Online Bidding: How to Extract a Supplier’s True “Best Price”

As a retailer, the pursuit of optimum retail pricing is ongoing and relentless. Customers have access to competitive pricing in their buying decisions. Day in and day out, you are subject to the scrutiny of what you are selling and at what price. To survive and thrive, you must respond by delivering superior quality at the right price. Any misstep means a loss of customers.

But how focused are you on the supplier/vendor side? Do you subject them to the same scrutiny?  Are you aware of all the suppliers that can provide what you need? Do you have access to the most competitive prices?

If you are looking for a solution, online bidding is your answer.

The Online Bidding Process

In a nutshell, the process is driven by software available on an as needed basis through a website. Using the online bidding software, the company entertains bids for a product or service from a pre-screened group of qualified suppliers.  The bid submissions are conducted with participating suppliers collectively, in real-time, and typically lasts approximately 30 minutes.

During the event, buyers can view all the bids, information about each supplier, product specifications, and any other pertinent information that may factor into the decision. Suppliers cannot see the bids of other suppliers, but are flagged if they are the lowest bid.   All participants have the opportunity to better their price at any time during the bid process.  Most do, and continue to do so as the event progresses. The bidding stays open until all suppliers have submitted their final bid.

This process, as we consistently witness, motivates suppliers to deliver their actual best price. Clients are continually amazed at how substantial the reduction often is to a supplier’s previously stated “bottom line”.

Following the conclusion of the event, documents are provided showing the different price and quality scenarios and other relevant information for review and evaluation. You can then take your time to award the business with the knowledge that you have a true competitive comparison.

The Results

Cost reductions through this process are consistently averaging between 15- 45%, with the highest savings seen to date coming in at a whopping 87%!

Our clients have had tremendous success in 2017 alone. Here is a sampling of this year’s results in Canada:

Events held:

– Uniform Purchases  -Electrical Services
– Waste Removal – Plumbing Repairs and Maintenance
– Office Supplies – Janitorial Services
– Fire and Safety Services – Delivery & Courier Services

 

Results achieved for these events on average:

  • 7 vendors participated
  • 35% lower costs provided by the lowest cost vendor
  • 28% lower costs provided by the second lowest cost vendor
  • 16% lower costs provided by the current (incumbent) supplier

The Bottom Line

 The traditional manual RFP process is an out-dated system. It is cumbersome, time-consuming, and does not deliver a true competitive bidding process, far from it as seen in most cases.

Online bidding is a well supported, proven method of delivering substantial reductions in costs, while maintaining the integrity of product quality and supplier performance. This ensures that your costs are as competitive on the buying side as your customers demand on the sales side.

For more information on online bidding and other cost reduction techniques, please e-mail Eugene at eugene@kpmenterprises.ca

Eugene Duynstee is President of KPM Enterprises Inc., a company focused on implementing cost reduction programs in large and mid-sized organizations. KPM Enterprises Inc. is headquartered in Mississauga, Ontario, Canada. Further information can be obtained from our website at www.kpmenterprises.ca

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Scrubbing Away the Excess Cleaning Cost

There are many expenses buried in an organization’s overhead that are left untouched yet represent savings opportunities. One such cost is Cleaning, sometimes known as Janitorial & Sanitation. We have had many successes in attacking this cost.

Our method to uncover the fat in these types of overhead costs is a two-step approach. The first step is to focus on the use of the service.

The Use of the Service

In this case study, the client had a chain of 40 stores. In analyzing the use of the cleaning services, it would seem logical to compare cleaning costs on square footage or sales, but experience has shown that this is not the best driver. Instead, customer traffic was found to be the best measure and driver of cleaning frequency required.

On that basis, our review identified quite a sizable range. The ratio used was the number of weekly cleanings per 100,000 customer count. The analysis showed quite a significant range from a low of .5 to a high of 1.5. Essentially the 1.5 stores were getting cleanings 3 X per week versus similar traffic stores at 2X per week. Upon further inquiry, the level of store cleanliness was not much different when stores were cleaned 2X per week versus 3X per week.  This set the stage for a reduction in number of cleanings by 20%.

