Table of Contents:
- Control the Cost Gate!
- Maximise Home Working
- Managing Human Resources
- Create Working Environment
- Decide, Implement, Monitor
- Change the Culture
We would like to share with you 7 key steps, from which you can create your own “new normal” in the coming weeks and months ahead.
So, what do we mean, “It’s time to define your new normal”? Since March this year, the shape and very core of most UK businesses have changed at a speed, and in ways, no one ever thought possible. We are all in uncharted waters.
Whilst that change has caused heartache and difficulties for many, we believe now is the time for you to take back control of your own destiny, define what is your own “new normal” and adopt an opportunity mindset as we come out the other side of lockdown. Why should your business just aspire to return to the way things were, if in fact things can be so much better in a new form of normal for you? Who says you cannot define what this new normal looks like?
In the following white paper, we want to talk about how, with a different approach to cost control, you can harness some of the current market disruption to maximise your own success.
Why is taking a new approach to cost control so important right now? Well, it’s simple. The events of the last few months will have caused many businesses to cut significant costs out of the organisation. In some cases, this would have been overnight with the closure of offices, introduction of home working, suspension of supply agreements and furloughing of staff.
We would argue that as we gradually return to the new business world, now is the time to be extremely vigilant about the costs you allow back into the business and how you control those that you do allow back in.
Every £1,000 you can keep from coming back into your business as a cost, could represent the same value as ten thousand pounds in sales revenue. More if your net profit margin is less than 10%.
Moreover, the money saved from every cost you keep from coming back into your business, could be redirected to additional marketing at a time when gaining market share has never been so opportune.
These same savings can also quickly rebuild cash reserves, strengthen balance sheets and/or satisfy investors. It is also prudent to be discussing this now as right now “no cost is sacred” in the management of your organisation.
For all those reasons and more, we look forward to sharing our top 7 Cost Considerations in this white paper.
Control the Cost Gate!
First, Control the Cost Gate! We have spoken to thousands of UK businesses over the past 2 decades and almost everyone would have said that cutting real costs out of their business is VERY hard to do.
Every possible stakeholder in the organisation defends their own cost base and often it is less risky for the executive to keep some cost in rather than risk the unknown impact of not having the functions that cost provides. The only time, if ever, that this traditionally gets challenged is if there is a change in executive leadership with a new vision.
The lockdown, however, forced all of us to throw that idea out the window. Costs, departments, supplier spends, and staffing were challenged and cut overnight, with millions of pounds stripped from budgets.
The real key now is ‘Controlling the Cost Gate’ as many of the historic costs try to creep back into the business as lockdown is gradually lifted. Some of the questions you should be asking are:
- What approval processes are needed for old costs to re-enter the organisation?
- Can you place some simple but effective barriers to entry for some of these costs?
- Are all these costs essential?
- What can you do without?
- What haven’t you missed in the last 2 months?
- What is possibly working as well if not better than it used to?
These are just a few of the questions you could be asking your teams as they prepare for the lifting of the current restraints. It is also important that all your teams understand this message and the importance of it.
We would suggest that in the first instance a memo or message of some form should be sent out to all your key people explaining the importance of Controlling the Cost Gate and the new culture you want to adopt. Ideally, this message should be signed off by the most senior person possible, your MD or CEO, to ensure all your people understand the seriousness of the message and your commitment to ‘Controlling the Cost Gate’ and defining your own new normal.
Maximise Home Working
The new normal of home working has been effective for many organisations. If it has worked for you, in whole or in part, can it be continued? Can you use this singular event to reshape the structure of your organisation?
There are the obvious benefits from a remote workforce, which include:
- Real estate needs are significantly reduced when only a handful of core staff need to be on site. One of our clients told us that they expect to reduce floor space by over 30% as soon as his current lease expires in 18 months’ time. A move that for him will add up to over £100,000 per year extra to invest in marketing.
