niba conference november 2010

NIBANovember 18, 2010

Jim AgnewRichard Ungaro

“Increasing the Value of Your Business”

Cost Management Impact on Business ValueCost Management Impact on Business Value

Barriers and Challenges to Cost ManagementBarriers and Challenges to Cost Management

Best PracticesBest Practices

Actions & OutcomesActions & Outcomes

Options for Increasing Value for Your BusinessOptions for Increasing Value for Your Business

Objectives

Questions Questions

The Current Economic ClimateThe Current Economic Climate

Jim Agnew• 20 years Sales / Sales Management

–Packaging Supplies & Equipment–Maintenance & Janitorial Supplies–Institutional Food Products–Product Development / Marketing–Private Label marketing Strategies

• 10 years Logistics / Distribution–Operations Management–Fleet / Transportation Management–Warehouse layout / design–Employee Productivity / Process Improvement–Third Party Logistics–Customer Service–Procurement Methods and Strategies

Alco Standard Corp

http://www.gp.com/newsroom/newsReleases/news.asp?NewsID=8770

http://www.meadonline.com/Home.aspx

http://www.xpedx.com/

http://www.unisourcelink.com/

http://www.armstrong.com/

Rich Ungaro

An extensive 40-year career as a Senior Executive with a special focus on business turnarounds, differentiating brands and exponential growth.






Objectives

Questions Questions


• Increasing regulation• Increasing taxes• National Healthcare• Financial Reforms• Value of the U.S.

Dollar• Global Competition• New Technologies

Lots of Uncertainty

• Current economic conditions present challenges for most companies.

• Sales increases are difficult for many companies.

• Rules for institutional lending are tighter

• CASH IS KING – External & Internal

• YOUR competition is keeping all expenses as low as possible

The Pressure is ON






Objectives

Questions Questions


• New Profitable Products• New Profitable Markets• More Profitable Sales• Build Advocates in Customers• More New Customers

External fundingExternal funding

Increasing SalesIncreasing Sales

Reduce ExpensesReduce Expenses

“How to Manage Your Business in a Recession”

5% price cut = 19%+ sales increase to recover lost revenue

•Staffing changes•Core expense renegotiations•Non-core cost reductions

• Investors

Traditional Options

Mary Crawford

I changed the last 3 bullets here again.

10

“Grant me • The ability to accept the

things that I can’t change• The courage to change

the things that I can, • And the Wisdom to know

the difference”

What Do We Control?

What is it that we can change?What actions do we control?What will have the least external impact?

• New Profitable Products• New Profitable Markets• More Profitable Sales• Build Advocates in Customers• More New Customers

External fundingExternal funding

Increasing SalesIncreasing Sales

Reduce ExpensesReduce Expenses

“How to Manage Your Business in a Recession”

5% price cut = 19%+ sales increase to recover lost revenue

•Staffing changes•Core expense renegotiations•Non-core cost reductions

• Investors

Traditional Options

Expense management is the most directly controlled option for adding value to a business without external impact.

Mary Crawford

I changed the last 3 bullets here again.

CFOs Recognize the Value…

67% Believe managing indirect expenses is an

important component of business improvement

Said “lowering costs from suppliers” is one of

their biggest challenges in expense management

Lack aggregated data to negotiate with

Suppliers

Believe they are not getting the best

prices

Source: CFO Magazine

50%

59%

78%

CFO White Paper

CFO Research Services – within CFO Publishing Corporation – publishes CFO magazine. Surveyed more than 200 senior finance executive from nearly every industry.

• Profitability comes through cost management

• Cost reductions can keep organizations fully funded and critical employees on payroll

• Companies commit more resources

to managing direct costs than

indirect costs

CFO White Paper

… The Value of Cost Management






Objectives

Questions Questions


Column1

Current20% CostReduction

IncreaseSales

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

20% cost reduction or 40% increase in sales revenue both yield a 40% increase in Net Profit

Internal Funding Options

Which is more likely to happen in your business?

Overhead Costs Rarely Get Much Respect

Direct Costs35%

Overhead Costs20%

Profit10%

Payroll Related Costs35%

Senior Mgmt has no timeto focus on Overhead Costs

In addition to Revenue, these are the primary focus of costs

Which Are More Important?

Logistics• Small Package Freight• Domestic Freight• International Freight

Insurance• General/Worker’s Comp• Health

Services• Equipment Maintenance• Janitorial Services• Payroll Processing• Printing • Records Management• Temporary Labor• Uniforms• Waste Management

Supplies• Chemical• Cleaning• Food Services• Lab and Medical• MRO/Factory Consumables• Packaging and Shipping• Printing• Stationery and Office

Telecommunications • Data• Mobile

• Voice

Merchant Card Fees

Leasing

Overhead Expenses






Objectives

Questions Questions


What prevents Companies from moving forward with Profit Improvement Plans?

