The ‘Government Review of Waste Policy in England 2011’ was published 14^th June by the Department of Environment Food and Rural Affairs (defra). The document has been on its way for about a year and the minister responsible is Caroline Spelman.

The publication of the Review caught the attention of the television channels, the mid-week and week end press. However that coverage, possibly on the look-out for sound bites and controversy failed to go beyond the issue of the collection of household bins. The debate about weekly and twice weekly collections has been a major preoccupation of the media whenever they have broached the subject of waste in the past year or so together with the number of bins per household. One authority in the north east appears to have allocated nine bins per household; one cabinet minister seems to have gone so far as to claim that a weekly bin collection is nothing less than an inalienable right of a householder. Whatever!

The Review document runs to some eighty pages and is supported by other publications as well as drawing into the frame many other organisations. It is what the title says it is, …..Review of Waste Policy……

Therefore not surprisingly it is heavy on vision, direction, guidance and the inevitable road map; as a consequence it is light on specifics however not silent. Be warned and be aware.

Businesses of all sizes and forms, that is commercial, charitable and residential households will be affected by the intent of this Review.

The major thrust of the policy is to set the country on a route that will lead to a zero waste economy. Going no further than that headline will be enough for some to react and believe that their business will be either outside the scope of the Review or that with such an apparent lofty ideal it couldn’t possibly affect them. That presumption is unjustified and it’s a risky assumption to make, in a financial sense.

The Review lists four specific areas that will be used to assess progress. It explains that the targets being used as part of the assessment of progress are those set by the European Union and that they are the ‘minimum to achieve if a zero waste economy is to become a reality in the medium term.’

The speed with which the country moves towards a zero waste economy remains to be seen however whilst much will be done to gain buy-in the use of legislation has not been excluded.

For sure there will be legislation with some further waste streams being banned from landfill sites. Landfill tax will move in only one direction and that, in real terms will be upwards. For the first time the unit of landfill tax per tonne has been set has ‘a floor’.

A new definition of waste has been agreed with the European Union and the consequence of that will mean a different approach to household and commercial waste streams.

Waste, in all its forms, is no longer the black bin bag at the back door; it’s now the foot in the front door and a seat at the board table.

One thing is clear – waste handling and disposal need to be part of a business’s cost, purchase and supplier management policy.

If you have questions about your organisations waste costs, click here to contact this consultant by email

OFCOM receives around 450 complaints every day from consumers, mostly relating to billing problems, customer service and mis-selling.

The best supplier was Virgin with 0.21 complaints per 1000 customers relating to landline services and 0.20 complaints per 1000 customers relating to broadband.

TalkTalk was the worst supplier with 1.78 complaints per 1000 customers relating to landline services and 1.27 complaints per 1000 customers relating to broadband.

Ensuring quality of service and support is a crucial factor in Expense Reduction Analysts processes – as well as getting our clients the best possible prices of course, and as the above shows, all suppliers are not equal and that cheap headline rate may cost you in the long run.

The communications team have produced a guide designed to provide you and your organisation with advice and hints on creating effective cost reduction programmes which retain and improve profit margins.

Click here to download your copy of the free cost reduction guide

The National Pharmacy Association (NPA) is the representative body for the community pharmacy trade in the UK and, in addition to supplying a range of ancillary pharmacy support products at competitive prices, it seeks to support its members by influencing government policy and consumer opinion. It is also a leading provider of indemnity insurance and legal advice for community pharmacies.
The NPA wanted to ensure that it was achieving value for money across all areas of the business. Adrian Palmer, Director of Finance and Commerce at NPA, decided to call in Expense Reduction Analysts to undertake this wide-ranging review.

David Keating, the client relationship manager for the NPA, takes up the story: “Adrian asked us to conduct the review of many areas of expenditure simultaneously and to phase implementation, if complexity or supplier change dictated, over a longer period. We agreed an overall target of just below £300,000 of savings with no reduction in quality or service levels. We were able to form a bespoke team of analysts – all specialists in the industries that we were engaged to review – to perform the work in each area.

An objective and informed view of the expenditure being made

“At Expense Reduction Analysts, as part of our supplier management process, we work closely with the incumbents to determine if they are providing value for money and if there are opportunities for them to develop their solutions to the benefit of our client. And that is what we have achieved with the NPA in many cases. There have been limited changes to the suppliers, and we are continuing to work with them on an ongoing basis to ensure that the enhanced value – as well as the quality of product and the service provision – is maintained and enhanced over time.

