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ERA Profit News August 2013


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Our Newsletter with Case Studies and Tips for companies seeking to reduce costs and improve processes.

Published in: Business, Education
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ERA Profit News August 2013

  1. 1. INSIDE THIS ISSUE PROFIT NEWS There’s no doubt that independent schools need to take a business-like approach to the way they manage their expenditure and supplier base, in order to survive in the face of unprecedented financial pressures and a rapidly changing educational landscape. EXPERT NEWS - Brian Holmes How can independent schools tackle rising cost pressures? H owever the current economic downtown has taken a toll on household budgets, and with families keeping a closer eye on their spending habits, many have questioned increasing school fees, forcing many to go elsewhere for their education. So, how do independent school managers tackle cost pressures in order to keep fees affordable? What can a school do if increased running costs cannot easily be passed on to its customers? Addressing unchecked expenditure Focus on jobs and headcount is not the only way to achieve efficiencies, particularly in schools where teachers are an important asset in delivering the end product. The opportunity is for independent schools to look more closely at non-labour expenditure, particularly non-core costs that often go unchecked for years. A close examination of these costs can have a dramatic and positive impact on the bottom line. On a typical profit margin of around 8%, a business would need to generate sales of a quarter of a million pounds to make the same bottom line impact as cost savings of just £20,000. Principles of smarter spending There are many misconceptions about what’s involved in undertaking a review. One of them is that it is simply about reducing expenditure when, in fact, it can throw light on a range of other purchasing and supply decisions – such as whether the products and services you’re buying are actually the ones you need, and whether the terms of contracts you may have signed up to some time ago are still relevant to your school today. Let’s look at some of the golden rules. Focus on supplier costs not staff overheads Schools need to understand their true operating costs and the nature of their relationships with suppliers. In the same way that prospective parents look for better ‘deals’ on education, so those in charge of school finances need to get better at monitoring the marketplace and securing opportunities to make savings or achieve better value. Don’t purchase things you don’t need Suppliers will often use tactics to sell you up to higher margin items and/or bundle extra products and services that are rarely, if at all, required. The key here is to know what you need rather than what you want. Create a cost-conscious workplace culture Develop a culture where everybody is responsible for challenging costs. Make staff aware that savings go straight onto the bottom line. Managing supplier relationships The good news is that you don’t have to jettison existing suppliers or undergo lengthy tendering processes to appoint new ones. Significant savings are achievable simply by overcoming the ‘contract fatigue’that sets in when relationships have been in place for several years. Suppliers will invariably respond favourably to requests to refresh service level agreements or pricing structures if they believe it will help them retain a valued client. Similarly, negotiations can be assisted by a forensic knowledge of the small print of an agreement, not to mention the terms being offered elsewhere in the market. Be prepared As with all organisations in the current climate, the market for independent education has rarely been more challenging. However, by taking time to scrutinise supplier bases and lock down savings on non-core operating costs now, schools can put themselves in the best possible position to prepare for whatever the market may bring – this year and beyond. There’s no doubt that independent schools need to take a business-like approach to the way they manage their expenditure and supplier base, in order to survive in the face of unprecedented financial pressures and a rapidly changing educational landscape. If they do, the opportunity exists not only to survive the economic downturn, but to grow through it and to reach a stronger market position, ready to take advantage when the good times return. The UK independent schools sector is a seriously large business – educating over 500,000 children at an ever rising cost to parents. How can independent schools tackle rising cost pressures? The UK independent schools sector is a seriously large business – Andrew Lees, shines a spotlight on purchasing habits and how smarter spending can assist them in keeping their school fees affordable. The Full Package Simon Phippen outlines the importance of effectively assessing your organisation’s packaging and delivery processes as a critical part of the supply chain progression Supplier consolidation empowers growth With generous savings in excess of £90,000, Clive Cowan and a team of procurement specialists from ERA have helped Matrix to streamline their business and increase efficiency. Bring your own device is here to stay With companies looking at how they can implement a BYOD policy, including the inherent security concerns - communications expert Brian Holmes highlights the key questions surrounding BYOD.
