is looking and by bidding expiring SKUs, which will be substituted with higher price items down the road. Insisting on a clause that states that all SKUs must not be schduled to reach end of life within the contract term, and that any SKU that is retired must be replaced with a SKU of equivalent, or greater, functionality at current, or reduced, cost will prevent those overpayments and insure that significantly greater savings materialize.
  • Computers-Overpayment Recovery
    Most vendors don’t honor the “best price” clause and generally charge the same rate for the life of the contract, even though most computers and components decrease 2% to 3% a month. A careful spend audit will typically reveal 10% or more in overpayments that can be targetted quickly.