Management consultancy firms have lost more than £800 million in revenues during the past year as the government has slashed public contracts and renegotiated far lower fees.

Industry insiders said that the sector, which has been charging government departments up to £2,500 per consultant, was “falling off a cliff”. Firms were being forced to agree exceptionally low terms with government departments and PwC (one of the big four consultancy firms) is rumored to have lost £70 million this year.

Francis Maude, the Cabinet Office Minister, disclosed yesterday that the central government consultancy bill has been halved from £1.6 billion to £800 million this year. He also said that departments could no longer hire consultants to advise on procurement contracts and daily rates of £1,600 to £2,500 were no longer acceptable.

“Consultants were being regularly hired on daily rates by departments to run the procurement process,” Mr Maude said. “Not surprisingly the negotiations were very protracted and very expensive.”

This experience is one that has been shared by many of Expense Reduction Analysts’ clients in the past, and is often quoted as a key driver in their decision to work with them. The fact that the majority of procurement projects are delivered on a contingency fee basis, i.e. ‘no savings, no fee’, means that clients are able to avoid the pain of high day rate charges.

Expense Reduction Analysts are leaders in cost, purchase and supplier management and welcome the opportunity to discuss how their services can add value to clients’ operations. Please call 01303 298344, or e-mail r.stearn@erauk.net to arrange an exploratory meeting.

1.     Standardise and document procurement processes

Align procurement with enterprise goals, assess what stages are currently involved in your purchasing process and why they are being taken, then determine whether each of these is necessary and make sure the same stages apply to all procurement. Pre-negotiated early payment discounts were 32% higher for respondents with standardised processes while they also achieved supplier on-time delivery on 5% more shipments.

2.     Introduce employee incentives

Formalised processes will not produce the desired results unless they are being adhered to. It seems that in organisations which have tied their staff’s compensation to some extent to the attainment of set goals, the buyers have identified 18% higher savings than their non-incentivised peers. The study, nevertheless, cautions that non-conformance may be a result of deficient policies rather than unmotivated personnel.

3.     Seek external guidance

Trade associations and professional publications are great starting points to begin the learning process. Alternatively, the use of external consultants reported a 76% better budgetary performance (6% under budget vs. 3.4%).

4.     Automate the approval process

Eliminate paper where possible. Assuming that the necessary data is available electronically (i.e. inventory checks, application of approval thresholds), considerable time savings of up to 19% can be achieved for the cycle from the initial needs identification to the final supplier selection and negotiation.

5.     Increase internal collaboration

There is much to be gained from inter-departmental information and data sharing, whether that be with finance to provide visibility into upcoming cash needs or accounts payable to maximise discount capture. Organisations with cross-functional collaboration have been found by the study to report 34% higher savings than its non-collaborating peers.

6.     Improve compliance monitoring

The Aberdeen Group research interestingly also found that of all the metrics regularly assessed, supplier price and delivery compliance were generally the least likely to be measured. Hence, once the internal fundamentals are in place, it is time to look at supplier relationships and ensuring compliance with agreements.

7.     Efficiency improvements in Accounts Payable

Another study by the Aberdeen Group carried out in 2009 has found that an automated accounts payable process improved invoice processing times by a staggering 37%, leading to prompter payments and, thus, reinforcing a virtuous circle where a supplier who has his invoices paid on time will be more inclined to grant a prompt payment concession.

8.     Improve data quality

Procurement leaders will rely on sets of painstakingly accumulated and cleansed transaction data, allowing them to make informed decisions. As this benchmarking process can be time consuming, external consultants such as Expense Reduction Analysts can assist with the necessary tools and expertise to collect as well as analyse the information.

9.     Provide executives with spend information

The procurement function is only gradually making its voice heard in the Boardroom. However, executives will need accurate and comprehensive data to plan for all eventualities. In this respect, the purchasing function has an increasingly important role to fulfil, not only with regard to maximising value for money from its suppliers, but also as far as the provision of meaningful data to the executive is concerned.

Expense Reduction Analysts are leaders in the field of procurement and cost management advice with some £350 million of expenditure being negotiated on our clients’ behalf every year. Our experts cover some 100 areas of spend and offer our clients completely supplier independent advice. Moreover, we carry out the benchmarking and RFP process on our clients’ behalf, allowing their staff to focus on the core task of running their operations.

