Managing the real cost of business

How cost management consultancy is helping companies to achieve their profit improvement targets.

All organisations have to spend money to do business. Communications, energy, water, waste management, business consumables, finance and insurance are just some of the essential operational overheads every business incurs and without which they cannot function. However, many organisations are paying too much for these services because they don’t have the in-house expertise or knowledge to manage them effectively.

Even companies that are aware of the need to control their costs struggle to achieve meaningful savings because they lack the time and resources to drive cost reduction programmes. In a recent survey, accountants KPMG concluded, “Businesses are under constant pressure to reduce cost, yet many find it hard to do so in a sustainable fashion. Nine out of ten cost reduction programmes fail to achieve their targets, and the gains that are achieved appear to be short-lived.”

Chris Allison, Managing Director of specialist cost and purchase management consultancy, Auditel, believes this is because companies usually focus on the headline prices of their essential overheads, assuming these equate to the total cost. Not so. “Just because a supplier offers you a low price it doesn’t mean you will make meaningful, long-term savings. After all, how do you know if it’s the best price? What if their prices go up next month and you’re tied into a long-term contract? Will they apply minimum charges that push your costs up rather than down? Do you have time to constantly monitor your prices and check your bills? And so on.”

Traditional cost reduction programmes focus on these headline prices and short-term savings, but as Chris Allison points out, this approach overlooks many of the issues that affect the real cost of purchasing business overheads. What’s more, in many organisations, managing costs and making important procurement decisions falls to staff whose core competencies lie elsewhere. By taking staff away from their main roles, however, organisations compromise productivity – another indirect cost of purchase that is rarely taken into consideration.

When the economy is booming, businesses might be tempted to overlook the fact that they’re wasting money but the important relationship between costs and profitability means this attitude isn’t sustainable. Organisations that want to grow need to focus on managing their costs consistently and diligently rather than on one-off savings. This, Chris Allison asserts, is the true function of cost and purchase management.

Of course this requires time and resources, not to mention specialist expertise, which as we’ve already noted many businesses lack. As a result, organisations are increasingly turning to outsourced providers of these services. By so doing, they can access specialist knowledge, mitigate the financial loss of taking key individuals away from their core responsibilities and eliminate the costs of employing in-house resources.

International energy consultants McKinnon and Clarke agree, “Those in the know are already making savings by employing the expertise of organisations that have the experience and time to obtain results.”

Chris Allison concludes, “Our network of franchised consultants are working with over 2,000 clients but too many UK companies are still missing valuable opportunities to improve their profitability. It just doesn’t make sense. Outsourcing specialists like Auditel, means they can really focus on their core business and still put savings back onto their bottom line. It’s a win, win situation.”

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