Fighting "we’ve always done it that way" business costs
Business cost reduction is about matching vendors with new circumstances
One of my favorite stories about our cost reduction services has to do with shipping. For 15 years the client had been paying for guaranteed two-day delivery of packages. It seemed like a smart move. It was cheaper than overnight delivery, but still fast. On top of that, the client got free packaging and labels that were easy to fill out.
It worked, it saved money and it kept everyone happy. Why try to fix something that isn’t broken, right?
Throwing away money
The thing is, the system really was broken. The client just didn’t know it.
We conducted a cost-reduction analysis that looked at their real needs. For one thing, we discovered that almost all their packages went to addresses within California. That means even normal ground shipping would almost always get the packages where they needed to go in two days.
Digging further, we discovered that it wasn’t all that crucial for customers to get the packages in two days. Way, way back in the company’s history, somebody had decided that free packaging and easy labels made it worth paying for two-day delivery. Even then they missed the fact that the company would get the same free packaging and labels by using three-day shipping.
Digging deeper
Most companies would have been happy with that discovery, though maybe a little embarrassed that the mistake had gone undetected for so long. But here’s where it pays to have an experienced professional hunting for savings.
Notice that, so far, the savings came from simply looking at what services were already in the market that better fit the client’s needs. In fact, it didn’t even require looking beyond the carrier they’d been using for 15 years. We went further by trying a little negotiating. We discovered that the carrier was willing to give our client a substantial discount. So on top of switching to three-day shipping we saved the client 30 percent in total.
But we still weren’t done. The marketplace is competitive. Could we do even better by moving to another carrier altogether? We could. In fact, we found a carrier willing to guarantee overnight delivery for less money than the client would pay for three-day shipping minus the discount. This was a 51% discount from their original cost!
Notice that our client ended up with a couple of options. They could switch carriers and get faster delivery for half the cost, or stick with the same carrier and get a 30 percent discount for three-day delivery. In our business, the client always retains the authority for the final decision.
Have you ever had trouble getting your company to implement new cost reduction ideas because “that’s the way we’ve always done it?” Have you discovered too late that you’ve been wasting money? I’d like to hear about it. Leave a comment!