“We judge supplier performance through the purchase data from invoices, in conjunction with stakeholder interviews to determine the required quality and service levels. This allows an objective and informed view of the expenditure being made, and the quality and service levels thereby procured. In fact, in three or four categories, we concluded that the NPA were already achieving best value – so they received the peace of mind of a positive outcome from this independent audit. In some categories, though, we found that a new approach was warranted: in Copiers, for instance, we recommended restructuring the contract, which led to a 59% saving.

“In fact, we completed the programme of work in six months, implementing these projects to a schedule that allowed the NPA to accommodate the changes smoothly into their workflow. This has also allowed the NPA to consolidate their supply base, thereby achieving further economies as a result.

“We see the successful completion of these projects as the first step in a long term partnership with the NPA, who have now engaged us on a number of other areas of their business. We take this as a compliment to our work so far and look forward to working with the NPA in the coming months and years.”

Click here to download a copy of this delighted client case study

Mobile Network Operators are allowed to charge a “Mobile Termination Fee” (MTF) for all  landlines to mobile calls and cross network mobile to mobile calls. This charge is currently set at 4.3p and last year OFCOM announced proposals to cut this to 0.5p over a four year period. It is reported that OFCOM will start to implement this at the end of February.

Whilst this will be good news for users who make a lot of calls from landlines to mobiles, it is likely to be bad news for mobile users. MTF was introduced to allow the Mobile Network Operators to recoup some of the costs incurred in purchasing licences from the government and building mobile network infrastructures. The reduction in MTF will impact the revenues for all the Mobile Networks and they are likely to respond with price increases to try and offset increased costs.

As part of this change BT are planning to introduce new bundled packages which will allow users “unlimited” calls, including calls to mobiles, for a fixed monthly price.

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 research, for example, shows that standardised sourcing processes and regular tracking of supplier compliance with service level agreements are much more likely to be well established within procurement leaders, and that best-in-class organisations keep a close eye on an agreed set of KPIs to ensure not only that the negotiated savings do materialise, but also that they are being preserved over time.

So which strategies do the leaders apply? The Aberdeen Group’s research shows that 41% of leaders as opposed to only 18% of laggards have increased the volume of spend managed by a dedicated Procurement function.  This certainly makes sense, as in most organisations the same or similar goods and services may be sourced by different functions, often even from the same suppliers, missing out on any volume discounts that could be negotiated. On the other hand there is the automation of manual procurement processes: While favoured by 28% of laggards, only 13% of best-in-class buyers have taken such measures. What does this tell us? While eProcurement solutions potentially have an important role to play in corporate sourcing processes, the technology available cannot be a substitute for alignment of procurement with the overall corporate strategy, old-fashioned market research and one-to-one supplier negotiations.

Standardisation of sourcing processes and contracts are other key ingredients which distinguish the leaders. 72% of the most successful procurement teams have adopted such measures. And the results achieved, according to the study, seem to speak for themselves: Organisations with standardised sourcing processes achieve savings almost a quarter higher than their peers, while standardised contracts resulted in 42% higher savings, since this directly relates to contractually agreed discounts being correctly quoted on supplier invoices and on variations being detected during the invoice approval process.

Another vital aspect to purchasing performance improvement is the spend analysis. While this is likely to be time consuming, the collection and systematic assessment of actual procurement data allows to identify the areas in which focussed negotiations and standardised processes are likely to yield the best results. In the Aberdeen Group survey, organisations that had the ability to classify and cleanse their spend data subsequently identified 23% more savings than their peers. It can’t surprise, therefore, that spend analysis achieved a score of 3.51 on a scale of 1 to 5 as the second most important area for performance improvement, beaten only by interdepartmental collaboration with 3.57.

In part II of this blog I will outline 9 steps which, according to the Aberdeen Group study, will help transform underperforming procurement teams.

In its recently published survey ‘Managing in a Downturn: Responding to life after the Comprehensive Spending Review’, PricewaterhouseCoopers, the Charity Finance Directors’ Group and the Institute of Fundraising establish that the impact of the economic downturn is likely to affect the third sector for the foreseeable future, with 78% of respondents indicating that they expect to be negatively affected by the CSR while a further 11% of participants are unsure of its impact. At the same time, 39% of charities report an increase in the level of demand for their services since the start of the economic downturn, while 56% of respondents expect a rise in their costs over the coming year, with half of these organisations expecting such a hike to be in the region of 2% to 6%. And as one third of charities expect the VAT increase to have a ‘major’ or ‘significant’ impact on their finances, one cannot help wondering whether the third sector is facing a perfect storm.