The Cost of the Service

The second step is to center on the cost of the service. Here we needed to examine the number of vendors and the typical basis of the charge – floor area square footage.

In the same case, the data revealed 15 vendors across the 40 stores and one store conducting the service on their own (not cost efficient). Such a large number of vendors indicates a decentralized approach with a wide range in services and costs. The analysis bore this out with the most costly store paying more than 3X the cost per square foot of the least costly store.

With this in mind, our experience has shown that the best way to streamline this cost is to conduct an on-line bidding event. For those that may not be familiar:

  • On-line Bidding (also known as a Reverse Auction) is an internet based process whereby a company entertains bids for a product or service from a pre-screened group of qualified suppliers. The auction is conducted with all participating vendors collectively, in real-time, and typically lasts approximately 30 minutes.
  • Before and during the auction event, buyers can see all responses from suppliers, information about each supplier, product specifications, notes from suppliers, and any other pertinent information that may factor into the decision. Suppliers cannot see the bids of other suppliers, but if they are not flagged as being the lowest bid, they have the opportunity to better their price at any time during the auction.
  • This encourages an active and aggressive bidding process.
  • Upon conclusion of the auction, the buyer is provided with a summary showing the different price/quality scenarios and other relevant information for review and evaluation. They can then award their business to the selected supplier or suppliers.

In this particular case, the on-line bidding process attracted 13 qualified vendors, 8 of which were incumbents (currently providing service).  The results of the bidding ranged from a 28% savings to a 32% cost increase. Interestingly, 6 vendors bid a cost increase, 1 vendor was no change, and 6 were a cost decrease. This further indicates the importance of securing a wide range of vendors for the process.

From the results of the bidding, the selection was narrowed to 4 vendors. One vendor was new and they were given a test store. After one month of service, a survey was conducted. Two of the 4 vendors achieved the required standards across the stores they serviced and were selected for contract negotiations. This resulted in a two vendor award, –with an annual savings of 27%!

Overall, the combination of usage savings and cost savings resulted in a total cost reduction of 41%! The client was extremely pleased.

For more information on on-line bidding and other cost reduction techniques, please contact Eugene at eugene@kpmenterprises.ca or 905-891-6994.

Eugene Duynstee is President of KPM Enterprises Inc., a company focused on implementing responsible cost reduction programs in large organizations. KPM Enterprises Inc. is headquartered in Mississauga, Ontario, Canada. Further information can be obtained from our website at www.kpmenterprises.ca

 

 

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The Hidden Cost of Overtime

In a recent client engagement I asked the Senior Operations VP about overtime in his area. He said there was some, but that it was relatively minor. I then went to Payroll and asked how much overtime was paid in the last pay period. The answer? $41,800. The VP was shocked. This translated to over $1,000,000 annually and this was just one division. All told, the company was incurring almost $3,000,000 in overtime annually. Once identified (and that is the first step) the team got on board to develop solutions that would dramatically reduce these costs. By the end of our engagement overtime was under $400,000 annually.

Overtime costs consist of two components –one is the extra time, and the other is the premium pay. Both represent inefficiencies and cost opportunity. Overtime needs to be identified, reviewed, and actioned.
Here are the five essential steps to control and limit overtime hours and cost:

1. Identification (you can’t manage what you don’t measure)
a. Identify how much is being spent and in which areas
b. Track it weekly or with each pay period
c. Break it out on the P&L, if significant
d. Ensure it has CEO visibility

2. Root causes (the why)
a. Identify the reasons – short or long term, customer impact, applicable legislation
b. Review the overtime approval process (in advance)
c. Assess if it is being used to “keep employees happy”
d. Inquire how it is budgeted
e. Identify if action has or is taking place and results