- Remote working employees also reduces the costs related to computers, phones, electricity, heating, and air conditioning and other necessities that keep an office operating. There are clear financial benefits that come with employees working from home. In fact, according to Global Workplace Analytics, employers can save over £8,000 per employee per year by adopting remote working.
- You also need to consider commuting. Many workers spend half a day a week commuting to and from work. Some of that lost time can be spent on work-related projects.
- With geographic office location no longer being a criteria for applicants, you will get a larger pool of talent to recruit from. This will allow you to build an even stronger organisation.
However, there are some drawbacks to consider around homeworking. It is not for everyone. Do not forget to ask yourself:
- Have you got the right culture to suit remote working?
- What are the hidden costs associated with remote workers?
- Have you optimised mobile phone and data contracts to suit business needs in remote working?
- You will need to review IT kit and technology to better empower remote working, consider the impact on expenses claiming processes and/or even the cost to upgrade of video conferencing kit for your teams in their remote environments.
Nevertheless, if homeworking does work, even for just say 30% of your team, there is no better time than now to reshape your organisation and define your own “new normal”.
Managing Human Resources
Managing your human resources and being prepared for the end of the government furlough scheme will be essential. While it is hard to forecast if the scheme will be extended in some form beyond October, what we can say for certain is that it will end. So be prepared now to define your new normal in the area of human resources.
Take the hard choices on who you can afford to bring back and who you cannot having carefully considered why. Consider the cost implications of both retaining staff but also in not keeping them. If you have decided to let some people go, have you budgeted the real cost of re-employing people if the economy rebounds in just 3 or 6 months.
In the new world being created for organisations, you should also consider if you can be more flexible and efficient by using outsourced resources for different functions or utilising the “gig” economy for resource.
For years we have seen organisations rely heavily on outsourced IT or Marketing functions. Why can’t your new normal see parts of operations, customer service or procurement operate on an outsourced basis, at least until normal service is resumed? The last few months have shown us all the value of a flexibility in uncertain times. But before you do this you should consider both the advantages and disadvantages of a more flexible workforce.
- Access to more expertise when you need it
- Cost savings, if organised correctly
- Flexibility in changing times
- Efforts are more targeted, with clear responsibilities and objectives
However, it is not right for everyone or every function in your organisation. Some disadvantages include:
- Risk of quality control
- Hidden costs
- Misalignment with your organisation’s core values
- Lack of control
It is therefore important to consider these factors and open your mind to new ideas and ways of working which might be different to “the way we’ve always done it” in your organisation or industry. It is those who are the most open-minded and nimble in the coming years who will prosper the most in these changing times.
Create Working Environment
What will the new working environment look like? Given that many organisations will still need a core of people in an office, factory, or service environment to operate, this new working environment needs careful consideration.
The Health and Safety at Work Act 1974 requires you as an employer to take all reasonably practical steps to ensure the health, safety and welfare of your workers. There are also a whole host of other legislative obligations that you will need to consider, but given the moving nature of this crisis you have probably tackled many of the obvious issues regarding bringing the workforce back now or in the weeks ahead.
Minimising the cost impact of the new working environment and again taking the opportunity to redefine your own new normal. We have already discussed the steps to keep as many people remote working as possible but for those who must come back, think about the following:
Firstly, Sourcing PPE for your employees – It could be that you, like many others, have never had the need for this type of PPE before. Do you have any experience in your team to help with the buying decisions? Are you or your team able to judge “best value” when it comes to alternate types of face masks, hand gels or wipes? It is vital in the purchasing of PPE, like many other cost areas, to recognise and understand that lowest cost does not always mean best value. You need to understand the price versus quality balance. Cheapest is most definitely not always best in PPE. If an item is 30% cheaper but only lasts half as long, then its real cost to you is in fact 40% higher. Simple calculation’s really but nevertheless an important consideration in the sourcing of PPE.
