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Similar to NIBA Conference November 2010
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NIBA Conference November 2010
- 1. NIBA November 18, 2010 Jim Agnew Richard Ungaro “Increasing the Value of Your Business”
- 2. Cost Management Impact on Business Value Barriers and Challenges to Cost Management Best Practices Actions & Outcomes Options for Increasing Value for Your Business Objectives Questions The Current Economic Climate
- 3. Jim Agnew • 20 years Sales / Sales Management – Packaging Supplies & Equipment – Maintenance & Janitorial Supplies – Institutional Food Products – Product Development / Marketing – Private Label marketing Strategies • 10 years Logistics / Distribution – Operations Management – Fleet / Transportation Management – Warehouse layout / design – Employee Productivity / Process Improvement – Third Party Logistics – Customer Service – Procurement Methods and Strategies Alco Standard Corp
- 4. Rich Ungaro An extensive 40-year career as a Senior Executive with a special focus on business turnarounds, differentiating brands and exponential growth.
- 5. Cost Management Impact on Business Value Barriers and Challenges to Cost Management Best Practices Actions & Outcomes Options for Increasing Value for Your Business Objectives Questions The Current Economic Climate
- 6. • Increasing regulation • Increasing taxes • National Healthcare • Financial Reforms • Value of the U.S. Dollar • Global Competition • New Technologies Lots of Uncertainty
- 7. • Current economic conditions present challenges for most companies. • Sales increases are difficult for many companies. • Rules for institutional lending are tighter • CASH IS KING – External & Internal • YOUR competition is keeping all expenses as low as possible The Pressure is ON
- 8. Cost Management Impact on Business Value Barriers and Challenges to Cost Management Best Practices Actions & Outcomes Options for Increasing Value for Your Business Objectives Questions The Current Economic Climate
- 9. • New Profitable Products • New Profitable Markets • More Profitable Sales • Build Advocates in Customers • More New Customers External funding Increasing Sales Reduce Expenses “How to Manage Your Business in a Recession” 5% price cut = 19%+ sales increase to recover lost revenue • Staffing changes • Core expense renegotiations • Non-core cost reductions • Investors Traditional Options
- 10. “Grant me • The ability to accept the things that I can’t change • The courage to change the things that I can, • And the Wisdom to know the difference” 10 What Do We Control? What is it that we can change? What actions do we control? What will have the least external impact?
- 11. • New Profitable Products • New Profitable Markets • More Profitable Sales • Build Advocates in Customers • More New Customers External funding Increasing Sales Reduce Expenses “How to Manage Your Business in a Recession” 5% price cut = 19%+ sales increase to recover lost revenue • Staffing changes • Core expense renegotiations • Non-core cost reductions • Investors Traditional Options Expense management is the most directly controlled option for adding value to a business without external impact.
- 12. CFOs Recognize the Value… 67% Believe managing indirect expenses is an important component of business improvement Said “lowering costs from suppliers” is one of their biggest challenges in expense management Lack aggregated data to negotiate with Suppliers Believe they are not getting the best prices Source: CFO Magazine 50% 59% 78% CFO White Paper CFO Research Services – within CFO Publishing Corporation – publishes CFO magazine. Surveyed more than 200 senior finance executive from nearly every industry.
- 13. • Profitability comes through cost management • Cost reductions can keep organizations fully funded and critical employees on payroll • Companies commit more resources to managing direct costs than indirect costs CFO White Paper … The Value of Cost Management
- 14. Cost Management Impact on Business Value Barriers and Challenges to Cost Management Best Practices Actions & Outcomes Options for Increasing Value for Your Business Objectives Questions The Current Economic Climate
- 15. Column1 Current 20% Cost Reduction Increase Sales Revenue $ 100 $ 100 $ 140 Direct operating costs $ 35 $ 35 $ 49 Labor costs $ 35 $ 35 $ 49 Non-core indirect costs $ 20 $ 16 $ 28 Net profit $ 10 $ 14 $ 14 20% cost reduction or 40% increase in sales revenue both yield a 40% increase in Net Profit Internal Funding Options Which is more likely to happen in your business?
- 16. Overhead Costs Rarely Get Much Respect Direct Costs 35% Overhead Costs 20% Profit 10% Payroll Related Costs 35% Senior Mgmt has no time to focus on Overhead Costs In addition to Revenue, these are the primary focus of costs Which Are More Important?
