According to Expense Reduction Analysts franchise, several franchises in different industry sectors cut costs without adversely impacting company performance.
Cleaning
Question: A franchise does not have time to worry about the cleaning but customer complaints are escalating, and then there are the OH&S ramifications to consider. What steps should it take?
Pam Walker and Michael Byrne handle the financial services franchise cleaning services and answer as follows:
To achieve successful recommendations for this cost category, ERA reviews the situation by talking to relevant staff to acknowledge concerns and explain the difficulties and costs associated with multiple suppliers.
In some instances there are no specifications listed so these need to be prepared, tailored and agreed upon by the staff at each site – from such considerations as frequency and times to specific specialty tasks and contact details for a key staff member.
Another issue is underquoting due to a genuine mistake when compiling the quote, intentional underquoting to win the contract or an unexpectedly fussy customer.
The most effective way of handling this kind of situation is to pre-empt it by asking clients for a floor plan, full details of the areas that are going to be cleaned and by also arranging site visits. This ensures cleaning contractors are fully aware of the requirements and any peculiarities of the site. Once we have a full picture of requirements, a brief is put out to market and a supplier chosen. When OH&S is a consideration ERA conducts interviews with the shortlisted cleaning companies and rates each for the effectiveness of its safety procedures, competitiveness of rates, suitability for the project and reputation and performance with similar clients. Once selected, the most effective implementation is for management to take the chosen cleaner around each site to introduce to staff.
We manage the process to achieve mutual satisfaction and maintain contact with the new company for the first couple of months, review the evaluation reports and check with staff to gauge that service levels have remained consistent and that they are happy. If there are any issues, we are involved in discussions straight away in order to avoid them compounding.
Example
Christian College Highton, which is an independent school in Victoria, was comfortable with the incumbent cleaning contractor’s rates but concerned that an independent OH&S report criticised the lack of accountability and control in relation to the cleaners. Even the suppliers who had serviced the college for years were in favour of the process. The school elected to accept the second lowest bid for two campuses and a marginally higher bid (from the incumbent contractor) for the other two. A 34 percent cost reduction was achieved in this $300,000 category.
ERA also introduced a simple quality assurance system that required the contractors to formally acknowledge compliance with the school’s OH&S contract. ERA conducts quarterly reviews of invoice accuracy, performance and system compliance.
Hot tip: To ensure your cleaning contract works well, make sure your cleaner knows what you expect and let the firm know not only know if there is a problem, but also if things are going well.
Couriers
Question: A national franchise operation uses couriers a lot but the service is not always reliable. It is reluctant to change but at the same time needs to address the situation. What can be done?
Kim Gillespie is ERA’s courier consultant and answers as follows:
First we will look at who is responsible for couriers in the organisation, not just from an establishment standpoint but also from a maintenance and administrative perspective. We then review how new rates are currently negotiated and how delivery priorities are set, implemented and processed. Often the person in charge of couriers doesn’t hold the rate card or have the authority or knowledge to negotiate new runs.
From an accountability aspect we check the rates and the process of allocating to cost centres, as cross-checking and correlating can be extremely time-consuming. We also check KPIs, if there are any currently in place, and whether they pertain to service levels and delivery speed.
But this is still only the beginning, as the key is in what types of service are currently being used – for instance, local, bicycle or van, and also what level of service is being offered. Is it local, standard or VIP? For interstate work, overnight or road express are considerations. The options are endless. We then need to consider what is usually being delivered; i.e.
documents or merchandise, and also where to and how often. For example, many organisations have standard daily runs. The price for these can be negotiated over and above the rate card.
Once all this information is identified ERA can gauge whether the existing courier service is performing properly and whether it is providing the most appropriate level of service options. If it isn’t, we talk to the supplier with the ultimate threat being cease of contract. Obviously, we understand the market and know the suppliers well and what they charge, as well as rate increases and awards that affect the industry. They know we know, which certainly helps the negotiation process.