3. Avoid the excuse trap (there are plenty of them)
a. Watch out for indifferent acceptance
b. Watch for statements such as “the way we do business”
c. Watch out for past practices, entitlements, and embedded overtime
d. Watch for overtime creep – employees adding in small increments each pay

4. Not all overtime is bad (but most is)
a. Identify the extent that work is unpredictable and cannot be anticipated
b. If sporadic and truly unpredictable, overtime reduces the burden of FT staff
c. If predicable then consider contractors and part timers

5. Set the mandate (an overtime reduction mentality)
a. Establish overtime as a cost that should be avoided (CEO directive)
b. Address the root causes
c. Establish overtime cost targets
d. Monitor results and address missed targets

Overtime is one of those costs that can easily go undetected. If your organization incurs overtime and it is not being monitored or reported properly, it is most likely much larger than you imagine. Once identified, changes can be implemented and you will soon begin to realize the savings!

For more information on this and other helpful cost reduction techniques, please visit our website at www.kpmenterprises.ca or email Eugene at eugene@kpmenterprises.ca.

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Routing Out the Hidden Money in the Day to Day

There are all kinds of hidden opportunities for saving money in your business. Identifying them especially in the routine day to day tasks, can be challenging, but with the right questions these opportunities can be easily captured.
 
During a recent engagement I was reviewing the accounts payable area and in conversation with the manager I was asking about errors on invoices from vendors that ship product direct to the stores. He told me that the process is very good as there were limited errors (red flag!). He added that on occasion there are some quantity discrepancies but rarely any cost disputes. “Really”, I said. So I probed a little further:
 
Q (me): So who checks quantities?
A: (AP manager): Well the store does when they receive the goods.
 
Q: Well that makes sense. So who checks prices?
A: The stores do.
 
Q: How do they do that?
A:  Well they have access to the system and can check it on line or if they want they can print the cost sheets. If there is an error they fill in a form and send it into us for review.
 
Q: So you expect that people in each of your 400 stores are checking each cost on every item on each invoice?
A: Yes, that is their responsibility.
 
Well it didn’t take me long to flush out the store’s version of this process.  During my visits I asked the store managers, “Tell me about the invoice cost checking process”.  They painted quite a different scenario!  Firstly, they were not even aware that this was supposed to be their responsibility.  Secondly, and more importantly, it would be far too much work, and just not practical. The systems are difficult to access for this purpose, and if an error is found, reporting it is a manual process. It would require an extra 10 – 15 hours per week to do the checking, reporting, and follow up.
 
So I went back to the accounts payable manager and encouraged him to do the checking for a week on selected vendors. The invoices were being received electronically so with the use of Excel and some data downloads we reviewed the comparison report of vendor costs and internal approved costs. Well, as you have probably guessed, it was quite the surprise!
 
There were 100’s of items that did not match, clearly indicating a challenge in verifying costs. We then manually corrected the misalignment and reapplied the comparison of costs. Numerous price discrepancies appeared. We then expanded the scope to include all vendors.
 
The results showed discrepancies averaging $10,000 a week ($520,000 annually) in excess charges! As you can imagine, both the manager and his boss were astonished.   
 
So what are the lessons learned?
 
Many times you need to look beyond process efficiencies and review process effectiveness. In this case it was a broken process because work was assigned to those that could not execute it and hence, it was not being done.  A hidden loss-pretty important stuff!
 
One of the many questions that arose was “how did this get assigned to the stores in the first place?”  Well, all too often work is assigned to those who are responsible for the outcome, i.e. the stores were expected to check the costs since they are responsible for  gross margin (product sales less product cost).The objective however is to assign work instead to those that are in the best position to execute. In this case, accounts payable had the data and so performing  this task at the department level for all 400 stores would not only be more efficient, but far more effective than having each store doing it separately.
 
The reward? A hidden loss uncovered. In this case, over ½ million dollars in additional gross margin, and all with very little effort. 

