finding extra profit with era

Turning Overhead Expenses…into Profits

Eb Schmidt, Senior ConsultantExpense Reduction Analysts(413)441-5718

[email protected]

2Copyright Expense Reduction Analysts 2008

The World is Flat…. The Pressure is ON!

World forces are driving prices lower

Customers commoditizing ALL products

YOUR competition is keeping ALL expenses as low as possible to gain pricing advantage

WHAT ARE YOUR SAVINGS GOALS??


CFO’s see the challenge …

• 67% of CFOs believe managing indirect expenses is an important strategy for improving their business

• 50% said, “lowering costs from suppliers” is one of their biggest challenges in expense management

• Yet … only 41% of companies use aggregated data to negotiate with suppliers, and 78% believe they are not getting the best prices

Source: CFO Magazine


Trends Within Mid-Sized Companies

Typical firm applies strategic sourcing to only 1/3 of spending

Insufficient sourcing costs U.S. firms $134 billion per year

Source: Aberdeen Group. Tim A. Minahan, "Sourcing in the Mid-Market: The Supply Management Echo Boom". 2006

Lack a formal sourcing or

procurement organization

Uncertain how to begin strategic sourcing initiative

0% 20% 40% 60% 80% 100%

38%

50%


Column1Today 20% Cost

ReductionEquivalentIn Sales

Revenue $ 100 $ 100 $ 140 Direct operating costs $ 35 $ 35 $ 49 Labor costs $ 35 $ 35 $ 49 Non-core indirect costs $ 20 $ 16 $ 28 Net profit $ 10 $ 14 $ 14

After tax (40%) $ 6 $ 8 $ 8 Business Value = 6 P/E $ 36 $ 48 $ 48

Lowering Non-core Costs Can be VERY Profitable…

A 20% cost reduction = 40% increase in Net Profit$4M in expense savings = $40M in revenue


Where We Commonly Find Hidden Profits…

Expense Category Ave Savings

General Business Insurance 21% Freight 18% Office Supplies 35% Small Package Freight 20% Temporary Labor 20% Packaging 21% Merchant Card Fees 33% Factory Consumables 22% Telecommunications 26% Waste Management 29%


Analyze3-4 weeksper category

Recommend4-6 weeksper category

Implementand MonitorOn-going

Complete analysis of your business and requirements

PROCESS: Select and manage supplies and prepare recommendations

Implement solutions, measure and monitor ongoing

Activities: • Define scope• Obtain data• Understand data• Know business requirements

• Look for new Suppliers• Go To Market (RFP)• Analyze the data• Make recommendation

• Negotiate Supply Agreement• Implement recommendation• Monitor immediately and then ongoing every quarter

Process Overview


Best Practices

Analyze the data Know where to apply the discounts

Benchmarking Know what to target

Category knowledge Engage with a subject expert


Best Practices

Match your service to your needs Use the right products/services

Negotiate well Have the “right” person negotiating on

your behalf

Post implementation audit Ensure you are getting the pricing and

your usage matches the profile you negotiated


This Process Yields Predictable Results

Our statistics* show:

Savings in 90% of projects

An average cost savings of 20%

Realize 101% of predicted savings

*Based on over 10,000 Worldwide ERA projects over 14 years


Broad Industry Experience


ERA at a Glance…

International Cost Reduction Consultancy Established in 1992 Global headquarters in London, England U.S. headquarters Carlsbad, CA Operating in over 28 countries 600+ Cost Containment Specialists Over $3B in expense under review $310 mm savings realized Simple Guarantee: No Savings, No Fee!


ERA Compensation

• Half of actual measured savings for 18 months after implementation

• 10% deposit of estimated savings paid upon acceptance and upon implementation

• ERA share equates to 15% of actual savings over 5 years

Bottom line – if you don’t save money, then it costs you nothing!


When you combine industry expertise and knowledge

with best practices you can achieve sustainable cost

reduction and Find The Hidden Profits.

Thank You For The Opportunity.