The Department for Transport has recently published its annual Road Freight Transport Statistics Bulletin 2009, and interpreting the figures provides a fascinating analysis of the changes occurring in the Distribution Sector. This year’s publication is significant in that not only does it show the impact of recession when compared with 2008, but also as the 20^th edition, showing the fundamental changes over two decades.

Unsurprisingly, total tonnage uplifted declined markedly in 2009 compared to the previous year, but the balance of goods moved between different sectors has continued recent trends.  The volume of food and drink products has been at a stable 370 million tonnes for three years, after a fairly constant upward trend, whereas all other categories declined, noticeably Bulk Products, which fell from 620 million tonnes to 440 million tonnes year on year. Perhaps worryingly for British Manufacturing, this compares with levels of over 600 million tonnes being uplifted in this sector even during the recession years of the early nineteen nineties.

Analysis of usage by vehicle type shows artics moving 58% of goods compared to just 40% in 1989.  Not only does this show the impact of increased vehicle weights on improving efficiencies, but also goes some way to explain why unit haulage rates have failed to keep pace with inflation, whilst still allowing haulage businesses to continue.

However, from a cost analysts’ perspective, the most interesting statistic must be the change in the proportion of goods being moved by own-account vehicles versus 3^rd party hire and reward hauliers. In 1989, hire and reward operators uplifted 60% of goods (by weight), declining slightly to 57% in 1991 as the recession bit. However, with a trend for more companies outsourcing logistics functions, this then peaked to 67% in 2001. A gradual decline to 61% in 2007 has then been followed by big drops to 51% in 2009. Actual volumes for the hire and reward centre have dropped from a peak of 1,145m tonnes in 2007 to just 723m tonnes in 2009 – a 47% drop ! Undoubtedly, the impact has been large numbers of providers disappearing from the scene with record administrations and insolvencies in the sector, and the survivors following rigorous cost cutting programmes and capacity reductions. For the future, however, from the service procurors perspective, this means reduced competition as hopefully volumes begin to recover.

Although the own account sector suffered a small volume reduction to 699 million tonnes, this was still the third highest volume moved in this sector since 1989. However, the sector moved its goods further than any previous year and therefore recorded its highest ever tonne kilometre measure. The re-emergence of the own account sector must be a relief to suppliers of fleet services: our internal data shows that margins charged on fleet supplies (eg fuel, tyres, maintenance, fleet insurance, etc.) are consistently higher than being achieved by the same suppliers to the hire and reward sector.

Therefore, despite the fact that own account operators are working their fleets harder, there are still major opportunities to improve their cost base through detailed effective procurement reviews.

See all Logistics Team Blogs

24 out of the 28 independent economists used by HM Treasury to assist its forecasts expected VAT to rise in the coming parliament.

Most predicted a rise from the current 17.5% to 20% before the end of next year which would raise an estimated £11.5bn annually.

An increase in tax on consumption is seen as an attractive way to boost government revenues, given that very few argue that cutting the country’s budget deficit is the no. 1 priority.

And any changes to VAT and other taxes could be unveiled in the emergency Budget to be announced within 50 days.

The BBC reported one respondent saying that “the UK economy is probably strong enough to withstand the expected cuts and tax rises. While earlier cuts in public spending are inevitably going to dampen economic growth, the UK recovery appears to be gathering pace” .

While I would never pretend to accurately predict the timing or extent of any rise in VAT, I think the Lib-Dem policy – adopted by the coalition – of increased income tax thresholds means that its sooner rather than later.

Reuters published a poll of opinions from a panel of 64 economists on 1st April and whilst it masks a range of views, the consensus is a start to the inevitable rise by the end of this year and then 0.25% increases every 3 months throughout 2011.

No doubt reality will not follow the trend they forecast exactly, but the message to businesses is that the variable costs of base rate linked debt – allowing for the lenders’ margins – could conceivably double during the next 18 months.

