Global inspection company certifies cost savings of 25%
When Darren Davies joined Inspectorate as UK Country Manager for their Metals and Mineral division in 2008, the economic downturn was just beginning to bite.
Keeping a tight grip on costs was understandably high on his agenda from the outset and, in fact, the company is now spending an average of 25% less across a range of areas. However, the strategy for achieving these savings went far beyond simply driving down suppliers’ costs.
“When I joined Inspectorate,” says Davies, “the world economy was entering a very uncertain phase and I knew that a robust cost management programme would be a vital part of our strategy to ride out the downturn. However, I could also see that it was more complex than simply comparing prices from different suppliers.
“Although we had a great team of people who were tasked with purchasing for the business, procurement was not their main role nor did they necessarily have specific industry or sector expertise in every cost category. We needed a way to identify the missed opportunities which were passing under the radar because we didn’t have the time, resources or expert insight to capture them.”
Inspectorate is one of the world’s leading inspection and testing companies, providing independent testing and certification of commodities through its network of laboratories at key trading locations worldwide. Its expertise spans a range of sectors including oil and petrochemicals, metals and minerals and agriculture.
Before Darren’s arrival, the company had already engaged cost, purchase and supplier management consultants Expense Reduction Analysts to provide advice on some areas of the business in which savings could be made and, although some work had already been undertaken, Darren felt there were many other potential opportunities to be exploited and so set in train a more comprehensive programme.
The first tranche of reviews focused on a range of cost categories including everyday business support services such as contract cleaning, waste management, communications and stationery, but also more operation-critical expenditure such as the supply of industrial gases and specialist laboratory equipment (crucibles, cupels, scorifiers etc).
Says Davies: “The review highlighted a number of improvements but the interesting thing was that they were as much about the way we were managing our procurement as they were about the actual cost of products and services.”
Lead consultant for Expense Reduction Analysts, St John Rowntree explains further: “Strategic cost management reviews are not simply about jettisoning long-standing suppliers in favour of a cheaper deal.
“Although some of the recommendations we implemented for Inspectorate did include a change of supplier, in four of the categories (Laundry, Workwear, Gases and Laboratory Consumables) we were able to uncover significant savings with the incumbent supplier.
“In these cases, through re-engineering the procurement process itself, we were able not only to save Inspectorate money but also negotiate contracts that were better suited to the company‘s actual requirements and/or delivered added value to the relationship.
One example of this process re-engineering was in relation to the invoicing and administration of contracts for the supply of industrial gases. As a result of the changes, the number of individual transactions handled by Inspectorate’s accounts team was significantly reduced, saving valuable man hours as well as lowering the risk of billing inconsistencies or mistakes.
Similarly, Inspectorate’s contract for industrial workwear for its staff was renegotiated with the incumbent supplier, delivering an overall cost saving as well as a brand new set of uniforms as a result of the supplier‘s enthusiasm to maintain and enhance the relationship.
“All too often,” continues Rowntree, “our clients are either unaware of the hidden costs in their organisation or have continued to renew contracts for products and services, which no longer reflect the needs of their business. In both cases, this is normally down to a lack of internal resource or confidence about going to market. Davies agrees: “The work we continue to do with Expense Reduction Analysts has not only introduced us to suppliers and partners we simply would never have met; it has also helped us leverage better deals and improved relationships with our existing suppliers.”
Following its success with the UK operation of Inspectorate, Expense Reduction Analysts has now been introduced to the Australian division of the business where it has commenced review of eight separate cost categories in an organisation with total overheads of $4.5million resulting in savings of over $200,000 on the first two projects.
SUMMARY OF SAVINGS
- Contract cleaning: 19.2%
- Landline communications: 21.1%
- Industrial gases: 17.1%
- Stationery & IT consumables: 32.9%
- Print: 29.2%
- Waste management: 19.3%
- H&S and workwear: 28.1%
- Laundry: 33.8%
- Laboratory consumables: 11.2%
- Crucibles: 15.2%
“The review highlighted a number of improvements but the interesting thing was that they were as much about the way we were managing our procurement as they were about the actual cost of products and services.”