On a positive note, however, the sector is aware of the looming threats and is taking action: The survey revealed that 83% of participating organisations plan to increase their fundraising activities to address the reduction in available public funding, while 40.4% state that they will cut back on services with a similar percentage (38.3%) advising of looming redundancies.

But more fund raising activities come at an additional cost for extra marketing and third party fulfilment services, irrespective of how much additional funding can be generated. At the same time, private donors in particular will also have to cope with increased costs for Utilities and VAT, making 2011 a challenging year for many households. A reduction in service levels provided, on the other hand, will potentially damage a charity’s image within its community, as will redundancies. The authors of the survey, therefore, quite rightly state: We would encourage those charities expecting an increase to review critically their cost base to understand whether further savings can be made if necessary.

Many charities may think that, if they are part of a buying group, they may be getting value for money. Unfortunately, with spend profiles often very different even between similar organisations, there is no guarantee that a bulk deal will offer best value for money to each and every single one of its participants. And while some trustees may find comfort in the thought that their deal, if not better, certainly is not worse than what other members get, many Finance Directors will quite possibly find in coming months that this is no longer enough to stabilise their charitable trusts’ finances.

There are a number of ways for charities to lower their costs: Shared service agreements with other charities may make sense under certain circumstances, as will proactive benchmarking and supplier negotiations. The drawback, however, is that both of them require a high degree of supply market expertise and staff time.  While your own team may be apt at negotiating general and low value supplies such as office consumables, your in-house capabilities may be stretched when it comes to re-negotiate your vehicle leases, your insurance deals or, for charities which accept donations over the phone or online, the most competitive merchant card deals. Suppliers will very quickly establish whether their clients have the necessary supply market knowledge to drive a good bargain. And in most spend categories there exist well practised smoke and mirror techniques, which may make a rather uncompetitive deal look very compelling to the untrained eye. Equally, with demand for services on the up, existing staff will have to deliver more as far as the provision and administration of core services are concerned – leaving them with less time to benchmark costs and service levels as well as conduct supplier negotiations and tenders.

Help is at hand in the form of Expense Reduction Analysts’ supply market knowledge and contacts, aggregate negotiating influence and category experts. Moreover, our work does not stop with the initial contract negotiations, but we will make our detailed market intelligence available to your staff over the full period of our engagement, making sure that your organisation benefits from value for money not only now but at all times. While more fund raising activities are likely to result in an increase in marketing and fulfilment expenditure, did you know, for example, that you are probably paying over the odds for your marketing deliverables if you let the creative agency select the printer? And how do you measure that the fulfilment house is charging you a fair rate?

Our detailed benchmarking, negotiating and auditing process will satisfy your trustees as well as your providers of statutory funding that you are obtaining best value for money for the financial support secured. We offer a number of cost effective solutions to charities and would be happy to discuss your needs with you in more detail.

(For more frequent cost reduction and procurement advice follow me – FrankMWeber – on Twitter)

There is widespread evidence that most of the major merchant acquirers are imposing – or trying to impose – price increases across great swathes of their customer bases. The reasons given to justify the hikes are real enough, with the acquirers facing external cost increases that I will discuss below, but Expense Reduction Analysts banking Team commonly find:-

i.            That the new tariffs often represent more than cost increases being passed on, with acquirers – and I am being diplomatic here – putting a “spin” on their explanation that disguises increases in their margin.

ii.            Increases apparently imposed without any specific notice at all, with claims that “a standard letter was issued” or the increase was detailed in a statement message. (Who, in a position of authority in any business of any scale reads statement messages from acquirers?)

iii.            Justifications alluding to cost increases that occurred before a particular tariff was agreed.

I mentioned that the reasons for the increases are real enough. In a bit more detail these include:-

1. The two major card branding schemes (Visa and MasterCard) are both increasing the underlying cost to acquirers of secure mail-order/telephony transactions. The scale of these increases is staggering and varies between 44% and 69%. This level of imposed increase represents a step change in the acquirer’s costs of these transactions and in many cases mean that they would be facing losses on them. The increases kick in next Spring but – in the scheme of things – one can understand pricing impacts for businesses being negotiated or advised right now.
2. Many credit card issuers are upgrading standard accounts to premium accounts (such as MasterCard World) at renewal. Acquirers face a significantly higher interchange cost from the schemes for processing these types of card. Tariffs often incorporate a single fixed price for “credit cards” and – given the increasing proportion of premium account holders within the transaction mix – acquirers will at best be facing diminishing margins unless they adjust.
3. Some acquirers have very sophisticated back office systems which allow them to differentiate between secure and none-secure cardholder not present transactions (where “secure” means correct application of either 3-digit signature strip protection for mail-order/telephony or the password-based 3D Secure system for e-commerce transactions). Some cannot differentiate. The penalty costs faced by the acquirers (for non-compliant transactions processed by their merchants) are hefty and increasing.

