Expense Reduction Series - Introduction

Expense Reduction is a prominent concern for every business; this is especially so when the overall economy stagnates, as it has the past few years.  As most of your know, LAC Group bought Chase Cost Management (CCM) in late 2011.  We have spent the past 18 months completely integrating services and expanding our expense reduction capabilities.

Allow me to illustrate and introduce my next series (expense reduction consulting) with a personal story:

Each year, I engage a consultant to fight my insanely high property taxes on a piece of land I purchased almost 10 years ago.  I don't have a house on it, don't send my kids to the local schools and don't spend time there.  The attorney works on contingency and charges 40% of what he saves me from the tax assessment.

The first year we went through the process, my wife looked at the consultant's bill and asked why we were spending so much, giving up what she thought we should we be able to accomplish ourselves.  And she was right...we could do it ourselves.  The question is whether we should.  The fact is, we are not tax specialists and we don't have the time to show up at several meetings with the county.  Even if we did, would we get the same results as our consultant?  Most likely we would not.  Our consultant has specialized knowledge, gained through experience negotiating taxes on behalf of hundreds of other clients, that we could not possibly hope to duplicate.  The bottom line is  that there significant value in having a specialist do the work.

This story is analogous to a problem LAC Group runs into frequently: we often encounter decision makers who are either skeptical of expense management services, or worse...afraid of them.  A librarian for a major law firm might wrongly see these services as encroaching on his or her territory.  She thinks “shouldn't I be able to better negotiate that contract on my own?  That's my business, after all; I should be able to get the best price without using a consultant."  The fact is, however, getting great pricing on vendor contracts is not her business; her business is running a library for a major law firm.  Could she get a better price than what is currently being achieved, maybe...even probably.  But she does not have the information that will allow her to get the best price.  Just as there is value for me in using a consultant to fight my property taxes, there is value in for her in engaging an expense reduction expert.  Her business is running a library; the expense reduction expert’s business is getting her the best price.

Many companies have come to rely on procurement as their internal expense reduction experts.  Procurement, in turn, sees expense reduction consultants as a threat, when in fact the outside expert can provide them with industry-wide information and battle-tested negotiation strategies that will help make them even more successful.  As a Chief Operating Officer, I have never faulted anyone for saying to me... "we got you the best price we could last year, but this year we saved you an additional 20%."

In many cases procurement departments have relationships with their vendors (i.e., vendor reps), and are in a sense are staking successful pricing on that relationship.  In many cases they will stay with the vendor, citing some compelling reason that they say overcomes pricing that – if looked at objectively - is simply too high.

We do a benchmark study for each of our clients, as the first part of our engagement, in order to demonstrate actual savings opportunities before moving forward.  In many cases the number is so big that some procurement professionals fear that it makes them look bad.   The smart ones don't...and move forward with the process - saving tens or even hundreds of thousands of dollars in a relatively painless process.

Managing a business requires not only the production, sales, delivery and service of your specific product or service, but the management of your business itself. As many struggle to keep out of the red, focusing on what you do best and using a strategic partner to address operational expense management challenges is one of the most important and best decisions you can make as a manager.  Whether that is as the manager of a department or as a C-Level executive.

Join me for the next few weeks as we explore some of the most common operational expenses that add up quick and erode profits.