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Seeking Approval for E-Procurement Tools; The Dilemma of the Purchasing Manager

Pity the purchasing manager who wants to go to his/her boss and ask for approval on an e-procurement program to support the work they are doing. Typically understaffed and over worked, many senior executives fail to see the potential value of e-procurement. They expect the manager to source goods and services in the usual way and get the best price. How hard can that be? What else could be needed for this?

Naturally the manager would go through the usual process, and when asked, he/she can say that they talked to several suppliers, negotiated the best price, and here it is. So everyone believes they have done their job and secured the best price available.

But in actual fact, if you truly want to go after the best cost for the level of quality and service you need then it does take a different approach and new technology. The purchasing team has the potential to contribute substantially more value to the organization, but only if equipped with the right tools and right process.

This is where e-procurement comes in, and delivers:

  • State of the art e-auction software that encourages vendors through a reverse auction process to present their actual best price. Interesting that in most cases the incumbent comes in lower than their stated best price and in many cases by a substantial amount.  Studies have shown that this cannot be achieved through the traditional RFP process. With an average savings of 24%, it is hard to justify not using e-procurement.
  • Better and faster RFPs – the traditional process is a huge effort ranging from document creation, sourcing vendors, response assessments, recommendations, and award of business. E-procurement can deliver 3-5 times more RFPs than the traditional process in the same amount of time.
  • Process documentation – all the activity throughout the process is captured electronically providing not only access anytime, anywhere, but also providing a complete audit trail.

So in fact, e-procurement should be an easy sell. You certainly don’t want your competitors getting that cost advantage while you lose out on it. And when you see so many companies and government organizations (the US is well ahead of Canada on this) adopting the e-procurement process, getting on board only makes sense.

Eugene Duynstee

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E-Procurement: Capturing Money Left On The Table

Presented at ProcureCon Canada 2014: Conference of Senior Procurement Professionals

E-Procurement: Capturing Money Left On The Table

Presented by: Eugene Duynstee, KPM Enterprises Inc. and Ron Southard, SafeSourcing Inc.

Date: March 18, 2014

All too frequently procurement professionals faced with negotiation with incumbent suppliers are being told:

  • We always give you our best price
  • Our products/ services are unique – no one else can do what we do
  • No one else knows your business as well as  we do and would look after you the way we do

If you sense these are not true, you would be right. The result?  “Money is left on the table”.

The dilemma: You  have a lot on your plate, and there is often pressure from above to just “stick with the incumbent”, but your responsibility is to garner the best cost for the required quality and service, so what do you do?     

Take the easy path, or the right path? How do you  capture   the “money left on the table”?

The answer: You need to find a way to dramatically improve the efficiency and effectiveness of your buying process. This is what will lead to success:

  • Consider more vendors : double the number of eager vendors  wanting your business
  • Develop a more efficient RFP process:  process 3-5 X the # of RFP’s in the same amount of time.
  • Level the playing field for vendors  competing for your business: don’t  allow one vendor to have undue influence
  • Expand the scope of information: provides you with a better assessment based on quality and service, as well as price.
  • Conduct an e-auction: this has been proven to  establish the best  price from  vendors

Where do you find this? All the e-procurement tools necessary to realize this innovative buying process are currently in use, and are  readily available  and  supported by a capable and experienced procurement partner.

What makes e-procurement easy to use?

  • The process is structured and automated
  • It provides instant access to extensive pool of supplier and product information
  • It does not require your IT group
  • It is led by a partner that does 80% of the work

What does an eProcurement partner provide to you?

  • Detailed, comprehensive specifications
  • Extensive vendor data base
  • Easy to use, flexible software
  • Remote access (cloud based)
  • Vendor training
  • In-depth category expertise
  • And importantly, a no risk trial to get you started and comfortable

What results can you expect?