- 17. Logistics • Small Package Freight • Domestic Freight • International Freight Insurance • General/Worker’s Comp • Health Services • Equipment Maintenance • Janitorial Services • Payroll Processing • Printing • Records Management • Temporary Labor • Uniforms • Waste Management Supplies • Chemical • Cleaning • Food Services • Lab and Medical • MRO/Factory Consumables • Packaging and Shipping • Printing • Stationery and Office Telecommunications • Data • Mobile • Voice Merchant Card Fees Leasing Overhead Expenses
- 18. Cost Management Impact on Business Value Barriers and Challenges to Cost Management Best Practices Actions & Outcomes Options for Increasing Value for Your Business Objectives Questions The Current Economic Climate
- 19. What prevents Companies from moving forward with Profit Improvement Plans? Barriers Reasons Management assumes it is being done Consumed with other tasks May not have expertise Don’t spend enough to warrant effort May have advantage in re- categorization of expenses Success in primary cost containment or previous results Strong negotiation skills and consistent reductions as a result Time/budget Business goals, ancillary costs less important, under-manning Loss of perceived leverage Believe long time relationship/volume produces advantage Don’t know how to start Lack of understanding of expense market Barriers
- 20. Staff and Management has limited time to address non-strategic costs Employees with limited purchasing experience make the buying decisions No benchmark data No time to monitor Believing suppliers are looking out for their best interests Five companies with same supplier don’t get the same price Title Believe their doing an excellent job of cost control on their own Level playing field between buyer & supplier is a misnomer Multiple suppliers Multiple order points Expense Management Challenges Supplier loyalty doesn’t equate to best price or service Challenges of Expense Control
- 21. 21 Category Knowledge Supplier Insights Analytical Skills Market Benchmark Data Effective Cost Management Requires Multiple Skills Time, Experience, Data
- 22. Cost Management Impact on Business Value Barriers and Challenges to Cost Management Best Practices Actions & Outcomes Options for Increasing Value for Your Business Objectives Questions The Current Economic Climate
- 23. Low-SavingsPotential-High Low - Time/Effort/Expertise Required - High Higher return Core expertise Primary focus Do internally? Outsource? Lower return Requires high effort/expertise Alternatives
- 24. Simple Suggestions to Improve Expense Control Take quick action on customer payment habits that change negatively.
- 25. Good Quantify spends Monitor quality and service levels Obtain revised pricing from current vendors on a regular basis Great Categorize spends Identify usage patterns Update requirements based on current spends Identify competitive offerings from new suppliers Include multiple suppliers for RFP process Share purchasing data with suppliers Exceptional Understand supplier’s pricing strategy for spend category Compare supplier pricing to current, industry benchmark pricing Weight solutions of each supplier based on criteria set internally Defined procurement process designed to minimize staff time Audit monthly spend to ensure contract compliance Manage stakeholder buy-in Repeat as required Procurement Best Practices
- 26. Effective Cost Management Strategy • Cost Management is on-going • Complacency = lost revenue – eliminate it • Over-confidence = lost revenue – prevent it • Cost reduction efforts should NEVER be visible to your customer. • Cost reduction should NEVER make your sales go down. • Prioritize cost reduction based on the potential impact. – Never walk over dollars to pick up pennies. • Ask your employees for suggestions and reward them! • Ask your suppliers and vendors for suggestions • Compare to others in the industry • Monitor and stay alert Best Practices
- 27. Cost Management Impact on Business Value Barriers and Challenges to Cost Management Best Practices Actions & Outcomes Options for Increasing Value for Your Business Objectives Questions The Current Economic Climate
- 28. Do internally? Outsource? Decide on a Strategy Time Ability Staffing needs Other tasks Cost Experience Implementation Plan
- 29. • Effective cost management is a cultural activity •No person or activity is exempt or excluded • Adopt a Drip Culture within the business.. • Tend to every “leak” immediately • Across all business units and departments • Establish expectations and objectives • Monitor activities and results • Check, check, and check again Adopt A “Drip” Culture
- 30. Outsource -What to Expect • Deep category expertise and experience • Access to aggregated benchmark costs and pricing • Delivered success • Faster completion • Faster realized savings • Implementation support • Ongoing auditing for verified results
- 31. • Fund internal growth • Build new products • Retain good employees • Buy additional equipment • Pay down loans • Buy a yacht • ??????? What would you do with the hidden profit in your business? Results Provide Choices
- 32. “There is no cost higher than the cost of doing nothing” 32 Inaction is Expensive
- 33. Questions???