  2. 2. The Full Package M any businesses that market products on websites and in retail outlets simply don’t have the right processes in place when it comes to the packaging and delivery of e-commerce products. And in such difficult economic times, businesses can’t afford to get this part of the customer experience wrong. Let’s examine the key steps to success. To ensure the packaging and delivery meet the expectations of your business and your customers, it is key that it is integrated at a strategic level. It is vital that every department works in harmony in the evaluation process, from operations and warehousing to sales, marketing and your executive level staff. Many elements need to be considered in the packaging and delivery decision process, for instance: Environmental Does your customer base expect recyclable materials, such as cardboard and bio-degradable plastics, to be used in your products? Does your packaging meet current and impending waste and recycling legislation in the UK and on the continent? Material cost How are you managing the rise in cost of plastics, paper and cardboard? Do you incur short-term increases to costs to deliver innovation to the internal manufacturing process with the aim of realising long term efficiencies? Are you engaging with your supply chain to investigate the potential for innovation and cost savings within the manufacturing process? Protection How much is enough protection in the packaging material, and at what cost? Are your methods of distribution causing unnecessary damage to products? Security What is the cost benefit analysis of potentially expensive initiatives such as tamper-proof labels and/or tape? Do security measures have a negative impact on the aesthetics of the product? Does hi-visibility branded packaging increase the risk of theft? Branding What value does branded packaging add to the customer experience? How often do you survey your customer base to measure attitudes towards packaging? Shipping cost Can innovations in manufacturing deliver smaller, thinner packages to reduce distribution costs? Is it possible to work with your supply chain to test new packaging to ensure products aren’t damaged? Fulfilment Does your packaging design promote efficiency, using elements such as quick assembly boxes and peel and seal strips? Returns Is your returns process set up to favour internal policies instead of the customer’s experience? Will the customer experience be negatively impacted if you allow the outgoing pack to be resealed and reused by the customer for returns? How does your returns policy compare to your key competitors? One size doesn’t fit all The points above aim to stimulate thought and provide guidance, so that businesses can begin to establish the foundations for success. If packaging is integrated and tailored at a strategic level, businesses won’t just appease all internal departments, they’ll keep the customers happy as well. However, the points above must be considered in line with your business objectives and the perceived value customers place your products and brands. For example, most businesses have departments that pull in different directions, and many operations departments are under pressure from financial directors to cut costs in the packaging and delivery process. However, sales and marketing teams argue that if cost cutting measures are made to packaging or distribution, it could lead to a reduction in sales or a negative impact the value of a brand. Unfortunately, these types of internal struggles can prevent businesses from carrying out the necessary evaluation of the packaging and delivery processes. And while some businesses simply try and retrofit procedures taken from other companies, sadly what works for one business may not work for another. While the economic downturn certainly isn’t making life any easier in the world of packaging and distribution, I’m pleased to say that I am seeing more and more businesses successfully integrating packaging and distribution into overall business strategy. In addition to that progressive move, I’ve also seen a number of companies working more closely with their supply chain, realising improvements to manufacturing and distribution processes without compromising the quality of the product, packaging and brand. Each year millions of global businesses spend a fortune on marketing to attract new customers and increase product sales. But when the orders flood in, many of those businesses won’t pay the same time and attention to the packaging and distribution of the goods being sent out to customers. Scandal is not a new occurrence, with pesticide residues found in fresh produce, and glass in branded coffee, and many other supply chain problems that did not hit the press as they were stopped before they reached supermarket shelves. EXPERT NEWS - Brian Holmes Traceability and