Once these issues have been finalised, we look at educating staff on what service levels are available and implementing the most efficient courier briefing service – from a simple internal post-it system which briefs the despatch department to an internet ordering facility. These options can also carry a mandatory cost centre and/or client reference requirement in order to be able to facilitate and accelerate the soft invoice payment process that further assists with rate discounts.
ERA then continues to monitor the service with the organisation’s stakeholders and supplier/s in order to ensure that the agreed outcome is achieved. We then review costs periodically over the next 18 months in order to ensure that the process is maintained.
Often in the case of corporate acquisition, the process needs to be streamlined again and again as each company purchased has its own preferred suppliers. In one case a national company had 36 suppliers and it could only reduce this to 29. However, we managed to achieve its needs with just six suppliers.
Finally, negotiating the best rate is only one of the first steps. It is then up to the organisation to identify the most appropriate rate and service level for its individual needs.
Example
Being a company with a head office in Sydney and sales offices in each state, Valvoline has a heavy dependence on overnight couriers. Valvoline was reluctant to make changes in the area due to past problems with various service providers but was persuaded to determine if it was getting the best possible value for the interstate satchel dollar. If ERA could not unearth any savings Valvoline could be confident its current arrangements were completely cost-effective.
A new supplier, Australian Air Express (which is a Qantas and Australia Post joint venture), won the bulk of the contract. It uses an internet tracking system which monitors the delivery status of every package. One incumbent supplier, CTI Couriers, was retained in a slightly expanded capacity for local and metropolitan deliveries.
The result is savings to date of 17 percent and an implementation that is running smoothly. Since the appointment of AAE, the previous interstate satchel supplier has notified an increase in price of seven percent.
Hot tip: Consider what is actually being delivered and the kind of service the delivery needs.
Merchant Card Services
Question: A franchise is unhappy with the service it is receiving from its merchant card service provider, nor is it convinced that the rate is particularly competitive. How can the issue be best addressed?
Jeremy Gimson handles ERA’s merchant card services and answers as follows:
We first analyse the client’s merchant statements to assess how much is being spent on credit and debit transactions, how many credit and debit transactions are going through, what the average transaction size is, the proportion of card present and card not present transactions, and the rate the company is paying. We will also discuss service-related issues and find out how the transactions are being processed. The credit transaction rate will typically be a low percentage, say from one percent for a very large organisation to 2.5 percent for a smaller operation. For the debit transactions the rate will be based on a small number of cents per transaction.
Once this information has been assessed, we are able to approach and negotiate with the incumbent bank before, if necessary, putting the job out to market. We prefer to work initially with the client’s current bank wherever possible, primarily because of transition issues, but also from the relationship loyalty perspective.
Suppliers are asked to reassess their rates and services based on the client’s:
1. Total transaction value per annum.
2. Average transaction size.
3. Number of transactions that are card present (i.e. swiped through/EFTPOS) and card not present (i.e. over the phone or internet). This is an important point as the latter is charged at a higher rate because of the higher risk factor and the differential on the bank interchange rate.
In this process we are clearly putting the supplier under competitive pressure and it will have a good idea of the rate the client should be paying. If the client does change supplier it is usually not a particularly hard change to make, providing it is properly managed. However, clients will often stay with the incumbent bank even when dissatisfied because the concept of changing over hundreds of merchant card EFTPOS machines nationally is far too daunting.
We then follow through by checking the organisation’s transactions every few months to ensure it is still receiving the correct rates as negotiated. ERA receives client feedback on service issues and consults the supplier to ensure the service continues to run smoothly.
Example
OPSM was processing $110 million of merchant card transactions
per year as well as private health fund claims through EFTPOS. Only two banks were able to provide health claim processing as well as credit and debit card EFTPOS processing.
ERA negotiated a significantly lower rate on credit and debit transactions with the competitive bank.
