Ever wondered what some of the best and worst spending moves were last year? http://www.npifinancial.com/News/TV_Media_Coverage/CNN_America_December_2009.php
Here are five steps that you can take — none of which require cutting jobs — to make 2010 a banner year:
1. Benchmark spending. Conduct an audit of all expenditures to find out where you’re overpaying and underutilizing. Not sure if you have the resources to do this internally? Consult with an experienced third-party vendor.
2. Get involved. Stay connected to your company’s spend environment, and know who your vendors are. Be aware of contract renewals and deadlines to avoid any additional costs.
3. Use your calendar. Since companies are driven by quarterly and year-end results, the best time to negotiate is at the end of quarters, when list price is usually meaningless.
4. Negotiate. Now is the best time to pursue deals with vendors, especially those in transportation/shipping and IT. Vendors may make claims that sound non-negotiable, but often that’s not the case.
5. Read the fine print. There’s little regulation in this area, so it’s up to you to make the extra effort to know exactly what you’re paying for.
Following on his article in Manufacturing.Net, John Haber covers the other 2 key areas for focus on cost reductions: unjust contract terms and assessorial fees
Unjust Contract Terms
If a company were to take a closer look at their contract, they may start to see the potential penalties and extra fees. The problem is that many companies don’t understand the language of their contract, or perhaps they don’t pay close enough attention to it.
“If a company has a 3-year contract and they want to renegotiate during the second year, they could face some substantial penalties,” Haber said. “That is unfair to a company that has to deal with market fluctuations and product changes, especially if they are stuck dealing with a carrier that can’t handle those types of volume issues.”
Haber adds that shipping companies may include confusing or deceiving options, like deferred rebates, which would be a discount after the fact, or the carrier could exclude fuel surcharges from rebate calculations.
Assessorial Fees
According to Haber, some shipping companies may add high fees for fuel surcharges, or add delivery area surcharges for certain zip codes, which could add substantial charges to a company’s shipping costs without their knowledge.
And these assessorial fees are rising — fees for address corrections have gone up 40 percent in two years. Ground minimum charges are up 6 percent this year, and they rose 9 percent last year. Delivery area surcharges are up 15 percent, and returns shipments are up 16.7 percent. With just about every area of shipping costs increasing, it’s important to cutback wherever possible.
“The company’s hands are tied,” Haber said. “It’s hard to absorb cost increases and fees like that. Try adding rate caps into shipping contracts, or perhaps add an opt-out clause if the fees become overwhelming.”
When looking at shipping contracts, companies can and should try to object to certain fees that they feel are unfair, Haber adds. However, going head-to-head with a major carrier probably won’t be an easy task.
“Companies can face tough negotiations with carriers,” Haber said. “They have little recourse with only two major carriers. They need leverage to get the best pricing.”
“Companies need to consider bringing in a third party that specializes in transportation costs,” Haber says. “They can find areas for cost-savings that companies may not even be aware of. They deal with carriers and contracts often, and they know what to look out for.”
In an article titled “The Hidden Costs Of Shipping” published in Manufacturing.Net on January 15, 2010, John Haber explained in depth where costs hide shipping.
“When it comes to shipping agreements, companies may not always understand the language used in their contracts, which may set them up for double-digit fee increases over the term of the contract or other unfair penalties and costs,” said John Haber, Partner, NPI.
Haber identifies three categories to focus on: annual rate increase, unjust contract terms, and assessorial fees.
Annual Rate Increases
“There is currently a lack of competition in the shipping industry, so big name companies feel they can justify 5 to 7 percent increases per year of a contract,” he said. “That’s a huge increase when prices aren’t rising and a company has a 3-year contract.”
Haber advises companies to request new pricing information if they are under contract, or they should consider opening up to bids if they aren’t.
“Rate increases may differ from carrier to carrier, and location to location,” he added. “Companies should think about updating their decision matrix that they use to determine shipping options and thoroughly analyze their shipping characteristics.”
In the end, if a company can gain a better understanding of what they are paying for and what costs they can cut back on, it will not only help their shipping bills, but their overall bottom line as well.
In this volatile business environment, saving money often means cutting jobs. At NPI, we believe our proven price benchmarking strategies can allow you to cut costs without cutting jobs.
How does price benchmarking work and how can it benefit your business? Quite simply, it is the process of determining the fair market value for any product or service, and then ensuring that your contracts are in line with these levels. We find that many businesses are over paying based on telecom, transportation and technology industry price benchmarking levels. With appropriate strategies in place, your business can negotiate contracts with more favorable terms.
Our goal is to protect your business from overspending by providing a fresh set of eyes, market based perspective and industry knowledge that allows us to uncover cost savings previously overlooked. Effectively using our price benchmarking services to negotiate favorable contracts allows you to retain valuable human capital. With benchmarking tools, your business retains the employees needed to be able to innovate and succeed in the future.
The strategies we offer can result in savings returns in as little as 30 to 60 days. Savings from layoffs are often not seen for nine months or more. We know that our price benchmarking strategies for telecom, transportation and technology results in millions of dollars of savings annually. Don’t think that just because you have a long term contract that our strategies won’t be able to help you. Our tools allow you to approach a vendor with a fact based discussion showing areas of over spending. Discussions backed with price benchmarking facts can lead to contract savings for your business.