Food Safety has moved to the top of the supply chain agenda recently having hit the front page of every media outlet suppliers who can actually provide provenance and trace a product back to source – from farm to end user? In my experience, so many suppliers simply do not adopt these critical measures, and as a result of this they are not normally allowed to supply supermarkets and often move into the food service sectors. To combat and react to a scare, we must have proper processes in place to be in a position to withdraw product from sale immediately or to prove that our product is safe. In order to achieve this, we firstly need to know where our food came from – all the way back to farm – and secondly where it went! Then, with an effective product recall process in place or proof of safe provenance, it is possible to make a positive statement to the marketplace, if a potentially business damaging scenario occurs. Communication is key. It is critical to be on the front foot with communication, by briefing the food agencies, clients, consumers and other relevant factions in the supply chain of your positive news or the resulting immediate actions to resolve issues. Asapurchaser,itisdifficulttoenvisagecriminalactivity in the supply chain similar to what we witnessed in the recent scandal. However, by having proper traceability, it is far easier to minimise the damage caused. If the purchaser raises the alert, implements a proper process of due diligence and product recall, it is possible that the consumer will actually receive the negative news in a far more positive way. Unfortunately, many food suppliers will not know the provenance of the product or be able to implement a product recall once they are made aware of a pending issue, leaving the purchaser isolated. The key is to ensure that the supplier can prove traceability at the point of contract. Today’s buyer has to ensure that the product recall and subsequent substitution process is in place at the point of supplier selection. There are so many great suppliers out there delivering exciting, tasty and safe food. Equally, there are many who do not. Trust through provenance is crucial to avoiding problems. Having the right processes in place and being quick to communicate are vital attributes if they do. R ecent issues with meat are not isolated but prevalent in so many areas of the food chain today as so many wholesalers still do not adopt an end-to-end supply chain traceability process. In the recent episode, it was actually a case of illegal supply deliberately contaminating the chain. The key to managing a food scare is to have a system of end-to-end traceability in place throughout the supply chain. Often with food safety and traceability it is your ability to react, communicate and resolve potential issues, threats or scandals which proves to be the best way of ensuring damage limitation and due diligence. Therefore do we not think it is critical to be linked with EXPERT NEWS - Richard Clayton EXPERT NEWS - Simon Phippen What Future for Shale Gas? I n the US in the space of six years shale gas has reduced America’s gas price to a third of European prices, dramatically increased tax revenues, created thousands of jobs, and made the prospect of American energy self-sufficiency a reality within the next 20 years. Clearly, until full scale exploration begins, the UK potential is unknown, but the British Geological Survey recently upgraded their estimates of viable gas from the Bowman shale in Lancashire. Bizarrely, the Department for Energy and Climate Change has consistently talked down the prospects for the shale industry, and Cuadrilla, the only company to have drilled in the UK, has been subjected to endless interruptions and delays at the hands of environmental objections. Indeed it seems apparent that the Department for Energy, the Climate Change Committee and indeed the wider EU is very much in the grip of the green lobby, whose focus is entirely on the decarbonisation of the EU economy – seemingly at any cost. From this perspective, the development of any further fossil fuel resources goes contra to green lobby objectives. If shale gas stays in the ground and imported gas prices increase, then the case for renewables becomes more attractive, as they become cheaper by comparison. However, the fact remains that there are currently no affordable renewable technologies available to replace fossil fuels. Wind, solar and tidal technologies all need fossil fuel back up for the substantial periods when the wind, sun and tide are not available, and the fossil fuel with the lowest carbon is gas. There is a real and rapidly approaching energy crisis in the UK, which is presently being met with paralysis in Government decision-making and a stark conflict of objectives between the green lobby and the energy industry. Shale could be the answer.