The successful bank arranged training sessions for the new system after installation and provides ongoing hotline support for any questions that may arise. In the OPSM case the system also checks a customer’s private health fund allowance while he or she waits and deducts it from the customer’s bill. The health fund then credits the amount to OPSM. This is a major benefit for customers, who do not have to claim the allowance back from the private health fund. It also reduces the amount of money processed on the credit card, thereby saving money for the client. OPSM saved an estimated $280,000 per year by changing bank with the added benefit of significantly improved service levels.
Hot Tip: Have a good understanding of the average transaction size and whether the transaction is present or not present, as these attract different rates.
Stationery
Question: It has come to the attention of a national franchise that uses a lot of stationery that the cost differences seem extreme and its choices repetitive. What options does it have?
David Rounsevell handles ERA’s office supplies category and answers as follows:
I joined ERA in 2001 after 11 years in senior management positions in the office products industry. After enormous rationalisation in the industry and, due to technology, growth in expenditure in this category, I identified the need for expert assistance in controlling spiralling costs and supply issues.
Typically a client will purchase 1000 or more different office products in a year. This can be spread across 5000 or 10,000 transactions and multiple locations and multiple suppliers. We log the current year’s transactions and build a detailed profile of the organisation’s requirements. This will typically involve product groups as diverse as computer supplies to coffee, along with traditional office stationery.
Once the information has been gathered and profiled, products and processes are measured. In the majority of cases opportunity exists for rationalisation whilst still achieving a best price outcome. In this process we go to market to achieve the best outcome, with the incumbent and potential new suppliers invited to the table.
In many cases, ERA achieves a considerable cost saving, while possibly reducing the number of suppliers and reducing the considerable time spent in product acquisition.
In the event the supplier is changed there can be the temptation to explore a new product range. Through regular checks, ERA keeps the client on track and within a range that has been negotiated.
Example
Hostworks Limited is a leading provider of managed internet hosting. Clients managed by Hostworks account for 15 percent of all Australian website traffic, and over 300 e-commerce transactions per second. Microsoft relies on Hostworks to manage one of only four worldwide data centres hosting MSN ‘Tier 1’ content. Clients of Hostworks include ninemsn, AAMI, Ticketek, Austereo, Microsoft, Cisco and one of the world’s leading financial institutions.
Having experienced strong growth, Hostworks engaged ERA to review its non-core business costs.
When ERA reviewed its office supplies it found six main suppliers supplying its two state offices with price differentials between the states of 20-30 percent in some cases. It was determined that there was opportunity to reduce the number of products ordered and suppliers utilised, while still reducing the cost.
ERA went to market with a detailed specification to achieve the best outcome, the result of which was that Hostworks was able to achieve its requirements through a single supplier across both states, saving time through online ordering, and achieving savings in the region of 30 percent.
Hot Tip: Decide on a comprehensive product range and stick to it.
Postage
Question: As one of the largest franchises in its sector, franchise ‘X’ incurs a significant postage expense for mailouts to clients. But as Australia Post is the only supplier, how can it get a better deal?
Brett Hay is ERA’s postage and mailing consultant and answers as follows:
ERA can review an organisation’s current processes, procedures and pricing in the area of postage and mailing and identify potential for savings. With just a few modest improvements there are considerable opportunities to take advantage of the discounts on offer from Australia Post, many of which can be obtained without any disruption to the business or need for capital investment.
The first step is to ensure you have allocated responsibility for the mailroom to someone within your organisation. This person can take charge of implementation of the process changes, as well as ongoing management of the mail operation to ensure you maximise available savings.
A review of the annual usage report, available from Australia Post, is a good start. This report itemises the company’s purchases so you can see where you are spending your money. You can also identify bottlenecks such as mailout of monthly billings in the last week of the month, or quarterly marketing publications to clients and prospects.
Based on your current spend, we can then identify where you can make savings, and the changes required to the operation, if any.
Potential for savings can be realised by simply:
• Cleaning up the client database to ensure all address labels are consistent and compliant with preferred layouts
• Committing to a threshold of ‘parcel post’ purchases, which you may find you already exceed
• Usage of a postage meter or franking machine to automate mailouts
• Purchase of Australia Post software to enable mail to be bar-coded.
