This document discusses cost reduction strategies for manufacturing companies in 2011. It outlines challenges like rising raw material and transportation costs. It recommends thoroughly researching global suppliers and understanding lead time implications if going offshore. It also discusses rising fuel costs impacting fleet management and transportation. The document then summarizes potential savings in key spending categories like waste, logistics, packaging, and work wear. It provides two case studies of manufacturers that achieved significant savings working with Expense Reduction Analysts, particularly in shipping/freight, pallets, stationery, and scrap metal.

1. Business Fitness for Manufacturing
Effective cost management strategies
for healthy profits in 2011

2. About Expense
Reduction Analysts
Expense Reduction Analysts is a leader in cost, purchase and
supplier management and focuses on reducing operating
costs, whilst maintaining or enhancing service levels,
for private, not-for-profit and public sector organisations.
Expense Reduction Analysts works in • Facilitate high value supplier relationship
partnership with its clients, offering the management programmes, in order to create
expertise and resource to: mutually beneficial working partnerships.
• Forensically examine and benchmark more Expense Reduction Analysts has over 150
than a hundred areas of business expenditure, consultants across the UK and Ireland, with
in order to present opportunities for expertise in all sectors of commerce, industry
significant savings; and not-for-profit organisations and more than
• Review and re-engineer procurement functions, 100 categories of business expenditure.
in order to ensure optimum buying process;
2 Expense Reduction Analysts About Expense Reduction Analysts

3. Introduction from
Robert Allison,
Managing Director,
Expense Reduction Analysts
Welcome to the third in our series of
Business Fitness Guides for 2011, focusing
on effective cost management strategies in
the Manufacturing sector.
Every Manufacturing organisation has many,
many areas of expenditure, and, in a guide like
this, we can only touch upon a few. We have
chosen to delve into the important cost areas
of Waste, Logistics, Packaging and Work Wear,
which, together with the wide-ranging
introduction from Ian Morrison and two
contrasting case studies at the end, give you an
idea of what savings are possible.
Furthermore, we hope that these examples
give you the confidence that, if this level of in the Manufacturing sector, their knowledge
cost reduction could be extrapolated over a gleaned from, and their expertise honed by,
significant percentage of your outgoings, your many years of delivering significant cost
bottom line would indeed look very healthy! reduction for their clients.
This booklet has been written by consultants I hope that you find their insights valuable
who specialise in finding savings in these areas – and may I wish you a successful year in 2011.
Introduction from Robert Allison Expense Reduction Analysts 3

4. Manufacturing
savings in 2011
Ian Morrison outlines some of the cost reduction
challenges facing UK manufacturing
Increasing costs, particularly of raw We are seeing increased enquiries around
materials and transport, will threaten the managing rising raw material input costs.
competitiveness of UK manufacturers in It is critical that manufacturers forensically
2011, if they are not effectively addressed. examine the supplier marketplace. The world
is not a large place any longer. Increasingly,
manufacturers are going offshore for their
raw materials despite the associated
transport costs.
4 Expense Reduction Analysts Manufacturing in 2011

5. However, a full risk assessment is critical if Obviously, road transport costs will continue
your organisation decides to go offshore. to be a major consideration as prices at the
Thorough research of global suppliers, getting pump continue to rise. Manufacturers will
under the skin of their businesses and also need be aware of new levies on shipping
capabilities, and understanding lead-time companies, which will be introduced over
implications, is a must. And, once selected, the coming years to encourage a more
it is essential to ensure the supplier is environmentally responsible shipping
integrated into your own business. industry. Furthermore, shipping companies
are going to run their engines at two-thirds
of their normal speeds, as they look to clean
up their environmental act.
This move will help them scrub out their
exhaust systems, which have been adversely
affected by the dirty petroleum that ships run
on. Whilst it will have a positive impact on the
environment by reducing carbon emissions,
ships will take longer to make their deliveries,
which will in turn impact on lead times.
There is no doubt that UK manufacturing is
enjoying an upturn, but to continue to
compete on a world stage, the sector will need
to think smart when it comes to driving up
efficiencies and driving down costs. Only by so
doing can UK manufacturers outsmart their
global counterparts and prosper in the future.
Manufacturing in 2011 Expense Reduction Analysts 5

