INSIDE THIS ISSUE
Cutting services not the only option for third sector
Many charities fear they have to make cuts to
main...
April has seen a 5-7% increase in paper pricing which may
impact your overall print costs. Can you avoid them?
EXPERT NEWS...
Expense Reduction Analysts Success Story
AM saves the UK energy; Expense
Reduction Analysts saves AM money
F
ormed in 1973...
EXPERT NEWS - Jason Adderley
Expense Reduction Analysts Success Story
Significant savings and process
improvements for HT ...
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ERA Profit News April2013

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Our April 2013 Newsletter with Case Studies and tips for companies seeking to reduce costs and improve processes.

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ERA Profit News April2013

  1. 1. INSIDE THIS ISSUE Cutting services not the only option for third sector Many charities fear they have to make cuts to maintain services, yet smarter procurement could be the answer they are looking for. Paper prices set to soar. April has seen paper prices increase across the board by 5-7% impacting on overall print costs. Can you avoid them? Over half of UK businesses suffering from a culture of spending apathy Bring your own device headaches. Huge bills on in-game app purchases through smartphones and tablets are causing problems for companies without a BYOD policy. Smarter spending a priority for the legal sector. Recent legal sector surveys have continued to emphasise the need for firms to adopt or continue with a focus on cost reduction and process improvement. PROFIT NEWS D oing business in Britain: A culture of spending apathy sought to discover the attitudes and practices of employees (from junior executives to directors) with purchasing responsibility and how they impact business operations. 516 business people – across a large range of industries including IT, retail, manufacturing, public sector and telecommunications – were interviewed in March 2013 for the report. A ‘culture of apathy’ Overall, the report findings illustrate an ingrained apathy towards smarter supply chain spending among UK businesses, stemming from a legacy approach to managing supplier relationships and an unwillingness of staff to challenge the status quo. • Alack of purchasing control – There is a significant absence of company-wide controls and processes and limited strategic thought towards purchasing. - 49 percent don’t know if their business has a purchasing process, have no process or do their own thing when managing a supplier tender. - 65 percent of junior management are able to make some or all purchasing decisions with no approval from senior employees or insight at board level. - less than half of all companies, 49 percent, have enterprise-wide purchasing processes indicating an alarming lack of company-wide supply chain control. • A lack of regular supplier review – Through regular supplier reviews, companies can identify holes in the supply chain. However: - 56 percent rarely speak with suppliers, don’t trust them or only speak with them if there is a problem. - 59 percent of businesses will not review suppliers unless there is a problem. • UK businesses are focused on cost-cutting, not smarter spending – Organisations are thinking short-term instead of long-term. Many changes are reactionary rather than proactive. - 60 percent of companies said a need to cut costs triggers a supplier review. • A lack of value is attributed to the purchasing function – Purchasing very much comes as a secondary priority to the primary job role and therefore isn’t seen internally as important enough to warrant investment or training. - Nearly half of professionals asked confessed they just use the previous price without any detailed analysis to benchmark suppliers or don’t benchmark at all due to a lack of time. - a quarter of respondents say that if it were their own money, they would be far more careful with it! - 64 percent of sole purchasers have had no formal purchasing training. A Smarter Spending strategy – the future Rob Allison, managing director, ERA, said: ‘Many employees don’t understand the value of managing the purse strings, or even appear to have the motivation or board support to affect real change. A complete culture, attitude and organisation shift is required for companies to see operational efficiencies and increased profitability.And more value must be attributed to long- term smarter spending across the entire supply chain if businesses are to find growth in the future.’ Top tips: 1. Implement company-wide supply chain guidelines. These should include clear company processes and policies for employees and for reviewing suppliers – organisations need to answer when, why, how and who makes these supplier review decisions. 2. Develop and enforce an integrated approach to purchasing decisions. Present quarterly supplier reviews to the board. These should not just focus on cost reduction but metrics such as quality control, supplier relationship and company reputation. 3. Create a key skills framework for people responsible for frontline purchasing decisions. Invest in the purchasing function through ongoing and regular training to be able to implement best practice purchasing. 