  3. 3. The bring-your-own-device (BYOD) trend is now an irresistible force that has actually made an impact on the vast majority of companies in one way or another. EXPERT NEWS - Brian Holmes Bring your own device is here to stay The iPad Is Secure, Too IT decision-makers should also see value in Apple’s iPad. Another popular product for BYODers, the device is capable of being monitored remotely, and with some help from Apple’s software development kit, companies can create their own programs for the device. It’s a win-win. It’s All About Productivity When it comes time to evaluate the BYOD possibilities for a company, it’s important to consider productivity. And as much as companies have resisted it, they’ve found that consumer-focused products, like the iPhone and the Samsung Galaxy S4, actually make people more productive than former business favourites, like the BlackBerry. Why? It’s all about the software, the advanced features and the touch screen. The devices are intuitive. And intuitive devices make it much simpler to complete tasks. Remember the Apps The number of corporate-friendly mobile applications available to companies today is astounding. From productivity apps to simple programs that handle something like a to-do list, there are programs out there for everyone. And companies can benefit greatly from that. It Helps Constrained Budgets Although a recovery is going on, companies are still being negatively affected by constrained budgets. So, IT decision-makers need to delay plans to buy new products or software. By allowing employees to bring their own devices into the office, the cost of buying those handsets and computers drops. And in turn, more of the budget can be used on security products and infrastructure. It’s Happening, Anyway Corporate managers who believe that employees aren’t already using their personal devices for work are kidding themselves. Employees are accessing corporate emails from their personal devices, they’re logging into cloud services from home, and they couldn’t care less if the IT side knows about it. So, why fight it? It’s easier to control the behaviour by allowing it and supporting it than by turning a blind eye to it or banning it. It’s All About Android Security For many CIOs and IT decision-makers, the issue with running an Android device is that the operating system has been hit hard with security exploits. It appears that those security woes will only increase in the coming years. But it’s the same issue that companies have been facing for many years with Windows. The malware creators have turned their attention to mobile devices, and Android has become the target of choice. Now companies need to adapt. Control Really Is Possible It is possible to impose sensible management controls in a BYOD-ready company. For instance, companies can require that certain security software must be added to devices brought into the space. With remote device management, monitoring mobile usage is simple and effective. BYOD does not mean that control has totally gone. The Competitors Are Already Doing It As noted, the vast majority of companies around the globe are adopting a BYOD strategy in some form or another. So it doesn’t make much sense for those teetering on the brink of plunging into the trend to hold off any longer. BYOD is the future. And it’s about time everyone acknowledged that. Smartphones Are Delivering More Enterprise- Friendly Features Smartphones as they were once known are no longer the same. Vendors such as Apple, Samsung, LG and Motorola are all realising that companies are more willing to accept new handsets, and they’re bundling more enterprise-friendly features into their products because of it. And because of that, smartphones are actually quite secure. M ost enterprises have recognised that they have to find ways to manage the movement because there is no way to stop it. In some cases, BYOD policies allow for employees to use whatever products they want and use the applications they prefer. In other implementations, the IT side strictly controls BYOD with certain parameters about which products can and cannot be brought into the office. In either case, BYOD is here, and it’s here to stay. It’s time for companies to look at how they can work effectively with the movement. Although there are inherent security concerns with BYOD and the chances of actually having employees adhere to policies at all times are slim, companies have no choice but to try. The sooner the companies get in on the BYOD movement, the better. There’s simply no time to waste fighting it, and the BYOD movement can actually deliver benefits. The iPhone Is Relatively Secure Apple’s iPhone is one of the most popular devices employees are bringing into the office. Although some companies have been less than willing to support the smartphone, IT decision-makers should realise that the iPhone is relatively secure and runs many apps that can be used effectively in business. Supplier consolidation empowers growth: Expense Reduction Analysts helps Matrix to streamline their business model M atrix is unique in that the company operates the most advanced, resilient, state of the art Energy Management Centre (EMC). The EMC not only houses a team of expert engineers, available 24 hours a day, 365 days a year, acting as first line support, its systems also provide a central hub for all client data including energy usage, alarm status, carbon reporting, invoice