6. A selection of the categories of
expenditure most relevant to your
business now
Waste
Pete Bramhall says that cost management is all about
minimisation, segregation, presentation and negotiation
Landfill tax is increasing by £8 per tonne The revival of the global economy has resulted
every year. It is currently at £56 per tonne in strong demand and new highs in pricing of
and will rise to £80 per tonne by 2014. many secondary (recycled) commodities. For
example, the value of waste cardboard
As tax and disposal costs increase it becomes increased by 50% during 2010, and has
more important to recycle different waste continued to strengthen so far in 2011. Other
materials. Technology and the markets are grades of paper, scrap metals and plastics are
developing rapidly to meet this demand. following a similar upward trend.
Processes for segregating waste are key. All
packaging should be recycled. Raw materials
and waste products may have viable markets:
different demands are developing all the time,
so that even the market for hard-to-recycle
materials should be kept under review. Only a
small proportion of residual waste should end
up at expensive landfills.
Presentation is the key to obtaining the
maximum rebate for waste materials. The
optimum format should be used to suit the
type of material, the quantity and the location,
in relation to the end market or sorting point.
This will determine the equipment
requirements, e.g., compactors, balers and
container types, etc..
6 Expense Reduction Analysts Waste

7. Waste buyers pass on the decreases in Secondly, study your contracts. Most waste
the value of your waste more readily than contractors operate a 12-month, rolling
the increases contract, whereby, unless notice is served
three months prior to the contract anniversary,
Ensuring that the maximum value is achieved you will be locked in for another 12 months.
over time requires close contact with markets Negotiate your contract terms and be mindful
and suppliers. Buyers are much quicker to pass of your contract anniversary date.
on market decreases to waste producers than
they are to share the full effect of increases. Thirdly, check your invoices. Many errors and
overcharges go unnoticed, so it is important
Finally, here are three simple points that may to check your waste invoices continually.
save you a significant amount of money.
It may sound obvious but, faced with rising
raw material and waste disposal costs, it is
clearly more important than ever to minimise
the amount of waste that you generate in the
first place.
Waste Expense Reduction Analysts 7

8. A selection of the categories of
expenditure most relevant to your
business now
Logistics
Kevin O’Neill details the supplier attributes to look
for in this complex area
Logistics plays a pivotal role in logistics of the supply chain can have a big
manufacturing. Whether it is in the impact. Now add the impact of rising
sourcing of raw materials, timely commodity prices, in particular fuel, and the
management of the positioning of sub- impact of ever changing external influences
assemblies, distribution to customers or the on supply routes, and you have a complex
effective management of the product and challenging mix.
servicing after sale, any inefficiency in the
8 Expense Reduction Analysts Logistics

9. Your suppliers should be exhibiting signs of
enhanced efficiency, innovation and service
Looking internally, escalating fuel costs are
having a dramatic impact on fleet
management. Right now is when to look at this
area to ensure that you are buying at the best
price possible. The same can be said of other
fleet consumables like tyres.
With outsourced services like Inbound and
To manage this complexity, every manufacturer Outbound Freight and parcel distribution,
will be outsourcing components of the supply revisiting service requirements and pricing on
chain to specialists. Deciding which activities to a regular basis with your suppliers can bring
outsource can take considerable effort in terms substantial benefits in not only cost but also
of careful analysis that can involve every service. Competition in the market to deliver
function in the organisation. However, wherever these services is strong, and service providers
an organisation stands in this process, there are are striving to maximise their efficiency,
steps that can be taken to deliver a significant develop innovative solutions and improve
impact on the cost base whilst maintaining or customer services. So, if you are not seeing
improving existing service levels. evidence of these ambitions in your own
suppliers, then perhaps it is time to take a
closer look at what is out in the market!
Logistics Expense Reduction Analysts 9