4. Implement a cost management strategy. Ensure you have the expertise in-house or via an external source to devote time to the purchasing process and build effective long-term supplier relationships. A report commissioned by ERA, shows that many companies are suffering from a culture of spending apathy caused by employees failing to control purchasing, review suppliers or challenge the status quo unless there is an issue. Industry report finds clear supply chain failings within UK business which hamper organisational effectiveness, damage competitiveness and restrict growth. Doing Business in Britain: A culture of spending apathyA smarter spending report – highlighting how supply chain failures are hindering growth of British business in tough economic times Doing Business in Britain: A culture of spending apathyA smarter spending report – highlighting how supply chain failures are hindering growth of British business in tough economic times Download your free copy of the report www.smarter-spending.co.uk
  2. 2. April has seen a 5-7% increase in paper pricing which may impact your overall print costs. Can you avoid them? EXPERT NEWS - Bruce Murray Paper prices set to soar F ollowing the latest round of paper manufacturers’ price increases, paper merchants are waiting to find out if they will be forced to pass the increases on to their customers. In a move to correct perceived unsustainable prices, Sappi Fine Paper Europe has increased its prices for all coated fine paper sheets and reels by 5-7% from 1 April 2013. The company has blamed the increase on the ‘unprecedented rise in input costs such as pulp, chemicals and transport costs which entirely outstrips the benefits from our price improvements and cost reduction programs so far.’ This will be the second time this year that Sappi has raised its prices for coated fine papers which the company said it was ‘obliged’ to do ‘as current price levels are unsustainably low.’ Meanwhile,Arjowiggins Graphic announced that is has also increased its wood-free coated papers price by £40 per tonne, equal to a rise of approximately 6%, from 1 April. Maine Gloss, Chromomat and Satimat, which are exclusively distributed in the UK by merchant Elliott Baxter, will be affected by the increase. Arjowiggins Graphic national key account manager Julian Long blamed rising costs of transport, chemicals and energy as the key factor in driving up paper prices. However, some stockists are still waiting to be officially notified of the price increases, although the consensus was that once the rises are made official, merchants would be forced to pass on the full impact of the increases to buyers. Scott Barclay, director of procurement at Paperlinx, which stocks Sappi’s Hello, Club and Core Uncoated, all of which are affected by the price rise in April, said: “In reality, if a mill does put up their prices, we don’t have the ability to swallow these price increases into our margins. We just don’t operate at that type of profit level. The likelihood is that we will have to follow suit.” He cited the example of Arjowiggins Creative’s decision to push up the price of its premium quality paper Conqueror by 3% at the beginning of January, which the merchanting group had been forced to pass on to customers. On the upside, Metsa Group confirmed in its recent year-end results that it did not anticipate any “significant price changes” to its uncoated paper and that coated paper prices were expected to fall in the coming months. With this mixed picture, now is possibly an ideal time to review your printing expenditure and the potential impact that any paper price increase may have on your printed material costs. But it is important to bear in mind that the paper cost of any printed work is only the partial cost and any increase should only be applied to this area alone. Pre- press, the printing process, finishing and distribution all contribute to the overall cost of the work. Therefore, it is vital to know what percentage the paper element is of your total cost. Take the opportunity to look at the alternatives, in terms of different materials, paper weights and finishes. Sometimes a change in the brand of the paper can result in instant savings. Charities should not rely simply on service cutting strategies to survive M any organisations fear they may have to cut activities, jobs or even close altogether. However, along with more traditional responses to these pressures, smarter procurement could lead to dramatically improved finances. Whilst some of challenges aren’t new, CEOs and Finance Directors (FDs) in companies and charities are once again facing the task of choosing between contraction and control initiatives for survival today, against investing in an effort to ensure growth tomorrow. Sometimes, available resources or aversion to risk allow only the contraction option. Expense Reduction Analysts commissioned an extensive survey of FDs across a wide range of organisations throughout the UK and Ireland. The research has shown that many have neglected the importance of procurement and the potential financial benefits that may flow through this function. Business strategies for turbulent times and beyond Many strategies employed in