validation and project tracking. Matrix can be found in offices across the UK and at www.matrixsee. Clive Cowan of Expense Reduction Analysts was introduced to Simon Oldfield, the Finance Director of Matrix, through personal contact in the Summer of 2010. The first project – a review of their insurance – was conducted by Scott Ingham of ERAICM (ERA Insurance Cost Management, Expense Reduction Analysts’ specialist insurance unit). This successful start led to a larger programme of work being agreed. Matrix was growing quickly, gaining more and more offices through acquisition. Clive Cowan and his team were able to develop a template of suppliers, which speeded the bedding-in of these new offices, as well as delivering significant cost savings across the network. Clive Cowan takes up the story: “The success of any of our projects depends upon the specialist knowledge of our experts. I was fortunate to be able to call upon Malcolm Tait to analyse PPE, Stationery and Utilities, Scott Ingham of ERAICM to review Insurance, and Paul Giness of ERA Property to investigate Business Rates. Each category may demand a different strategy “Each category of expenditure has its different ways of operating and may well demand a different strategy. For example, with PPE, Malcolm found a new supplier who could support the whole Matrix network, and the scale of this increased business with the company generated good savings. On the other hand, with Stationery, Matrix enjoyed a good relationship with the incumbent supplier, they could handle the increased workload and their retained business garnered 33% savings. “Utilities were different again. Malcolm decided that the best strategy for maximum savings was to retain multiple suppliers across the business and generate the best price for each location. “Overall, what this supplier consolidation gives Matrix is the ability to grow more easily and cost-effectively. When a new office is opened, there are stationery, PPE, utilities and insurance suppliers ready to move, and business rates expertise ready to call upon.” Simon Oldfield sums up the benefits of his company’s partnership with Expense Reduction Analysts: “As a business, we are growing fast. We’re a consultancy, so we have no real overheads, but we do have many indirect costs. Two of our biggest business challenges are keeping control of those costs as we grow, whilst at the same time empowering rather than inhibiting that expansion. Clive and his team have helped hugely in controlling costs, whilst also equipping us to grow the business at the rate that we want.” Matrix is the UK’s leading energy management company with a proven track record of delivering extremely impressive results. Category Saving £ Saving % Stationery £26,680 33% PPE £14,916 34% Utilities £6,632 33% Insurance £27,308 17% Business Rates (Leeds site)* £14,885 Total £90,420 *Based on savings over the life of the project Table of Savings Simon Oldfield, Finance Director, Matrix “Expense Reduction Analysts have not only saved us a significant amount of money, but they have also helped to streamline our supplier template, making it far easier for us to roll out our business model across each new office” Expense Reduction Analysts Success Story
  4. 4. EXPERT NEWS - Jason Adderley Expense Reduction Analysts Success Story Laying down the law for Withers’ worldwide travel policy F ounded in London in 1896, and now with 700 people in 12 offices worldwide, Withers LLP is a law firm which acts for some of the wealthiest individuals and families in the US, Europe and Asia. “When I first met Michael Priestley at Withers, I was impressed with the great job he was doing in procurement,” says Paul Pearse, Client Relationship Manager at Expense Reduction Analysts. “Utilities, stationery, cleaning, rates – he had them all pretty well covered. But when we came to discuss Travel, we both realised that there was the possibility that Expense Reduction Analysts could add value.” Michael Priestley takes up the story: “At our stage of development – with a £140m turnover and operating in three continents – we needed a company to come in and assess how we should best manage our travel requirements, and to walk us down the path towards producing a travel policy and selecting the right Travel Management Company.” Paul Pearse called upon the specialist knowledge of his colleague, Derek Hodd, to analyse Withers’ worldwide travel requirements and recommend a way forward. Derek Hodd outlines the project: “Withers’main Travel Management Company (TMC) was really too small for their evolving requirements. Individual travellers were using various TMCs, or booking on the web, so there was no ability within Withers to gain detailed control over their travel spend. It was even difficult for me to get the travel expenditure data together – particularly around hotel bookings – because the whole process was so fragmented. Online booking tool automatically enforces the travel policy “I therefore had to ask a lot of questions of a lot of people in order to build up a picture of Withers’ travel expenditure. Once this was done, and the results analysed, I started to develop a travel policy and get internal buy-in on its precepts. “From a full Request for Proposals (RFP) process, we produced a short-list of Travel Management Companies, reduced it to two and Withers finally chose one. I helped Withers staff through the implementation process, the necessary