  • Save an additional 15-25% on your costs
  • Deliver an ROI 10 – 15X the investment
  • Increase your impact on the business
  • And most importantly, the “money left on the table” is captured! 🙂

 

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*Announcement* – Eugene Duynstee Presenting E-Procurement

Eugene Duynstee to Present at Upcoming Procurement Conference

The Conference, ProcureCon Canada,  which takes place March 17-19, 2014 at The Hyatt Regency  in Toronto is featuring a session titled Innovation Spotlight. In that session Eugene Duynstee of KPM Enterprises and Ron Southard of SafeSourcing will be presenting:

E-Procurement – Capturing Money Left on the Table 

During the presentation they will take you through the benefits of e-procurement, describe how reverse auctions work, and display an actual recently recorded auction event.

This new way of buying, which is technology and internet based, is an established practice in the US and UK, but is relatively new to Canada.

Their Canadian clients are experiencing an average savings of 25% on the costs of goods and services they consume and sell. See how this operates and why it is so successful!

Further details of the conference and registration information can be obtained on the link: http://www.wbresearch.com/procureconcanada/daytwo.aspx

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e-Procurement – A Superior Vendor Sourcing Process

By: Eugene Duynstee, President, KPM Enterprises Inc.

How much time and effort do you spend sourcing vendors? Most buyers tend to use incumbent suppliers year after year. It’s a quick, easy, low-risk solution – the relationship is already established, and factors such as quality and performance are known quantities.

So what’s wrong with this “if it aint’ broke, don’t fix it” approach?

You are likely spending, on average, 15 -20% more than you need to, and may not be getting the best available quality and performance. Why?

  1. incumbent vendors are not motivated to offer the most competitive price
  2. other qualified suppliers who may have a superior price/performance solution are not even considered

Even if you do engage in an RFP process, this manual approach is cumbersome, time-consuming, and scoring is highly inefficient. More importantly, it doesn’t allow for a dynamic competitive bidding process. Quite simply, it’s an out-dated system.

What is e-Procurement?

e-Procurement is an innovative, technology-based process that delivers the optimal combination of price, quality and performance for any product or service a company might require ranging from office supplies, consumable items, maintenance and repair operations, all the way to courier and snow removal services.

It’s a suite of electronic tools and products that expand the scope, efficiency, and accuracy of information at each step of the procurement process from e-catalogues to RFI’s, through to the final vendor agreement and ongoing cost control and monitoring.

The process is based on a comprehensive database developed and maintained by the e-procurement service provider. An effective database will contain detailed information on over 300,000 local and global vendors, as well as a library of specifications on products and services.  This provides the buyer with a considerable advantage in terms of classification of supplier product lines and capabilities, quality and performance history, safety record, environmental initiatives, and much more – because as we all know, it’s not always just a matter of price.

In addition, a sophisticated software application program is built into the system that provides extensive functionality with quick and easy access to information and retrieval of data. Vendors can be grouped according to certain criteria, records can be retrieved and classified based on priorities – the combinations are endless!

Reverse Auction – the “event” that pulls it all together

In a nutshell, the Reverse Auction, or Auction Event, is an on-line process whereby a company entertains bids for a product or service from a pre-screened group of qualified suppliers. The auction is conducted with all participating vendors collectively, in real-time, and typically lasts approximately 30 minutes.

During the auction event, buyers can see, on one page, all responses from suppliers, information about each supplier, product specifications, notes from suppliers, and any other pertinent information that may factor into the decision. Vendors cannot see the bids of other suppliers, but if they are not flagged as being the lowest bid, they have the opportunity to better their price at any time during the auction.

Upon conclusion of the auction, the buyer is provided with a summary presentation showing the different price/quality scenarios and other relevant information for review and evaluation. They can then award their business to the selected supplier, all directly from their desktop!

Results You Can Expect

Reduced supply costs – an average savings of 15-20% is typical with this process, and in one case was a whopping 40%!

Increased productivity – the purchasing department’s productivity typically increases by a factor of 3-5 times with respect to sourcing activities.  It’s faster, more efficient, and provides better results than traditional RFP methods.