difficult times are high level choices between retrenchment or, if resources allow, investment. However, these strategies don’t take into account an organisation’s procurement strategy, or the thinking behind it. The Expense ReductionAnalysts research supports the theory that the psychology behind procurement – especially the mind-set of the FD when tackling tough business problems – has a major influence on an organisation’s behaviour and its financial performance. In fact, the majority of FDs surveyed (77%) stated that their company would default to a defensive cost-cutting approach when dealing with financial difficulties, while only 4% would look to increase spending on new products and services. This defensive approach and lack of innovation by organisations is a natural reaction and unsurprising given the current economic climate, but it is not the only option. Understanding of procurement at board-level Worryingly, our research found that almost half of the FDs stated that their company discussed procurement at board level only once a year or never. And it’s clear from this statistic that many boards don’t appreciate the impact their procurement strategy, or lack of it, is having. Until this changes, FDs will find it extremely difficult to change procurement practices and improve spending habits to help free up cash. Lack of internal procurement skills Given the lack of board-room importance placed on procurement, it’s no surprise that our research found that four out of five organisations do not have a specialist procurement team or individual, while more than one in three leaves responsibilities to individual departments. Inefficient supply chain partnership The management of the supply chain is another key component impacting business performance. And although a successful supply chain is dependent upon mutual trust and understanding, only 21% of FDs surveyed viewed their suppliers as partners. Challenging suppliers and testing the market place often leads to better long term and efficient relationships. Conclusion Charities should not rely simply on service cutting strategies to survive. A close but challenging partnership with suppliers, married to a culture of smarter communication with trustees, employees and the supply chain, is more likely to free up cash, drive service growth and deliver more sustainable and efficient organisations. It is possible that 2013 could be one of the toughest years the third sector has ever seen, with public spending cutbacks and pressure on donations forcing many to dip into reserves to maintain their service provisions. Expert news Simon Dodson Nick Robinson
  3. 3. Expense Reduction Analysts Success Story AM saves the UK energy; Expense Reduction Analysts saves AM money F ormed in 1973 as a family-run business,AM Energy Solution (formerly AM Insulations) is one of the UK’s largest providers of insulation services, working with home owners, construction firms, local authorities, housing associations, registered social landlords and energy suppliers to take steps to reduce the UK’s carbon footprint. With over 230 employees across the UK, AM now carries out approximately 70,000 energy saving measures on properties every year. “He was immediately receptive,” says Bernard McKay, Consultant with Expense Reduction Analysts, of his first meeting with Ian Holland, Finance Director at AM, which took place in August 2010. AM was growing quickly and with no procurement manager yet in place, Ian Holland saw the benefit of Bernard McKay’s proposition. It was soon agreed that Expense Reduction Analysts’ Pete Bramhall would look at AM’s expenditure on Waste, Pritesh Patel at their Telecoms spend, Richard Clayton at Utilities and Phil Howarth at Water. Bernard McKay takes up the story: “Each of these first round of categories produced very good savings. With Waste, the initial savings were relatively low, but we additionally proposed some internal changes in the handling of waste, and these had a significant impact. With Utilities, we originally proposed to perform this on a consultancy basis, but Ian was reluctant, since at that point he had seen no proof of our expertise. We therefore worked on a contingency basis for two years, and then, having proved our worth, moved over to a fixed-fee consultancy basis, which delivered best value for the client.” “Pritesh’s work on Telecoms was a real highlight” Expense Reduction Analysts’ specialists can usually uncover good savings through their category expertise; on occasion, however, their work simply provides a valuable healthcheck. Analysis of AM’s spend on Fuel revealed that they were already buying wisely and Expense Reduction Analysts was able to provide valuable peace of mind in that area. It was the Telecoms category that provided the most significant savings. Pritesh Patel, Telecoms Specialist at Expense Reduction Analysts, gives more detail on this category: “I was able to give AM some ideas that they had not previously considered, such as different ways of managing their mobile phone contracts. In all, the real value for AM is that, in addition to saving them money through the initial consultation, we are providing them with far greater visibility of their expenditure through our ongoing