Maintain your ability to grow and succeed in these tough financial times. Contact NPI today to implement price benchmarking strategies that will lead to cost savings without the need for layoffs.
IT and telecom expenses are typically among the largest for any organization. Effectively using telecommunications expense management tools can lead your business to significant costs savings. Here are some of the activities typically involved in telecommunications expense management initiative:
Ensuring the success and profitability of your business is a high stakes job, which means that keeping expenses in line and negotiating contracts with favorable terms is a battle which is only ever increasing. With the assistance of the spend management experts, these tasks become much easier.
The NPI spend management team is a hands-on group of experienced negotiators that specialize in the fields of telecom, transportation and information technology. Each member of our team has years of experience in the industry they support. Knowing firsthand what vendors are willing to compromise on, means we can quickly lead your business to cost-savings and spend management success.
The goal is simple: provide assistance with the re-structuring of contracts to achieve fair market pricing and favorable terms. Our partnership approach to spend management begins with an in depth analysis of business practices, and continues through an ongoing dedication to finding new ways to reduce expenses and improve operations. Our spend management service includes market analysis, vendor audits, price benchmarking and assistance with contract negotiations.
But where to turn your focus? NPI focuses on transportation, telecom and IT – areas with the most volatile expenses any business faces. We also look to uncover opportunities for cost savings and more favorable contract terms which result in both long and short term gains for the bottom line.
From small parcel shipping and international freight and logistics, to IT infrastructure and telecommunications expense management, choose a team which has the experience, knowledge and commitment to find spend management solutions that will benefit your business.
Contact us today to learn more about NPI and our approach to spend management.
When it comes to trimming margins and increasing profitability, expense reduction analysis is a proven key to success. Nearly all businesses are looking for ways to cut costs and do more with less. Today’s challenging business environment makes it necessary to closely examine each budget item and vendor contract for possible cost savings. With an effective expense reduction analysis, your business will save money without sacrificing jobs or the ability to function effectively.
However completing an internal analysis can be a lengthy and complicated process. A typical analysis will begin with an evaluation of current vendor agreements, with an eye toward pricing, terms and conditions. The goal of these reviews is to determine how your current contracts compare to industry benchmarks in each of these areas.
Besides contract review, another important component of expense reduction analysis is a vendor invoice audit. A thorough review of invoices can reveal opportunities for savings related to overcharges, misallocated fees and other billing errors. Many companies are surprised at the savings associated with correcting billing errors and other erroneous charges.
No expense reduction analysis is complete without a review of the competition. Taking time to investigate lower cost providers, as well as the industry norm for service rates, can lead to significant savings. Determining if you have received the best possible contract rates and terms makes it easier to know where cost savings can be achieved.
Once a thorough review has been performed, it is necessary to take the resulting information and turn it into viable cost savings. This is where NPI fits in. We execute a thorough expense reduction analysis with speed and easy. Our process of determining where cost control measures can be implemented, and our assistance with contract renegotiations, make it possible to see incremental savings in a short time. At NPI, we partner with clients to conduct a complete the analysis, and then develop a plan for cost savings implementation.
Contact NPI for more information about our expense reduction analysis services.
Making smart decisions about supply chain cost reductions can mean the difference between an effective strategy that garners results over the long term, and one where short term gains are outweighed by long term problems. How will your organization know if it’s making the right decisions and implementing the best strategies for long term success?
Organizations striving to achieve cost reductions can realize positive results by thoroughly and continuously analyzing the strengths and weaknesses of their supplier mix, identifying areas of consolidation, and determining its impact on capital and operating costs. Organizational focus on supply chain cost reduction needs to be a series of ongoing initiatives, as opposed to one time ventures. A regular review of vendor relationships and contracts will help to ensure rates and terms remain favorable over the long term.
At a tactical level, these cost reduction initiatives should include a monthly review of invoices. The monetary gains associated with monitoring invoices for billing errors are approximately 3-5% of gross spend. Over the course of a year, catching errors of this nature can lead to thousands, sometimes millions of dollars in savings. This is an area of cost savings often overlooked, as businesses assume that once their contracts show favorable rates and terms, the work is done.
Some companies seek to reduce employee numbers as part of their supply chain cost reduction strategy. While job reductions can play a role in cost savings, it is important to recognize that cutting too deeply can lead to new problems. When employee counts fall too low, it can become increasingly difficult to implement needed supply chain cost reduction strategies. History shows that the short term gains associated with job cuts can lead to long term efficiency problems.
Establishing an effective supply chain cost reduction strategy can mean the difference between long term success or failure. Companies around the world rely on NPI to help them achieve successful supply chain cost reductions that balance efficiency with savings. Our expertise with implementing these supply chain cost reductions will ensure your business is poised for growth, while still enjoying the benefits of reduced expenses.
If your business has been considering conducting a supply chain audit, you’re already on the way to reducing operational costs. In fact, companies that do not see the need for an audit are often those most in need of a thorough analysis. So what are the benefits?:
So, how do you know if your business can benefit from a supply chain audit? There are many factors that contribute to the need, including:
When you partner with NPI for a supply chain audit, we conduct a complete analysis of your vendor relationships, contracts and rates. With our assistance, your business will see cost reductions and improvements in shipping processes. With a goal of maximum supply chain efficiency, we work with your team to achieve lasting and measurable results.
If your business is ready to embark on a supply chain audit, contact NPI today.