The Reuters article can be read in full here:- http://uk.reuters.com/article/idUKTRE63023D20100401

To ensure the impact on staffing levels of these pressures is kept to a minimum, it is critical that universities carry out a thorough review of their cost base.
Expense Reduction Analysts are ideally suited to provide the expertise and resource required, to ensure such a review is achieved within the shortest possible time.

According to leading Accountants Smith & Williamson organisations may potentially be able to reclaim  thousands of pounds from HMRC; and claims should be lodged as soon as possible to maximise pay-back as a four-year rolling cut-off applies.

Any business with individually negotiated arrangements with the Royal Mail covering mailing services (including Parcelforce) could be in line for the VAT pay-back but those involved in large scale mailings will have most to gain. This opportunity has arisen as HMRC confirmed on 31 March that it will consider claims from certain Royal Mail users.

“I believe there could be thousands of businesses up and down the country, both large and small, which could benefit,” said Hannah Dobson, VAT director at Smith & Williamson.

“To maximise their claim, organisations should lodge their request as soon as possible. Retrospective VAT claims are capped at four years, so every day of delay reduces the potential reimbursement. Typically, organisations which have individual contracts with Royal Mail may be able to recover up to 7/47ths of the gross cost of those services,” added Ms Dobson.

Whilst it was announced in last week’s Budget that parcel services of this kind will in future be subject to VAT, this followed a decision by the European Court of Justice which held that VAT should have been charged all along – and it is this ruling which has opened up the possibility of backdated claims.

“A number of organisations have already lodged VAT reclaims on the back of this case. Despite initially stating otherwise, HRMC has now confirmed that it will consider such claims.”

“Given that HMRC has now said that it will look at these claims, businesses should press ahead urgently,” concluded Ms Dobson.

Disclaimer

Smith and Williamson posted this information in a press release and it is posted here in good faith as an opportunity for research by businesses. By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing. 6th April 2010.

Initial moves were made in Europe last week to significantly increase the amount paid

in maternity benefits to all new mothers.

On 24 February the Women’s Rights Committee voted to increase the statutory

maternity allowance for all mothers in the EU to include a minimum of 20 weeks of full

pay. The proposals would have the effect of harmonising all member states’ maternity

laws to a level that is currently significantly more generous that that which is currently

offered to new mothers in the UK.

So far, the proposal has met with almost universal dismay from business leaders, who

are concerned that the total cost of this – somewhere between £1.5bn and £2bn –

would have to be met by either the UK taxpayer or businesses. The UK government is

also disappointed by these proposals as it is felt that the economy cannot support such

a generous measure at this fragile time and, in any event, the UK maternity package is

among the most favourable in Europe.

Aside from the cost, the concern is that these measures would discourage businesses

from employing women of childbearing age. If this proves to be the case it would

undermine the intention of the proposals by making it harder for women and new

mothers to thrive in the workplace.

Final ratification of the proposals is still a long way off, however, as the measures still

need to be approved by the full European Parliament and the Council of Ministers,

where the UK has no absolute veto over employment matters. It is estimated that,

assuming the scheme is approved, it would take approximately a year to 18 months to

be made law in the UK.

When the ONS announced its growth revision upwards from 0.1% in Q4 ‘09 to 0.3% I thought, well its not much more, but what good news. That was until I realised that the revised Q4 figures are actually worse than originally announced, and the “improvement” is only because Q3 was even worse than originally thought. Instead of producing £315,845m in Q4 UK Plc produced £315,712 and yet today’s headline makers fell for the spin and heralded an improvement.

And worryingly the ONS press release accompanying the figures was titled “Services growth in December pushes up GDP estimate”. I say worryingly, because the ONS ‘ own headline is just plain misleading given it is so wrong.

The report actually suggests that Q4’s growth was on the back of car manufacture and retail sales. With the car scrappage scheme in its final stages and VAT already returned to 17.5%, I wonder what Q1 2010 will reveal?

My own view is that our recovery will turn out to be more of a “bounce along the bottom” for two or three more quarters, with the possibility of either Q1 or Q2 2010 showing a retraction. Hopefully not two consecutive quarters to herald the dreaded “double-dip”, and subsequent difficulties in financing the national debt… but that cannot be ruled out. The tough economic times are certainly nowhere near over.