reporting. Together with our practical advice, this gives them far greater control and enables them to drive down their telecoms costs even further.” Having seen the value of the Expense Reduction Analysts’ proposition in these initial projects, Ian Holland asked Bernard McKay to take on areas of expenditure that were even more central to AM’s work, namely Buildings Materials and PPE. Bernard McKay again: “Steve Clamp looked at Buildings Materials, and presented AM with a matrix of options. When implemented, the proposed changes should see the number of suppliers streamlined from 22 to 7 – including two new suppliers – and the client enjoying significant savings and, importantly, a simplified set of supplier management procedures. “Malcolm Tait tackled PPE, and, after his usual thorough analysis, he recommended that AM stay with the incumbent supplier, but on the significantly more beneficial terms that he had negotiated.” “Expense Reduction Analysts have delivered significant savings in almost all of the areas I have asked them to examine. In particular, their recommendations on our Telecoms procurement stand out and prove their ability to think outside the box” Ian Holland, Finance Director, AM Energy Solutions Ltd Ian Holland, Finance Director at AM, sums up the value of Expense Reduction Analysts’ work: Category Saving(%) Waste 23% Telecoms Fixed 37% Telecoms Mobile1 65% Telecoms Mobile2 52% Utilities 39% PPE 13% Buildings Materials 18.5% Water 26% Table of Savings “I met with Bernard at a time when we were growing rapidly and needed to keep as close an eye as possible on costs. His team provided expert analysis of our expenditure, and in almost every case saved us considerable sums of money. I must pay particular tribute to Pritesh Patel’s work on Telecoms: he has been invaluable in his analysis, his ongoing reporting, his advice and his ability to think outside the box.” Children and adults are running up huge bills on supposedly free computer games sold as apps through smartphones and tablets. Games like Angry Birds, Plants V Zombies and The Simpson’s are offered as free downloads. EXPERT NEWS - Brian Holmes Companies at risk from IAP’s But what else might be innocently downloaded? Is there a virus or spyware hidden in that game? How secure are your tablets and do your employees know the risks of unsupervised use? The biggest risk to the enterprise is not the company- provided smartphones or tablets as these should be reasonably secure, the dangers come from the unauthorised device. It takes seconds to move a SIM card from a secure device to an unsecure one, leaving the enterprise network unprotected. All companies must have a BYOD (Bring Your Own Device) policy even if it just prohibits the use of non- company supplied devices. H owever, once children are playing with them, they are hit with pop-up advertisements for so-called ‘In-App Purchases’ – IAPs. These might be to purchase coins, additional content or extra powers to allow the characters being controlled to go further and deeper into the game. These payments are taken automatically from the credit cards of the adult owners of the tablet or smartphone via, for example, an iTunes or Google Play account. Often, the first time a parent finds out about the purchases is when their credit card is rejected at a check- out till or they find a black hole in their current account.
  4. 4. EXPERT NEWS - Jason Adderley Expense Reduction Analysts Success Story Significant savings and process improvements for HT Group A lex Maby, Group Finance Director, HT Group, who are the country’s leading pawnbroking company with over 180 HT outlets wanted to explore effective procurement to ensure best value was being achieved. Following a meeting with Paul Davidson and Nigel Burnip of ERA, Alex felt the offering was a ‘win- win’ arrangement and subsequently engaged a team of ERA’s specialist procurement. Tom Cooper, who has over 20 years’ experience in telecoms advised HT on the best time to end the contract with their supplier, preventing an automatic rollover and gaining a substantial credit payment. By leveraging Tom’s expertise within the market place HT were able to benefit from savings of 47%. Peter Randall and Peter Lee were appointed to review HT’s arrangements for promotional printed balloons and gases used in many stores. The consultants produced a detailed review and sourced a supplier that could provide the same quality of balloons for a lower price. In addition, they identified a new supplier to fulfil requirements for helium and deliver the supplies straight to HT’s stores. Previously, HT’s Head Office was acting as a purchasing function for all of the stores which was taking up valuable time and resource, but was providing head office with the ordering control they wanted. Sue Cooke, expert in office supplies, was brought to implement a system that would allow the same level of control without taking the time and effort of head office staff. Sue sourced a supplier offering a saving of 22.2%, an online ordering system and nationwide next day delivery directly to all of HT’s stores. Nigel enlisted Keith Copestake who has over 25 years’ experience in the office products and print category to improve HT’s process for ordering