By Sean Fox, Executive Vice President at SIB Fixed Cost Reduction
Inflation continues to affect the economy, and warning signs of a possible recession persist. No matter what financial storms 2023 brings, one thing is certain: Forward-thinking CFOs will examine every area of spend to find cost reduction opportunities. In a Grant Thornton survey, 58% of CFOs say cost optimization is their biggest concern this year. Learn how to mitigate inflation and recession risk with four cost optimization priorities.
A proactive approach to cost reduction can conserve capital and help avoid painful layoffs. But with so many vendor relationships to examine and other priorities competing for your attention, an in-house approach to cost optimization isn’t always practical.
From payroll processing and property taxes to maintenance contracts, shipping, and utilities, chances are you use a variety of vendors for different services and locations. You lack the detailed data needed to determine how your rates compare with your competition’s. We staff our organization with team members who have both data and deep expertise in specific spend categories. This allows them to identify, quantify, and secure the cost reduction opportunities that you and your team may not have the time or resources to achieve.
The 4 Pillars of Cost Reduction
Whether you’re considering outsourcing cost reduction or attempting to do it yourself, there are four key steps to success.
- Contract compliance. Are you receiving the services—and paying the rates—specified in your contract? Regularly scrutinizing bills in line-item detail typically reveals overcharges, errors, and excess fees. Even small amounts quickly add up when spread across your entire organization month after month.
- Right-sizing services. Once overcharges have been ferreted out, it’s time to examine your service level agreements (SLAs). Are you getting the appropriate level of service for your needs? Insufficient service levels negatively affect business operations and profitability. Conversely, paying for redundant or unnecessary services leaves money on the table.
- Contract optimization. When the service levels you need have been established, the next step is negotiating more favorable pricing. Negotiation offers the biggest potential for savings. Armed with the right data, getting best-in-class pricing is possible without changing vendors or negatively impacting services.
- Ongoing vigilance. After negotiating new contracts, maintaining your hard-won cost reductions requires continual vigilance. This includes examining invoices for accurate pricing and contracts for compliance. It also means keeping abreast of new vendors, new developments, and new savings opportunities to ensure you’re still getting the best value for the service.
Start Saving While You Focus on Other Critical Initiatives
You likely don’t have the internal resources to regularly comb through invoices, make sure services are right-sized, and monitor trends in each vendor’s industry to identify new savings opportunities. Most crucially, you lack the data needed to successfully negotiate best-in-class pricing.
An experienced partner can accomplish all these tasks quickly and efficiently, reducing costs rapidly while freeing up your internal team to focus on more pressing work.
To find the best cost reduction partner for your needs, look for the following qualities:
- Objectivity. Many third-party consultants don’t offer truly impartial advice because they receive incentives from vendors or broker a vendor’s services. Look for a company that makes its money from the savings they find for you—not from persuading you to change to their preferred vendors.
- Expertise. Finding the low-hanging fruit in your company’s spend is easy; you’ve probably already found it yourself. A company with both broad and deep expertise in a wide range of spend categories can take savings to the next level. Experts with backgrounds in relevant spend areas, such as IT, telecom, and energy, can go beyond the obvious to find hidden savings opportunities others overlook.
- In-house resources. Some third parties outsource everything to other companies, resulting in inconsistent quality. Look for a partner that has its own in-house expertise and proprietary technology and puts them to work on your behalf.
In an uncertain economy, reducing fixed costs can give your organization the edge you need to wait out financial storms. The right partner can lower your costs by 20% to 40% in most expense categories without switching vendors or affecting services. An experienced partner that acts as an extension of your company can go beyond cost savings to help you find the right balance of service and value.
How to Get Started?
Ask SIB to conduct an initial scoping analysis using our comprehensive benchmarking data to identify vendors and spend categories for targeted cost reduction. There is no cost or risk to you because only one of two outcomes will occur—either meaningful savings are identified, and fees are self-funded from the savings, or if your costs are already optimized, giving you peace of mind from an objective resource.
Simply provide SIB with a vendor transaction report, and we can provide a quantified savings estimate with prioritized focus areas and a go-forward recommendation to maximize savings for your organization.
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