systems and processes, including an online booking tool, which automatically supports the parameters defined in the travel policy. “One important additional point is that the Travel Management Company is contractually obliged to provide detailed management information and hold account review meetings, so that, for example, Withers can over time examine buying patterns in all of their offices.” What are the benefits for Withers LLP of the travel project undertaken by Expense Reduction Analysts? Derek Hodd explains: “Cost savings will naturally come from this enhanced ability to manage, but that was not the initial focus. At this stage, it was all about bringingWithers’entire travel procurement activity into line, making it accountable and therefore more cost- effective, as well as ensuring that the company is acting in a way that is compliant with current legislation when their executives travel the world.” Michael Priestley, Head of Business Services Europe and Asia for Withers LLP, defines the benefits from his point of view: “Expense Reduction Analysts spent a long time getting under our skin, as a company, finding out what we were about. And then they were very tactful in pointing us in the right direction – a direction that we would not have found by ourselves. In fact, the range of Travel Management Companies they selected for us to look at, was so good that we could have chosen any one of three or four. What does the future hold for law firms in the UK? What’s the biggest or most important thing that law firms will be doing in five years’ time that they’re not doing now? Downward pressure on fees, new market entrants and regulatory change will lead firms to be more discriminating in the work they take on, and how that work is handled. It will be far more common for firms to adopt lean and continuous improvement processes to accelerate workflow, reduce WIP and improve profitability, particularly in areas of business that are high volume / low margin. Some early adopters of these methodologies, such as Clifford Chance and Midlands firm Higgs & Sons, are already reaping the rewards. What could law firms do to work more effectively with their suppliers? It’s important to adopt a strategic rather than a tactical review of non-salary costs so that firms don’t fall into the trap of treating products, services and software as self-contained silos. A good example would be photocopiers and digital print. Even in a reasonably small firm, a digital print project might encompass print, scanning for archive, rules-based printing software, tracking software for assigning costs to cases, lease finance, developing a robust service level agreement for maintenance and so on. In our experience in working with clients, suppliers are experts too and are able contribute valuable ideas and enhancements but are often never asked. What could law firms learn from businesses in other sectors? The confidence to be able to quote either a fixed-fee or incentivised fee for an agreed body of work. The willingness to point out costs that need not be incurred by a client – after all, losing a little revenue is better than losing a client because they realise that they have purchased services they don’t need. What are the top things firms could do to be more efficient/profitable? Top line growth is often the priority for partners, however this should be ‘healthy growth’ without a disproportionate increase in non-salary and business support costs. Turnover growth can be difficult to achieve in the current climate in any event, and often our clients are concerned with margin protection – which involves us in a rigorous and forensic interrogation of costs and back-office processes. Technology and outsourcing can help enormously, but neither is a panacea unless planned, procured and implemented with great care and expertise. What are the benefits of implementing a smarter spending culture within a law firm? By focussing on the non-core costs, the main benefit is to be able to deliver significant savings without disrupting the supplier base too much, if at all. We’ve recently saved a client in excess of £150,000 annually, without changing any of the six suppliers involved in our review – and two of the suppliers are also clients of the firm. Conversely, another client has benefitted from an annual £100,000 saving by wholly outsourcing a single back office activity. Jason Adderley of ERA, shares his views on the future of law firms and how continuous improvement processes will improve profitability and efficiency. “At our stage of development – with a £140m turnover and operating in three continents – we needed a company to come in and assess how we should best manage our travel requirements, and to walk us down the path towards producing a travel policy and selecting the right Travel Management Company. Expense Reduction Analysts has performed superbly in fulfilling that requirement” Michael Priestley, Head of Business Services Europe and Asia, Withers LLP “For me personally, overseeing the project from Withers’ point of view, what struck me was Expense Reduction Analysts’ patience, professionalism and thorough knowledge of the travel market. They talked to a lot of people with a lot of different ideas, and formulated the very best travel policy for us and sourced the best Travel Management Company for our mix of requirements.” Michael Priestley, Head of Business Services Europe and Asia for Withers LLP