Key Points:

Denis Stevens Managing director of Expense Reduction Analysts

Stevens says staff redundancies are a "knee jerk" reaction to cost-cutting and something businesses are likely to regret when the economy picks up.

Instead of laying off people valuable to the company, he recommends businesses "trim the fat" off their overheads. "They should be cutting waste, and really maximising the bang for their buck before they start looking at head count."

Advertisement

In the past employers and managers have become too busy with their core businesses, hoping they are getting the best deals they can, when often there are ways of doing it better.

Stevens' company examines where a business buys from and whether it can get a cheaper deal.

Energy costs, telecommunications, freight, printing and insurance are often areas a company can cut costs if it takes the time to find out.

"Sometimes they can save money by installing equipment and processes, but generally its just a case of reducing their usage.

"They have to have a cost culture.

"The days of spending because revenues were going up so who cares what it costs are over, they really have to look at what they are spending and it has to come from the top down."

Stevens says businesses should understand what they are buying, such as service contracts - is it something they can do themselves?

Many businesses can also look at centralising their buying. Quite often different branches are buying from the same supplier in different cities and paying different prices.

Advertisement

And whatever they do, they should take a long-term rather than a short-term view, Stevens says.

"Don't just sit back and think this is a temporary glitch and we will battle through. People have got to get quite serious about it."

Alan Day Managing director of State of Flux

Day says the management of the third party spend/supplier base is an area that's been largely ignored or seen as an administrative task, but the mantra "every dollar ... saved goes directly to the bottom line" warrants more focus.

A research organisation, the Aberdeen Group, estimates that for a "typical enterprise", $1 saved has the same impact of $5 in revenue in terms of contribution to the bottom line.

Using this same ratio, $1 million in cost savings would be the same as signing a new $5 million client.

Globalisation trends such as outsourcing or low-cost country sourcing have led to increasing complexity of supply chains. It is now even harder to track and manage organisational spend and business continuity risks within the chain.

Organisational spend with third-party suppliers is typically a large part of the cost base. Numbers will vary depending on the industry, but usually a minimum of 40 per cent of total spend relates to third-party suppliers.

This makes it a key area to focus on for operational effectiveness, operational cost and business continuity risk and should be well managed. For many organisations this is not always the case. A study by Accenture shows 50 per cent of a firm's third-party savings can be lost through poor supplier management.

A recent State of Flux study supports these findings, further highlighting that most Fortune 500/FTSE 100 organisations don't actively track the risk within their respective supply chains.

A procurement function has a lot to add in the "quest for cash". The many capabilities range from inputting into the budgeting process and cash-flow forecasting to more traditional tactical initiatives such as cost-out plans using eAuctions.