Buyer needs better aligned – a significantly greater number of qualified suppliers, together with increased scope and accuracy of information, can be evaluated and compared easily, allowing the buyer to choose the best price scenario, at the required level of quality and service.

Why is e-Procurement and the Reverse Auction process  preferred over traditional methods?

  • Instant access to an extensive pool of both local and global suppliers.
  • Comprehensive database providing an expanded scope of detailed quality and performance information at your fingertips that is well-maintained, continually updated, and easy to access/review.
  • Access to the category expertise of the e-procurement team. e.g. insight into industry dynamics, how specific goods/ services are priced, help in  identifying, defining and designing specs in order to maximize the effectiveness of the process.
  • Identifies the best sources of supply based on buyer defined parameters, often uncovering alternative sources not previously considered.
  • Companies can invite far more suppliers to participate in the procurement exercise than they could possibly manage with traditional methods.
  • Facilitates a sophisticated, real-time bidding process that motivates suppliers to offer their best price.

KPM Case Study

Plastic Wrap Auction Saves $1.3 Million

A distribution company with over 60 divisions coast to coast was spending $3.8 million for the purchase of plastic wrap – the product that covers and protects the contents on pallets during shipment to customers. We discovered that the company had limited knowledge of the prices being paid and the quality standards established within each division, so we took a look.

We gathered the myriad of vendor and pricing data and what we discovered was eye-opening! The company was not only using 29 different vendors for the purchase of plastic wrap, with varying prices among each vendor, but more surprisingly, in one case the same vendor was charging different prices for the same product (exclusive of transportation costs). Just obtaining consistent pricing across the country from one of the existing vendors would have generated a savings of 10% alone.

Clearly this product was ripe for the reverse auction process. Being a relatively new concept to the company, there were many that were sceptical of the process. However the go-ahead was given and we proceeded to develop specs tailored to their needs.

Based on the defined parameters, 8 qualified vendors accepted the terms and were invited to participate in the reverse auction. The live auction was completed in 23 minutes and resulted in a further 17% cost reduction, generating an overall expense savings of 32%!  In addition, the business was awarded to one of the existing suppliers with the added benefit of a known quality and performance history.

The company was extremely pleased with the results. They have embraced the concept and have completed over 100 additional reverse auctions to date.

The Bottom Line

e-Procurement is a superior vendor selection process that delivers substantial reductions in supply costs, maximum supplier performance, and improved cost controls, that translate to a significant boost to the bottom line.

Innovative and user-friendly, this technology-based process is gaining acceptance worldwide as the preferred procurement system.

For more information on e-procurement and other cost reduction techniques, please contact Eugene at eugene@kpmenterprises.ca or 905-891-6994.

 

Eugene Duynstee is President of KPM Enterprises Inc., a company focused on implementing responsible cost reduction programs in large organizations. KPM Enterprises Inc. is headquartered in Mississauga, Ontario, Canada. Further information can be obtained from our website at www.kpmenterprises.ca

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SafeSourcing® and KPM Enterprises Announce New Strategic Alliance

For Immediate Release: January 31st, 2011

Partnership expands companies offerings, geographical, and industry reach

(Scottsdale AZ) –  Scottsdale Arizona based SafeSourcing Inc.and Mississauga, Canada based KPM Enterprises Inc. have announced today a formal relationship that is intended to expand both companies product offerings and geographical reach.