10. A selection of the categories of
expenditure most relevant to your
business now
Packaging
Richard Anson has cost reduction strategies all wrapped up
Packaging is used throughout the chances are you do not know. Often the cost
manufacturing sector, utilising a mix of of the film is irrelevant, if you are applying
substrates, including corrugated board, too much material. Advances in Stretch Wrap
timber and plastics. These can be in both and film technology generally have seen
standard and bespoke formats. usages reduced by as much as 50%.
During the past eighteen months, the cost of Know your supplier’s capability – are you
these materials has been increasing at an using the right supplier? Large volume
unprecedented rate and regularity. producers will not be competitive if you
require them to provide a “hands on service”.
Here is a snapshot of tips that may help to Also, as a consequence, do you suffer from
achieve efficiencies: both space and working capital implications?
Review the range – often the differences in A switch to a supplier who has the logistical
sizing and thickness of materials supplied are capability to supply in smaller quantities may
minimal and ripe for consolidation. This could reduce these “hidden” costs and may not be
mean greater manufacturing efficiencies for less competitive.
suppliers and therefore cost savings for you.
Review specifications – in many cases,
specifications have been drawn up years ago
and are blindly adhered to. Improvements in
manufacturing processes now mean that
perceived lower or alternate specifications
can perform just as well, but at a more
competitive rate.
Know the true costs of your packaging –
how much does it really cost you to wrap a
pallet with Stretch Film? With respect, the
10 Expense Reduction Analysts Packaging

11. PPE and Work Wear
Steve Parrott points the way to overall cost reduction
1. Role-specific work wear 2. PPE
Buyers are confronted with the option of either Personal Protective Equipment (PPE) usually
buying garments outright and then laundering, refers to disposable garments or products
or renting and laundering, which could be such as earplugs, overshoes, hats, etc..
either a combined or separate price. There is These are generally commodity items.
no simple rule as to which is the right solution. However, specification can be all important.
Generally, rent and launder deals offer more Constraints can be placed by legislation (for
flexibility and have cash flow advantages. A instance the specifications for Network Rail
key factor in the relative merits of a combined and London Underground Hi-Vis jackets are
rental and launder over separate pricing is the different, and not interchangeable.)
level of utilisation of the garments: this in turn
will be driven by the number of garments per Internal H&S policies may play a part,
person and the wash frequency. or downstream customers, such as large
retailers, may specify elements of traceability
If a significant proportion of garments are or composition for PPE worn or used in
going to sit in a locker at the bottom of a pile production areas on their behalf. Cost saving is
that the wearer never gets round to using, this rarely a simple case of identifying like-for-like
raises questions over the fleet size. If the wash products in catalogues at better prices.
frequency is below the anticipated level then, Even if written requirements and approvals
self evidently, a combined wash and launder can be satisfied, extensive trialing may be
contract will result in a service being paid for required to ensure compatibility.
but not used. Although suppliers can, and
should, provide utilisation reports, your
analysis of them can be time consuming and
complex. Comparisons of offers from different
suppliers, or even differently structured offers
from the same supplier, have to be viewed very
critically, particularly because such contracts
are typically of three years’ duration and costly
mistakes take a long time to recover.
PPE and Work Wear Expense Reduction Analysts 11

12. Two contrasting examples of cost
reduction best practice in action
in Manufacturing
Mono Pumps
“We have always believed that we are able to achieve the best results for ourselves and
regarded Expense Reduction Analysts’ claims with some scepticism. But the results speak
for themselves and I wholeheartedly recommend Expense Reduction Analysts to any
organisation that wishes to reduce its costs and urge them to put aside the scepticism
that held us back” – Steve Valentine, Group Financial Director, NOV Mono
Category Annual Annual Saving Steve Valentine describes the start of the
Spend (£) Saving (£) (%) relationship: “I first met Adam Wheatley of
Expense Reduction Analysts late in 2003. Even
Stationary £57,500 £25,000 42% though Adam overcame my scepticism when
Landlines £18,300 £2,700 14% we met, I still harboured doubts, particularly
Courier £112,900 £24,300 21% about the effort required from us, but his
Scrap Metal* persistence eventually paid off and we
Previous £242,600 £68,700 28% launched our first projects – Stationery and
(revenue) (benefit) Landlines – in October 2004.”
Revised £267,042 £136,192 51%
(revenue) (benefit)
Totals £431,300 £127,000 28%
(*Project recently extended by three years)
12 Expense Reduction Analysts Mono Pumps

