Rookie cost reduction program mistakes of do-it-yourselfers
If only getting the business cost savings you need were as easy as flipping a switch.
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They are easy to make when running a cost reduction program isn’t your usual job
I’ve said before that running a thorough cost reduction program is too big of a job for do-it-yourselfers. I'm not just saying that. Today I’ll walk you through the steps. I’m not worried about giving away this information. The way I look at it, once you realize the work involved and the expertise that you’d need, you’ll see the wisdom of bringing in a pro while you concentrate on your regular job, where you already are the expert.
Needs analysis
First you’ll conduct a “needs analysis” to see if you are purchasing the right products and services for your company, and that you have the right criteria for all your vendors. (Let’s see a show of hands: How many of you thought you’d begin by writing an RFP? Yeah, I thought so.) The reason you start here is that you need to know your objectives before you can tell if your vendors are meeting them. Take a single cost area such as freight and shipping. How much do you ship per day, per week, and per month? Are they priority or ground? If priority, what method is necessary and why? The list goes on and on. It is easy to overlook critical questions when looking from the inside of an organization out, rather from the outside in.
Learn about vendor markets
Now that you know what you need, you’ll have to learn about the vendor markets. Were you going skip this step too? That could be a costly mistake. To keep going with our shipping example, you’d need to learn about new carriers and offerings that have developed since you last shopped for it (probably a few years ago). Have transit times changed? Have fuel surcharges increase? Once you’ve learned about the shipping business, you get to start all over again researching merchant card services. After that, you can go to school on the copier business. And then you’ll start studying telecommunications. And so on.
Identify key players
OK, you’ve done all your research on the various industries (by the way, you don’t get to quit your day job while you are doing all this). Next you need to identify the key players and vendors best suited for your needs (as identified in step 1) in each market segment: Credit card processing, shipping & freight, food & beverage, copiers, records management, office supplies, janitorial services -- the list can get quite lengthy. “Key player” doesn’t always mean the company with the most memorable commercials on TV or the nicest looking web page. It also doesn't necessarily mean the company your neighbor knows who did a good job for his buddy.
Write up an RFP
Finally you are ready to write up a request for proposal, then send it to the two or three key players in each product or service category that you already know are a perfect fit for your needs. You knew about this step already, of course. You just didn’t know it was so far down the list.
Negotiate
Here’s the part that many people hate: negotiating. It’s no wonder. The vendors negotiate deal after deal. They are experts. When was the last time you negotiated a deal on printing, or food services, or a wireless contract, for example? Negotiating is also much different when you already know what the best in class pricing looks like for a company like yours. Often, do-it-yourselfers are flying blind on whether it is a good price or not. Negotiating entails more than just asking for a lower price. To us, sometimes it means fine tuning the agreement to ensure the client's needs are fully met.
Enforce the commitments
You aren’t done after the new contracts are signed. You still need to make sure the vendors deliver what they promised. It would be a mistake to let something fall through the cracks. Tracking the performance of the vendor and contracted pricing is an absolute must.
Getting help
Still feeling confident enough to do it all yourself? And are you comfortable with how much productivity you’ll lose while you are doing it? I’d be surprised. Honestly, I admire anyone who can tackle cost-reduction successfully while trying to run a company at the same time. I do this for a living, and it’s a full-time job for me.
Was it surprising to see how much is involved in a thorough cost-reduction program? I’d be interested in your impressions. Leave a comment!