So, in our projects what do we do about these increases if they are “justified”? After all I do concede that underlying pressure on acquirers is being caused by external elements and they could even be facing potentially unsustainable losses on some transactions.

-          The first part of the answer – at its simplest – is to ensure that the reasons given are actually justified. Negotiated tariffs/margins are negotiated tariffs/margins in my book and cost features in existence at the time of (or prior to) negotiations cannot be used to justify subsequent unit price increases. And because, whether we like it or not, card acquiring is a numbers game, mistakes like that do creep in. I ought to add here, in the interests of fairness to the professionals I deal with in the acquirers, instances like this are swiftly apologised for and corrected.

-          Secondly it’s about making sure that the impact of the increases is limited to no more than passing on the cost changes that the acquirers themselves face. I cannot add an “in fairness” comment here because my experience is that a rise in external costs is often used to mask margin increases. That is the case now in many of the standard tariff increase letters that I have seen and that I am robustly challenging.

-          Thirdly, if an increase is unjustified and – really critically – results in a client facing tariffs that become uncompetitive, we will recommend the activity is tendered. Card acquiring remains a very competitive industry and whilst that should be a last resort, it is actually often straightforward.

The above actions really do rely upon detailed analysis, modelling and current market knowledge both to assess their potential value, but also crucially, to negotiate the optimum outcome. For example I mentioned a rise of 44% to 69% in acquirers’ own major external costs for transactions processed via mail order or telephone. This does not mean a 44% to 69% increase in retailer’s tariffs is justified as that is precisely the way that margins are unfairly increased at times like these. Our aim is to ensure that the actual cost….and no more….is passed on.

Virtually every business that accepts cards will already have received – or will receive over the next few months – an increase in their card processing costs….whether advised or unadvised. And if they don’t, I would suggest that they are already paying too much as otherwise it is hard to see how the acquirer can absorb their “hit” without comment!

In many businesses and organisations strategic costs are controlled by procurement professionals in a purchasing or buying department. But who buys the non-strategic services and products – the overheads?

In our experience, except in the largest companies, these are either bought by the accounts or purchasing departments or farmed out to relevant service departments. If the latter, while these individuals may well be providing a great service, are they always getting the best value?

Ever heard the statement “This isn’t about cost”? Well no it isn’t. But it ought always to be about value – the balance between product and/or service quality and cost.

Take the example of a typical IT department that is responsible for both specifying and buying IT equipment and support. Does the department include or have a link to a professional purchasing executive within the organisation? If not, how can they be expected to achieve best value?

And if the supply is being bought by accountants or procurement executives do they have genuine expertise in all significant areas of cost. Probably not. Nor is it likely to be commercially viable to go out and recruit such purchasing experts.

That’s the biggest reason why by deploying category experts on behalf of our clients Expense Reduction Analysts are able to achieve an average saving across all categories of 19.7%; and often in areas where the category of expense has already been reviewed internally.

It’s not that internal managers are not doing a good job, it’s just that either procurement isn’t their main function or if it is, they lack the expertise in the particular cost category.

Walther Electrics Ltd is an industry leader in the manufacture of industrial plugs and sockets. It, like most companies, operates in a competitive market place and as a result it needs to keep its overheads under tight control. As with most well-run companies it thought that this was being achieved. But rather than sit on their laurels, the staff decided to confirm whether their view was correct.

Following a visit from Neil Cullen of Expense Reduction Analysts they decided that they had an ideal opportunity to use some additional expertise. This assistance was offered on a risk-free basis. Expense Reduction Analysts applied its process review to the major overhead costs of F. Walther Electrics Ltd and established that it was achieving market value in all areas except one.

To maximise its own expertise the company sub-contracted injection moldings. But this was one category where attempts to reduce costs had not been successful in the past. Neil used the expertise of Vic Lavender from within Expense Reduction Analysts to conduct a review of the sub-contract operation. An analysis took place of all the sub-contract costs and profitability of the sub-contract company. It was established that the prices being charged for some of the moldings were above market rates. As a result of this analysis and subsequent negotiations the cost of injection moldings was reduced.

Robert Pasterfield, the Managing Director, was delighted by the result and stated, “I was impressed by the attention to detail and standard of reports, and general customer care shown by Neil and Vic.” Prior to Robert being promoted, the previous Managing Director Mr. Elwyn Williams, had commented to Neil and Vic that, “You are the most professional analysts I have been involved with in my career.”