Consider the continuity of supply – Many supply companies are jumping on the PPE band wagon as we return to work. However, have they all got their own robust supply chains in order to ensure quality control and uninterrupted supply? Our own sourcing experts in this area are forecasting ample production hitting the supply chain in coming months as many more production units come online, so the advice for now would be to avoid long term price commitments at current rates as there could be some downwards movement in this market as competition returns.
Staggered working hours – A great solution being supported by many public transport bodies is staggered working hours. This is good in theory, but do not forget to consider the increased operating costs of running your premises for the extended hours. Also, consider what policies might be needed to ensure a 50% increase in opening hours does not lead to a 50% increase in operating costs. It does not have to, you just need to ensure you work smart, plan in advance and set the right policies.
Finally, think about new ways of conducting business – in other words video conferencing – It may have been forced by necessity, but we must accept that many more people are now embracing video conferencing as an acceptable way of doing business. Have we passed the tipping point of this being the new normal? Is now the time to hold on to as much of that new way of doing business as possible? Redefine how your sales and operations function to create your new normal. How much could you save on travel and expense budgets for the various departments if even just 50% of previous fieldwork was conducted remotely? Now is definitely the time to challenge your old ways of doing things and see if you can disrupt the way your industry works.
Review & Simplify Supplier Base
Now that you have much better insights into your new requirements and a clearer picture of what your new normal looks like, you are in a great position to re-evaluate all your current and future supplier arrangements. You will likely see how you can restructure most of your current Supplier Relationships for better value to your organisation.
Take the time to understand how your changing supply needs have/will affect buying habits and service needs. For example, we looked at this for one client recently and it turned out that a large number of historic suppliers were just not geared for regional or residential level of distribution. Yet with the remote working model they are now looking to maintain and support, regional distribution of supplies was exactly what they needed. We are now working closely with a number of those suppliers to help them solve their distribution models to in turn meet our client’s needs. So, remember, historically you probably selected most of your current suppliers on very different criteria than you may need today.
Be prepared to innovate with supplier solutions.
For example: We had a client who had specific pre-printed templates that their remote working
staff needed to use and that was produced on
specialised paper, so it could not be printed at home. The supplier was going to need to add almost £6 per employee to distribute the paper to remote workers rather than just dropping one pallet
to the head office as they traditionally had done. It represented close to 300% increase in the total cost of supply for that particular line.
With a small amount of innovation we were able to strike a deal with the company’s stationery supplier, who already had a national delivery chain of vans supplying the employees at home, that in exchange
for a longer-term supply agreement on stationery they would take delivery of the pallet of paper
product in their warehouse and include it in their deliveries free of charge. It is a good example of defining what your new normal looks like.
For your own risk management, it is also vital that you re-check all your supplier financial status post CV-19. The interruption of a seemingly innocuous supply chain could have a direct impact on your end product or customer experience.
This review should be prioritised based on answers to these questions:
- Is the category total value important in the company’s total spending?
- Do our end customers perceive that this category adds significant value?
- Does the spend differentiate the end product significantly?
- Would a failure affect the client’s customer satisfaction?
If your answers are yes to one or more of these, then you need to focus on the security of your supply chain. Also remember the suppliers will be more wary of you in the same way you will be of new customers. Most suppliers will do a review and consider your credit ratings before bidding. A poor credit score can result in the supplier adding margin to cover credit risk. Be prepared to address this in advance and make your organisation as attractive as possible to the market.
Right, now it’s time to go to market.
We all know the saying “it’s about being in the right place at the right time”. Well now is the right time to go to market. Most supply markets and industries have been impacted by the last 2 months. For many forward-thinking organisations, this represents opportunity. Suppliers with larger cash reserves will be investing heavily in marketing to gain market share. Another approach to gain market share is to buy it! That means better value for you if you can find those suppliers. Make sure you identify the right suppliers and go to market when the time is right, which for many is NOW!