13. Mono Pumps were very impressed by the Manufacturing Team Leader at Mono Pumps,
results achieved on those initial projects, in explains: “I am very proactive with regard to
particular for Stationery, where a 43% saving our Waste and Scrap needs and in fact had
was delivered by changing supplier. The already delivered considerable benefits for
change went very smoothly and they are still Mono Pumps in these areas. Having done
using the stationery supplier introduced by everything that I could, I decided to let the
Expense Reduction Analysts. Furthermore, Expense Reduction Analysts team see whether
Steve Valentine soon realised that the internal they could yield additional benefits for Scrap.
energy required to support the cost reduction
projects was not significant. “Diane Lane and Bob Carter impressed me
from the start with their efforts to understand
”I was blown away… …a 28% increase over our requirements. Then I was blown away by
all that I had done” what they achieved with a further 28%
increase in revenue over and above all that I
Such success resulted in the remit being had already done. This was achieved with the
widened further into Scrap – a key concern for incumbent supplier, so delivering the benefits
Mono Pumps. Barrie Walker, Supply involved little effort from me.
”I have already committed to a further
three year term”
“I have recommended Expense Reduction
Analysts to all of my peers and superiors in
production and beyond, and a variety of new
projects should be launched soon. I have
myself asked them to now look at our Waste
costs. Furthermore, I am so pleased with the
service they provide on Scrap that even though
we are only ten months in, I have already
committed to a further three-year term, so as
to retain access to Diane and Bob’s services.”
Mono Pumps Expense Reduction Analysts 13

14. Two contrasting examples of cost
reduction best practice in action
in Manufacturing
Plastikote
"We are very pleased with the savings that John and Fergus have uncovered, but we are
even more delighted with the way in which these results have been delivered – with no
loss of service and with a seamless transition between suppliers. For our business, these
benefits have been vital” – Joanne Garner, Site & Finance Manager, Plastikote
Category % saving John Waine of Expense Reduction Analysts
describes his original meeting with Joanne
Inbound sea freight 18.3% Garner, Site and Finance Manager at
Outbound UK pallets 26.7% Plastikote: “We discussed the business’s
Outbound European pallets 39.6% procurement and Joanne naturally wanted to
Average saving 28.2% ensure that Plastikote was purchasing services
as keenly as possible, especially in the critical
area of logistics.
14 Expense Reduction Analysts Plastikote

15. “Plastikote in the UK acts as a distribution hub, consumer marketing. We were able to find a
receiving product from the US, repackaging it much more local distribution company than
and sending it on to retailers in this country the incumbent to fulfil their needs. The
and throughout Europe. In this regard, I was company had the infrastructure to handle
fortunate to be able to call upon the expert both the smaller deliveries, and the critical,
services of Expense Reduction Analysts’ time-sensitive, larger deliveries into the major
Logistics Specialist, Fergus Smith.” multiples. This organisation interacted with
Plastikote very professionally from the outset,
Fergus Smith takes up the story: “We started creating confidence in their abilities. And their
by analysing all of their distribution activities. performance ever since has certainly justified
Although there were some areas where they that trust.”
were obviously achieving good value, we
identified three key areas that were worth The third project looked at Plastikote’s
investigating. A phased approach was agreed, pan-European distribution, in particular to
starting with their inbound sea freight. Germany and Switzerland. Different challenges
emerged here. Fergus Smith explains:
“Plastikote told me that they sat down with “Germany is a critical growth area for
their freight supplier every six months to Plastikote and their major customer there
ensure that they were getting the best possible operates to a very stringent order cycle.
deal. They were therefore justifiably sceptical This results in short delivery times from the
that we could find any further savings, so they UK to a very exacting two-hour delivery
were delighted with the 18.3% that we window to their customer’s distribution
eventually achieved for them. centres across Germany.
Having product on their retailers’ shelves is “In delivering to Switzerland, as a non-EU
imperative country, the difficulty centres on dealing
with the necessary import and export
“We quickly moved on to their outbound UK documentation. Again, we researched the
pallet requirement. In Plastikote’s business, market and recommended a supplier who
having their product on their retailers’ shelves was expert in fulfiling demand in the face
is imperative; indeed, it is a vital part of their of these obstacles.”
Plastikote Expense Reduction Analysts 15

16. find extra profit
Expense Reduction
Analysts
www.expense-reduction.co.uk