10 Simple Steps to Reduce Costs

The UK’s economy is expected to shrink by some 6% during 2009, affecting not only consumer spending but also the buying behaviour of businesses. While sales will depend on a number of factors over which the manufacturers/wholesalers/retailers have little or no influence, you have full control over what is being bought and how much you pay for your goods. A few simple steps can help you make sure that corporate resources are not being wasted:

Focus your spending power

While you may not wish to ‘put all your eggs in one basket’, particularly for non-critical purchases it does not make sense to spread your expenditure among several suppliers. The larger your spend with a provider, the more valuable your account will become to them – and the more responsive they will be to price negotiations and service level requirements. Moreover, there is a hidden cost for your organisation in using more suppliers than necessary: Additional deliveries take extra time and may even cause disruption while Accounts Payable will have to deal with extra invoices and statements.

Limit your product choice

Decide on the products you want to use and stick to your choice! A major problem in some organisations is the vast number of different products serving the same purpose: Several types of A4 lever arch files, different floor cleaners, different types of pens and pencils are just a few examples. As with the number of suppliers above, you dilute your own negotiating influence by spreading yourself too thinly as far as product choice is concerned.  Not only will focus help your staff manage stock levels (and probably even free up storage space), but, by spending more on one or two types of pens, cleaners or copier paper, you will again be able to negotiate more competitive prices on these products.

Think about quality

Of course you want the best – and pay as little as possible for it! But does your organisation really need to carry branded ballpoint pens in its stationery cupboard when a non-branded alternative at half the cost might do? Non-branded goods are often produced by the same manufacturers who supply the well-known brands, meeting the same quality requirements, but at a much reduced cost. Particularly where goods are used internally only, you could make good savings by switching to your supplier’s own brand.

Stationery Amnesty

As far as stationery is concerned, we all from time to time tend to ‘stock-up’ – only to find that many of the items will remain hidden away in the depths of our desks for months to come. Offer your staff a stationery amnesty, where they go through their drawers and return to the stationery cupboard any unused items. The results can be quite surprising: In clients a stationery amnesty had the effect that almost no office supplies had to be ordered for almost 3 months.

Define a Procurement Policy

A corporate procurement policy does neither have to be formal nor written down (let alone in stone!). Even a few simple procedural steps allow you to ensure that your staff order sensibly and stick to budgets. In this respect, for example, put one person in charge of checking stock levels and placing the order. As suggested in point 2 above, restrict the number of products serving the same purpose you purchase.  By all means, staff should be able to place orders for other goods, but it is advisable that these orders are approved by a head of department – or even the person in charge of ordering.

All Your Sites are One Business

Make sure your suppliers are aware that several sites may be placing orders for goods and that the same pricing policy should apply to all of them. Unfortunately we do find at times that suppliers charge different prices to different sites within the same company.  Your suppliers need to appreciate the overall purchasing power of your organisation – and therefore offer the same competitive pricing to the smallest site as to your head office. And the same applies to service levels: Even your smallest site should be able to expect the same service levels extended to your largest location.

Remember the 80/20 Rule

Most likely you will be spending 80% on your category budget on 20% of the products purchased. The lesson from this is obvious: Know what these items are and then make sure you negotiate a good deal on them.

Loyalty doesn’t Always Pay

We frequently find that although a client has been with a supplier for many years, they don’t get any better prices than any other account.  It is unfortunate that loyalty is not often rewarded these days, and hence it pays to every now and again to go to market and check that the prices you are paying are competitive. And do make sure your incumbent suppliers are aware of these pricing exercises: Indicating that they shouldn’t take your custom for granted is a good way to keep them on their toes.

Talk to Your Supplier

Tell your supplier what you expect from them. Stationery is not simply stationery and your business and/or your staff may have specific reasons for specific needs.  Your suppliers are experts in their field and like to be of assistance. Moreover, this will help your team build a trusting relationship with your providers, which, in turn, should help ensure that you will be the first to know of any changes which may affect your organisation.

Repeat Review Periodically

A cost reduction exercise should be repeated every couple of years or so. Not only will supply market conditions change over time, also your own needs will evolve and items which may have been a core item last year may hardly be needed next year. This means that you may be getting the best discounts on products you now hardly purchase. Also, as time goes on, focus on these simple but effective measures will fade. Repeating these steps periodically will help you ensure that you not only obtain but also retain value for money.

As you can see, there are a few steps any organisation can take to ensure that it obtains best value for money from its suppliers.  A clear focus and an open dialogue with your suppliers as to what you are aiming to achieve will be key to success. If ever increasing costs are a problem, you will find that most suppliers are very keen to be part of the solution.