Eugene Duynstee, President of KPM Enterprises, is enthusiastic about the company’s new alliance with U.S. based SafeSoucing Inc.  According to Mr. Duynstee, this will allow them to augment their current Strategic Cost Initiative deliverables with On Demand e-Procurement services (including reverse auction capabilities) to all of their customers across Canada and the U.S.  In all previous engagements with SafeSourcing, “We have been able to deliver remarkable results in a very short period of time with their complete suite of well-designed e-Procurement tools”.
According to Ron Southard, CEO of SafeSourcing Inc., “We are very excited about our new partnership with KPM Enterprises. The reason we exist as a company is to provide cost effective tools to companies that allow them to dramatically reduce their cost of goods and services in a timely manner while also reinforcing their environmental and product safety programs. Our product offering dovetails very nicely with KPM’s strategic cost initiative deliverables”.
KPM Enterprises Inc. works with CEOs and CFOs of large retail and consumer goods companies in excess of $500M who are looking to improve their business. We help them restructure costs, locate hidden savings, and move the changes through the organization to affect supportable, sustainable and strategic cost reductions that dramatically improve the bottom line without compromising the integrity of the business.
SafeSourcing’s mission is to provide information and services to customers through a family of e-Procurement tools that reduce costs, improve quality and pro-actively support consumer safety and environmental standards in the global supply chain. SafeSourcing drives increased efficiency and improves profitability for their customers while providing superior value for all stakeholders.
Contact Information:
Ron Southard, CEO Safe Sourcing Inc., marketing@safesourcing.com, 866-623-9006
Eugene Duynstee, President KPM Enterprises Inc. info@kpmenterprises.ca, 905-891-6994
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How to Tighten Your Belt without Feeling the Pinch – The Magic of Cost Champions

How much time could you devote to overhauling expenses? If you suspected that store maintenance costs were out of line or invoice processing was too slow, could you spend 30 percent of your day trying to find out why?

It’s frustrating to know there are savings to be captured that you don’t have the time to go after.  Results that are impactful and sustainable require a comprehensive, in-depth analysis which means diverting resources and time that you just don’t have.

Yet it’s precisely this type of analysis that can save your company hundreds of thousands of dollars.  That’s where Cost Champions come in.

What is a Cost Champion?

These are employees who currently work within the company and are already known for their energetic, professional approach. They are smart, interact well with others, and care about their work. These men and women become your Cost Champions, and they can change your business! 

These employees are living day to day with the inefficiencies that have slowly crept into the business. They know how the business ticks, and you’ll be amazed at the ideas they already have on how to make things more efficient and cost effective.  These designated Cost Champions are passionate about reducing costs and when provided with the knowledge and tools necessary to properly dissect and analyze costs, this becomes a dynamite combination! 

Powerful Benefits of the Cost Champion 

1)      Cost Champions are motivated to do it right.  They have a significant stake in the outcome because they have to live with the changes.

2)      Success is increased since the people that drive the implementation are the same people that are there to sustain the process.

3)      Changes are implemented more effectively and with less resistance when proposed by co-workers rather than outside consultants.

4)      A new culture of effective cost management is instilled in the organization because your people have been taught the skills of cost reduction (as opposed to just being told what to do) and they have the knowledge and enthusiasm to sustain the process.

Reduced waste, increased work flow, employees that are empowered with the knowledge to affect positive change…..these are the elements that will have a substantial impact on future operations.

Cost Champion generates 40% decrease in service costs

One large company I worked with had an employee who’d achieved success at a process called reverse auctioning. Reverse auctioning is when you put essential services up for bid i.e. elevator maintenance, shopping bags, floor cleaning, window washing.  Companies bid on your project and you can clearly see the one that optimizes the cost/quality ratio you are looking for.

The employee was successful in saving money on several minor projects through reverse auctioning but couldn’t secure senior level support to apply the concept to larger contracts. Meanwhile, the company’s garbage retrieval service was seeking a 10% increase in fees.  

Management responsible for store operations was educated on the merits of reverse auctioning and that employee became their first Cost Champion. Instead of accepting the increased fees, he negotiated a new contract that resulted in a 40% decrease in cost with no reduction in quality

The company subsequently gave this employee the responsibility of evaluating their other services in a similar manner and have ended up saving over a million dollars!

The Bottom Line

You can generate millions of dollars in savings simply by delegating the process to the right people and empowering them with the right tools to do the job.  This is how you tighten your belt without feeling the pinch!

For more information on Cost Champions and other helpful cost reduction techniques, please visit our website at www.kpmenterprises.ca or email Eugene from the Contact Us page

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