Once all options are identified, we work with the organisation to implement the preferred option. The implementation needs to be structured to minimise any disruption to work practices. As ERA consultants are remunerated from the results achieved, they have a vested interest in ensuring the right result is achieved first time. Following implementation, from an accountability aspect we check postage rates and the process of allocating expenditure to cost centres. We also check KPIs with regards to terms of service levels and mail delivery speed.
ERA then continues to monitor the service with the organisation’s stakeholders and Australia Post in order to ensure that the agreed outcome is achieved. We review costs periodically over the next 18 months in order to make sure that the process is maintained.
However, negotiating the best rate is only the first step. It is then up to the organisation to identify the most appropriate rate and service level for its individual needs.
Example
Being a company with a large number of clients, BDO Kendalls has a significant volume of mailouts each month. As a majority of its clients receive monthly billings, BDO experiences a bottleneck of mailouts in the last week of the month. BDO was reluctant to make changes to its processes as it could not afford any delays in mailing and any savings were perceived as being minimal.
However, a simple ‘clean up’ of the client mailing list to conform to Australia Post requirements meant mail could be more rapidly processed at Australia Post centres. Mailouts greater than 300 at any one time attracted further discounts. A new postage meter machine was found in mothballs, and put to immediate use to generate further savings. Bar-coding software will be utilised to streamline the process even further.
Savings of 24 percent are forecast with implementation running smoothly. Importantly, this has been achieved with no disruption to servicing clients or office procedures.
Hot Tip: Make sure all departments are involved in any changes to postage so as to generate maximum savings. Also, carefully investigate options for bar-coding software, as they range in value from $300 to $100,000. It is important not to over-engineer the solution.
Printing
Question: A national franchise with high printing demands has found that its methods seem overly time-consuming and cumbersome. Is there a solution?
Ian Kinnaird and Gary Wilson handle ERA’s printing services and answer as follows:
It is amazing what can be achieved in reducing printing costs when the time is taken to review all aspects of the category. Very few companies are aware of the changes that continue to take place in the printing industry, and these developments can reduce not only the time and effort involved in managing printed material but also significantly reduce the annual costs associated with these products.
After working with a variety of clients that use a single supplier and others that work with in excess of 100 cost centres dealing with 800 sites, I recommend the following.
First you need to rationalise your forms to see if you can combine several items to achieve a common result. Then you need to look at more economical print production in terms of stock, number of colours used and the actual production method chosen.
It is then over to the printing stage, where it is important to remember that price is volume-sensitive. As such, you ideally need to look at ways to either increase batch size or print same-stock items together.
Finally, if you are able to do the entire job with one supplier it simplifies ordering methods as well as invoicing.
In order to achieve any of this we need to work with an organisation’s staff to engender a sense of ownership. Often with the technology now available, to facilitate orders staff need to be educated and others even redeployed.
The review method is conducted with stakeholders and covers everything from looking at new suppliers and the impact of the decision on artwork and film transfer to stock issues, account set-up and contract negotiation. As well as ordering systems and methodology, ongoing stock levels, staff training and supplier liaison should not be overlooked.
Example
ERA helped TMP choose a printer with online processes – a choice facilitated through a print manager that represents a number of NSW Central Coast printers. General stocks are now held at the printer, with an online ordering system enabling all TMP offices to view stock levels and order as required. Business cards are also ordered online, significantly reducing process and delivery time. A representative from the printing firm has continued to work almost full-time during the change with TMP and ERA to streamline the process.
Significant cost savings have been realised, especially through the use of business-to-business internet solutions. The stockholding process has been simplified and stationery is delivered as required to every TMP office in Australia. Where TMP once had one employee solely dedicated to ordering its many business cards, these are now ordered online through a simple form, with a reliable proofreading process to support the strategy and with the employee now redeployed to more strategic tasks.
Hot Tip: Remember that printing price is volume-sensitive, so ideally you need to examine ways to either increase batch size or print same-stock items together.
15-May-2006