| As more and more companies race to cut jobs and | | | | vendors has come at the expense of the lack of |
| establish overseas functions in an effort to maintain | | | | knowledge of purchasing department buyers. Few |
| competitive direct cost structures, surprisingly few | | | | buyers receive extensive training in contract |
| have acknowledged the value-adding benefits offered | | | | negotiation, and most purchasing departments fall short |
| by domestic providers whose core competencies | | | | when it comes to tracking and auditing vendor leases |
| focus on the design and implementation of efficient | | | | and services. |
| indirect cost structures. While there is certainly little | | | | 3. Limited purchasing power prevents cost optimization. |
| room for argument that an organization's value chain is | | | | Even many of the largest of organizations do not |
| enhanced through the outsourcing of labor, | | | | receive the volume discounts that could have been |
| manufacturing, sales and other direct activities, the fact | | | | obtained by an expense reduction specialist, whose |
| is that there may be substantially more opportunity for | | | | purchasing power is based on far broader collective |
| adding to the value chain by optimizing administrative | | | | usage. |
| overhead margins. Furthermore, these gains come | | | | The expense reduction solutions available to |
| without the loss of control, decreased effectiveness of | | | | organizations that pursue the outsourcing of |
| communication and other negative implications | | | | administrative cost structure management are real, |
| commonly associated with overseas outsourcing. | | | | hard-dollar savings that deliver bottom line profit results. |
| Outsourcing to an organization whose core | | | | Two examples of documented results include: |
| competency is managing "administrative spend" | | | | |
| (creating lean administrations) can produce what can | | | | 1. A Fortune 200 Insurance Industry conglomerate has |
| amount to staggering expense reductions leading to | | | | saved in excess of $100,000,000 over the eight years |
| the type of efficient cost structures which are critical | | | | since the implementation of a lean administration. |
| to developing and maintaining competitive advantage. | | | | 2. A Fortune 300 Business Information Products and |
| The areas in which average margin improvements of | | | | Services company saved over $11,000,000 in the initial |
| 15-30% can be delivered include: | | | | 18-month period following program implementation. |
| - Telecommunications | | | | An important aspect of restructuring administrative |
| - Office Equipment | | | | costs is the cost/service ratio; when implemented |
| - Facilities Management | | | | properly, gains can in most cases be achieved with no |
| - Office Supplies | | | | change in vendors, no disruption to corporate culture |
| - HVAC | | | | and no decrease in service levels. In fact, under most |
| - Shipping | | | | circumstances, service levels will frequently improve, |
| - Treasury Services | | | | despite the drop in supply/service costs! Why? |
| - Temporary Employment | | | | Because an effective cost reduction expert uses their |
| - Payroll | | | | specialized knowledge to successfully negotiate at the |
| - Janitorial/Cleaning Supplies | | | | highest levels within a service supplier/vendor's |
| - Refreshment Services | | | | organization, and uses their substantial bargaining |
| - Outside Printing | | | | power to place increased pressure on suppliers to |
| The explanation for this all too often overlooked | | | | provide quality service. |
| source of value generally comes down to three things: | | | | Another aspect that separates qualified specialists |
| | | | from other more traditional consultants is that the |
| 1. Manufacturing/Service enterprises' focus on core | | | | former will not just make a recommendation and |
| competencies almost never includes administrative | | | | depart, but will design and implement approved |
| services. A competitive manufacturing company, may | | | | programs AND track vendor compliance to guarantee |
| exhibit expertise in efficient production, but may know | | | | contracted rates and service levels, thus insuring |
| little about controlling employee cell phone usage. A | | | | projected gains. |
| competitive service company, is efficient in processing | | | | Finally, when investigating administrative expense |
| information, but may have little expertise in managing | | | | reduction specialists, pay close attention to the terms |
| equipment leases. | | | | of service. The best of the best will not charge for |
| 2. Supply/Service vendors are trained to take | | | | their services unless there are audited, confirmed |
| advantage of the lack of expertise/sophistication in | | | | hard-dollar savings to your organization. |
| many purchasing departments. The success of supply | | | | |