Further insights into partnerships and sustained cost reduction

Continuing the theme of succeeding in partnerships for sustained cost reduction, I am going to explore some more of the ideas put forward by Jonathan Lewis at Sheffield’s Cathedral Archer Project’s Partnerships conference.

“For a partnership to work, there needs to be scope for mutual success.”

This seems self-evident to me. If one party’s success is of no consequence to the other – or worse, damaging to them, there is no good reason for the partnership to work.

At first sight, Expense Reduction Analysts’ offering to help clients manage and reduce costs on a contingent basis seems like something that any business director would be interested in to help them achieve greater profits. However, life is more complex than that!

Few businesses have maximisation of profits as the primary driver for all staff.  Some will be focussing on growing the business; some will want an easy life; others just don’t want to have to face potential changes; others again will have incentive schemes driving other forms of behaviour more than good cost management.

I came across an example of this recently. I went to see a client which operates a stadium with corporate hospitality suites and we were talking about energy management. The sales team makes offers to customers which have a significant impact on energy consumption, but do not see the cost of this in their figures. They have no incentive to keep energy consumption and associated costs down, as it might adversely impact on their sales figures. If that situation stayed the same and we tried to build a partnership with the sales team to achieve cost reductions through energy savings, we would be likely to fail!

When working with clients, we therefore need to consider what drives each person or team to ensure that there is scope for mutual success.

“Have the crunchy conversations up front.”

It can be tempting to start a relationship with a client with just a broad understanding of how we are going to work together. Provided they want to work in partnership and are open to building trust between the parties, this can work well.

However, some of our best partnerships with clients are formed when we have had in-depth conversations about who is responsible for what and what the expectations are on both parties. That way, there is less scope for misunderstandings or unpleasant surprises later and a far greater scope for a long-term partnership that achieves sustained cost reductions.

“Different parties in a partnership need to have different sets of knowledge.”

At first glance, this appears to be obvious, but I’m not sure it is as straightforward as it seems.

It may be that our clients have a lot of knowledge about a product or market, but other things hamper them from achieving the cost reductions that Expense Reduction Analysts could. It may be that the person with the knowledge now needs to focus on strategic issues, or only has time to deal with higher-priority expenditure such as raw materials.

We have a client (see Country Park Foods case study) who asked us to review their packaging costs. This included items such as sausage skins, about which we knew very little. We worked well in partnership with them to build our knowledge of the product and market and found large, sustained cost reductions for them.

On these occasions, Expense Reduction Analysts is bringing knowledge to the partnership, but also time, expertise in negotiating, market leverage and an external perspective.

I would therefore argue that each party needs to make different contributions to the partnership, not necessarily just contributing different knowledge sets.

In conclusion, working in successful partnerships with our clients to achieve sustained cost reductions is as much about understanding and working well with people as it is about the initial successful negotiations with suppliers.