Barriers Reasons

Management assumes it is being done

Consumed with other tasksMay not have expertise

Don’t spend enough to warrant effort

May have advantage in re-categorization of expenses

Success in primary cost containment or previous results

Strong negotiation skills and consistent reductions as a result

Time/budget Business goals, ancillary costs less important,under-manning

Loss of perceived leverage Believe long time relationship/volume produces advantage

Don’t know how to start Lack of understanding of expense market

Barriers

Staff and Management has limited time to address

non-strategic costs

Employees with limited purchasing experience makethe buying decisions

No benchmark data

No time to monitor

Believing suppliers arelooking out for their

best interests

Five companies with same supplier don’t get the same price

Title

Believe their doing an excellent job of cost control on their own

Level playing field between buyer &supplier is a misnomer

Multiple suppliersMultiple order points

ExpenseManagementChallenges

Supplier loyalty doesn’t equate to

best price or service

Challenges of Expense Control

21

Procurement

Experience

CategoryKnowledge Supplier

Insights

Analytical SkillsMarket

Benchmark Data Political Skills

Effective Cost Management Requires Multiple Skills

Time, Experience, Data






Objectives

Questions Questions


Low

-

Savin

gs P

ote

nti

al -

H

igh

Low - Time/Effort/Expertise Required - High

Higher returnCore expertisePrimary focus

Do internally? Outsource?

Lower returnRequires high effort/expertise

Alternatives

Understand

components of

the expense

area(s)

Understand

components of

the expense

area(s)Eliminate

Paper

Simple Suggestions to Improve Expense Control

Understand

expense

benchmarksUnderstand

expense

benchmarks

Audit current bills

Audit current bills

Audit your procurement practices for

effectiveness

Audit your procurement practices for

effectiveness

replace some

face-to-face

with on-line

meetings

Use on-line booking

services for

travel

Examine Employee

Benefit plans

See if suppliers

offer Marketing

Coop funds

See if suppliers

offer Marketing

Coop funds

Take quick action on customer payment habits that change

negatively.

Take quick action on customer payment habits that change

negatively.

Identify target areas and maintain focus

Identify target areas and maintain focus

Good Quantify spends

Monitor quality and service levels

Obtain revised pricing from current vendors on a regular basis

Great Categorize spends

Identify usage patterns

Update requirements based on current spends

Identify competitive offerings from new suppliers

Include multiple suppliers for RFP process

Share purchasing data with suppliers

Exceptional Understand supplier’s pricing

strategy for spend category

Compare supplier pricing to current, industry benchmark pricing

Weight solutions of each supplier based on criteria set internally

Defined procurement process designed to minimize staff time

Audit monthly spend to ensure contract compliance

Manage stakeholder buy-in

Repeat as required

Procurement Best Practices

Effective Cost Management Strategy

• Cost Management is on-going

• Complacency = lost revenue – eliminate it

• Over-confidence = lost revenue – prevent it

• Cost reduction efforts should NEVER be visible to your customer.

• Cost reduction should NEVER make your sales go down.

• Prioritize cost reduction based on the potential impact. – Never walk over dollars to pick up pennies.

• Ask your employees for suggestions and reward them!

• Ask your suppliers and vendors for suggestions

• Compare to others in the industry

• Monitor and stay alert

Best Practices






Objectives

Questions Questions


Do internally?

Outsource?

Decide on a Strategy

TimeAbilityStaffing needsOther tasks Cost

ExperienceImplementation Plan

• Effective cost management is a cultural activity•No person or activity is exempt or excluded

• Adopt a Drip Culture within the business..• Tend to every “leak” immediately• Across all business units and departments• Establish expectations and objectives• Monitor activities and results• Check, check, and check again

Adopt A “Drip” Culture

Outsource -What to Expect

• Deep category expertise and experience

• Access to aggregated benchmark costs and pricing

• Delivered success• Faster completion• Faster realized savings• Implementation support• Ongoing auditing for verified results

• Fund internal growth

• Build new products

• Retain good employees

• Buy additional equipment

• Pay down loans

• Buy a yacht

• ???????

What would you do with the hidden profit

in your business?

What would you do with the hidden profit

in your business?

Results Provide Choices

“There is no cost higher than the cost of doing nothing”

32

Inaction is Expensive

Questions???

niba conference november 2010

Documents

value of cost management

cost management impact

business value barriers

increasing value

business turnarounds

business objectives

overhead costs

labor costs