business print materials .Keith identified a new supplier who provided an online ordering system. As well as being a convenient and more practical way of ordering, this has completely alleviated any distribution costs as the supplier is already making deliveries to the various stores. Nadim Vanderman, who joined ERA in 1998 and has successfully completed over 60 postage projects, was enlisted to review mailing arrangements throughout the 200 sites and head office. Nadim suggested using Royal Mail’s latest online technology to distribute letters. This service allows staff members to log in and specify their mailing requirements for each month. In the electricity category, HT chose to engage ERA’s service on a 12 month consultancy basis as they were receiving a fair market price for their electricity, but still felt that Nadim’s category expertise would be of great value. Nadim was able to make considerable improvements by working with the electricity supplier to align all of HT’s contract end dates so each store’s contract didn’t have to be renewed individually. In addition ERA negotiated the free installation of SMART meters across all sites. These contain an individual SIM card that sends automatic meter readings to the supplier, providing accurate invoicing, removing the hassle of manually taking readings and allows HT to manage their electricity consumption. ERA consultant, Ian Morrison with over 30 years’ experience in facilities management was appointed to review HT’s arrangements for cleaning and janitorial. Staff had been managing the purchase of these items by store. Ian explored the client’s usage and product specifications and found that the new supplier for the office supplies and print could also fulfil the client’s needs for janitorial items. In addition, Each of HT’s sites have different safety requirements including smoke alarms, fire extinguishers and security alarms. Ian assessed a number of installations, compared these to the security supplies market and advised on a suitable typical security solution. Ian then worked with the existing supplier to configure the contract, adding requirements that were not previously being included. Ian used his extensive industry knowledge to negotiate with the supplier to achieve a lower price with an improved service. HT group have made the best use of ERA’s outsourced management service and have gained exceptional financial results and process improvements across the company. “We have gained a great confidence in what we are spending money on thanks to the experts review. We now have a structured procurement process with the correct suppliers and measures in place; we know that we are not being overcharged and that our suppliers are keeping their prices competitive to retain our business.” Alex Maby, Group Finance Director Category Saving(%) Communications - Landlines 35.6% Merchandising - Gas Balloons 28.8% Office Supplies 22.2% Print - Business 44.0% Print - Marketing 41.8% Postage - In Store Head Office 23.1% Utilities - Electricity SMART Meters £27,500 Facilities - Fire Security 19.4% Consumables - Janitorial 30.6% Insurance 15.4% Average saving 24.1% Table of Savings Legal sector must continue to focus on cost reduction and process improvement Recently there has been a series of legal sector surveys that have continued to emphasise the need for firms to adopt, or to continue with, a focus on cost reduction and process improvement during 2013. T he Law Management Section (LMS)Annual Survey, which examines the financial health of law firms across the UK, confirmed that Practice fee income increased by 3.6% in 2012, compared with more modest growth of 1% in 2011, and average net profit per equity partner climbed from £112,549 to £114,853, a rise of 2%. More interesting were the survey results which revealed that the number of support staff per fee earner remained steady at 0.61 and the median spend on non-salary overheads per fee-earner was £37,992, compared with £37,831 in 2011, a nominal increase of 0.4 per cent. Naturally, this real terms fall in costs is to be welcomed – but at Expense Reduction Analysts, we’d view anything but an actual reduction in non-salary overheads as a failure. Legal market management recruitment consultancy Totum found that a fifth of firms expected to increase salaries for business support professionals by more than 3% in 2013. And finally, BDO found that almost half of law firm partners think they should be paid more than they currently are. 69% of partners expected average profit per equity partner to increase over the next three years. BDO goes on to suggest that such expectations will drive further merger and acquisition activity in the forthcoming year, concluding that, “If the majority of partners think they should be paid more, then the only way to pay more is if the firm generates more turnover and more profit.” Of course, at Expense Reduction Analysts, we don’t necessarily agree that turnover growth is the only way, and we would suggest that legal sector firms place greater importance on establishing smarter spending strategies from the boardroom down, to ensure that they remain competitive over the next twelve months and beyond.

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