Understand, this does not make it a forgone conclusion that you will change suppliers. In fact, it’s most likely you will not be changing suppliers, because in our experience if one supplier in the market begins to change pricing models, in an attempt to buy market share, many others follow. This means you can end up with the same suppliers but with a much better arrangement.
When you go to market, remember:
Reset your requirements given the new normal, the more accurate you can be about your requirements, the more specific the supplier can be with their bids. 50% of good procurement is about good data. The more specific you can be with your needs and requirements, the more exacting the supplier can be with their bids.
For example, if you ask a decorator to paint a room then sent them away to give you a price, every unknown the decorator faced when building the quote would need them to add margin to cover it. Do they quote for one coat or two? Better quote 2 just in case. The area looked about 900 square metres, better quote on 1,000 just in case. And so forth. On the other hand, if you told that decorator the exact square meterage, type of paint required, quality expected, hours of access and payment terms, then with all these unknowns removed in the bidding process, the price you receive will be much more exact and better value for what you
- In the current climate, be prepared to sacrifice some saving potential in exchange for a more flexible contract given some of the unknowns we still have ahead us.
- Try, when you can, to separate the negotiator from the relationship holder in the longer term. It is a simple good cop bad cop routine, but it is important for the protection of effective supplier relationships management in the long term.
- Finally, knowing what pricing and contracting options are possible in the market will always strengthen your position and makes acceptance of a deal so much easier when you can benchmark against what others are paying. So, make time to gain this insight if you can.
Decide, Implement, Monitor
This stage is about execution and monitoring, and this is another practice that is a critical contributor in finding and maintaining extra cash flow in your organisation.
- First of all, implement as soon as you can, because this un-recovered cash flow is really the same as a cash leak in your business and no one should accept that.
- There will be many legitimate, innocent mistakes that will be made on both sides in implementing the new contracts, especially when there may also be new processes and procedures involved. Therefore, you should be ready to monitor all invoices for an extended period of time, and be sure all your rebates, incentives, and credits are being applied correctly. We have seen millions of pounds of unclaimed rebates or discounts left behind because no-one in the organisation was properly monitoring the supply contract. In fact, in approximately 1 in every 3 reviews we do of copier contracts we find errors which result in rebates from misapplied contracts.
- If you have retendered in the market, keep a close eye on price creep as the new supplier beds in over the first 6 months. It is not unusual for some suppliers to bid for work at one rate with a predetermined set of tactics ready to roll out over the next few months to gain back margin through price creep, up-selling, off-contract items or out of scope requests.
- You have to constantly monitor your own requirements as well and ensure you are correctly matched to the right suppliers to meet your changing needs.
- Finally, keep in mind that your business and industry is always changing, and it is the same for your suppliers. Always continue to optimise your supplier arrangements over time and keep a close eye on the supplier’s own financial performance coming out of this crisis.
Change the Culture
The final step of this process is to consider your culture or attitude to managing costs within the organisation. We find that the best short and long-term results come from embedding a real cost control mindset into the organisational culture. Following this pathway also helps reshape your organisation and encourages your teams to define their own “new normal”.
Here are some things to consider in ensuring that cost control has its proper place in your culture:
- First of all, make sure it really is an embedded mindset and that all policies reflect it. We mentioned earlier that communications about the changing mindset to controlling the cost gate should come from the most senior person possible. This helps to show everyone how seriously the organisation is taking the concept.
- Do your employees know that no cost is sacred, particularly in this new world?
- Do your people spend company money like it is their own?
- Do they understand the real impact of a pound saved?
- Do they understand that £1,000 saved at your margins is the equivalent of many more pounds in revenue? As we highlighted previously, £1,000 saved through controlling the cost gate could easily be equal to £10,000 in sales.
- Finally, while we are in this unprecedented period of change and as you work to redefining your new normal, could you now reward
your people for saving in the same way organisations have rewarded sales for years with performance incentives? Now is as good a time as any to look at such radical changes as we redefine our own new normal!