Editor's Notes
- Good ___________________________Thank you s/Recognitions
- What is keeping you from finding cash to accomplish your dreams for your business?World forces are driving prices lower even when consumer confidence continues to challenge sales.Customers are commoditizing ALL productsMany institutions are making it harder to get loans and it takes time, energy and effort to find the “right” alternative lender.You all know that Every dollar spent needlessly is a dollar removed from bottom line profitsYOUR competition is keeping all expenses as low as possible to gain pricing advantage
- You all know the traditional ways of finding cash.But, not all approaches produce the desired effect– In fact, in January 19, 2009, Fortune sitedMcKinsey Research’s examination of a typical S&P 1500 company’s price cutting efforts. They found that a price cut of 5% would have to generate increased sales volume of 19% in order to pay for itself – and that almost never happens. The other challenge is that we are not in control of most if these options – and where we have to depend on outside response or reaction to our internal actions, we may not get the results we want.So where can you find additional cash while you are working on more traditional approaches?
- Reminds me of an old 1970’s poster that sold like crazy back then.It has relevance in our discussion today as we want to answer three simple questions.Paper distribution example of customers not buying in to the attempts to increase order size / reduce delivery costs . Etc.
- It is pretty clear that the one area over which we have control – without a lot of outside input – is in controlling costsEspecially indirect / non-core operating costsMany companies start with staffing – mostly because payroll is often the largest expense; but, there may be other areas to tackle first – before whacking heads.Ultimately, it may be necessary to adjust staff levels in an economic downturn – BUT – we are talking about increasing the value of a business and a short-staffed business may not be able to sustain volume or meet customer expectations.
- CFO’s do understand the value of cost management in terms of increasing bottom line profitability.The results of an effective cost management plan can be varied – and impact several areas of the business.Indirect costs seldom get the attention they require – for a number of reasons….
- Let’s look at a very simplistic example of how two very different actions can have the same impact on the bottom line of a business.Reducing indirect costs – those that are typically not evident to customers or suppliers – by 20% results in a 40% increase in the bottom lineVery real possibility – although some categories won’t show a 20% savings, overall, indirect costs can be trimmed by 20% in most companies.To achieve the same impact through revenue generation, we would have to increase sales by 40% - while every dollar saved is equivalent to a new dollar of profit, additional dollars of income are not. Which oif these two actions could you implement in your business?
- So, if it makes sense to address indirect costs – and the value of our efforts is clearly evident – why don’t more companies / owners / executives do so?. We all ted to focus on the BIG numbers – and dedicate our nest resources, if not all resource, to these areas.We know more about these areas because of time spent and / or skills / experience.At eh end of the day, most leaders just don’t have time to spend on lesser important (indirect) expenses……………..Besides, they’re not very glamorous…………
- You can see that there is not much here that would get us excited…………….but every one of these expense categories is an opportunity to reduce costs and increase the value of a business
- We don’t have the time…We have bigger priorities…My stakeholders will push back…I’ll look bad if you find big savings…We like our existing vendor(s)…The risks outweigh the rewards…I can do it myself….
- Our clients have told us everyone of these reasons.Have any of you found some of these issues? TimeTalentExpertiseFocusUnderstanding“Level playing field…………. Seller’s AdvantageOverworked / overloadedDoing more with lessPick the “lesser of two evils”
- For those of you who know reducing non-core costs could yield some ready cash but still don’t have the time, maybe you should consider outsourcing. Hiring a consultant can augment your staff and still result in improved cash flow.
- And despite all the hints and tips, non-core overhead cost management can be spotty.Why?
- Consultants typically work in specific areas regularly and thus know the supplier’s market spaceThey often have proprietary data resources and tools that allow them to compile industry-specific benchmark pricing and facilitate effective comparison between suppliers to minimize client time for selection between alternatives.
- But, if you were able to apply good Cost management strategies to your non-core expenses, you would be sure to find some savings in your non-core expenses. Most CFOs understand well the things that go into effective cost management. But, as they indicated, they still don’t think that they are getting the best pricing despite this knowledge.
- MAKE A DECISION to move forward, thenDECIDE ON HOW YOU WILL MOVE FORWARDUWW example of customer profitabilityConsider the steps toward – and consequences of – each optionINTERNALLY OR EXTERNALLY?Both have benefits and challenges – which option best fits your organization?Consulting example – UWW – leave binder of tasks and strategies to implement – “do I really have time to do this?”
- So – whether you start projects internally or outsource, what will you do with the hidden profit in your business.
- Speaks for itself…………………..Insanity –” when you keep doing the same things and expect different results”
- How ERA can help you achieve your goals and objectivesWays ERA can help reduce your risk of failure and improve your chances of successIf ERA reduces all non-core expenses by 20%, how would you use the extra funds?