MGPS - Articles

Supporting revenue growth, managing customer relationships and managing strategic initiatives are three fundamental areas of business in the corporate world. However, various "hidden" costs and their impact on company performance are often overlooked. While these costs are not clandestine per say - organizations are aware of their various expenses (telecommunications, transportation, energy, etc) - an in-depth analysis of these expenses can be mystifying. Often, organizations are unable to enumerate precisely how much they spend on non-core commodities and/or do not feel that overhead costs are a concern. However, controlling costs can significantly impact gross profit.

Consider the following examples:

At present, a number of Canadian corporations are not overly concerned about understanding their indirect costs, since many are reporting record earnings. The oil and gas industry for example, realized operating profits of $6.3 billion dollars in the first quarter of 2005. The question to ask, however, is how much greater could these profits be if the myriad hidden expenses were reduced?

Understanding Your Own Costs
Rick Hubbard, global practice director, technology solutions, for Watson Wyatt in Cleveland, notes that many companies do not have a firm grasp of their actual expenditures. When asked, they are unable to specify what their organizations spend on various non-core items. Despite not understanding their direct and indirect costs, "many decisions are made only on anecdotal information and without the benefit of benchmarking", according to Jim Holincheck, research director at Gartner Inc. in Chicago.

Some organizations with which we are consulting are in fact aware of the potential savings, and either blame high costs on lack of ownership, or they readily accept non-action and lost savings. Others tell us that they are already receiving discounts from their various suppliers, and thus, have their costs well under control. Their current supplier agreements provide a feeling of satisfaction and control, since the perception is that all discounts have been exploited to their full potential and are greater than those of their competitors'. Chances are, however, that their competitors are enjoying a similar "discounted" pricing structure, since everyone is - in the supplier's eyes - "a preferred customer." Maximizing Savings Potential
Although the discounts are a step in the right direction, they are a long leap away from reaching the full savings potential. If only maximum cost savings could be realized this easily! In fact, controlling costs involves a thorough investigation of current spend, baseline agreements and outsourcing opportunities, as well as an in-depth competitive analysis. And this is only the first step!

After the initial research and analysis, contracts need to be reviewed, and suppliers encouraged to deliver superior deals. Through these better-negotiated bulk rates, control of rate enforcement, and better process efficiency, savings of more than 30% on top of existing discounts are attainable. When thinking of the various non-core costs - travel, marketing, real estate, office supplies and professional services, to name just a few - the overall savings can be enormous.

Did You Know…?
How do people spend their free time?
According to the US Bureau of Labor Statistics:

Of course, there is still more to be done. Although the annual savings have begun, the new contracts and relationships need to be documented and monitored. This can be achieved via financial modelling, implementing new processes and automation.

Given the enormity of the work involved in maximizing savings, it is no wonder that some corporations settle for the status quo. After all, if they were to invest the time and resources into bringing about maximum savings, too little time would be left for managing other fundamental areas of business.

The Outsourcing Solution
This impasse can be resolved by outsourcing cost-control initiatives to firms that specialize in this area. Indeed, this approach creates a win-win situation for all parties involved. For example, MGPS' strategy is to bill for services only if cost savings are achieved. This means that companies assume no risk when hiring MGPS, with the worst case scenario being the maintenance of the status quo. This has yet to happen. In fact, companies that enlist MGPS enjoy savings, on top of any pre-existing discounts in place. More importantly, key personnel are able to devote their attention to supporting revenue growth, managing customer relationships and managing strategic initiatives - three fundamental areas of business.

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Understanding and improving business processes is fundamental to managing profitable growth. Eliminating duplicate processes, removing unnecessary steps and improving the overall flow of information is critical to ensuring costs are kept under control.

Slashing prices to boost market share is fi ne so long as costs are being cut to maintain healthy profi t margins. However, rather than cut costs the old-fashioned way through layoffs, reduction in benefi ts etc, reviewing and improving existing business processes, both formal and informal, will deliver surprising results and positively affect the company.

Business processes is a general term that describes the steps, actions, channels and functions required to bring about a desired result. There are numerous types of processes in a company ranging from simple and informal to highly technical and methodological. The procedures required to produce complex products typically have very precise specifi cations and exhaustive steps. However, most companies have generally vague procedures when it comes to managing the fl ow of information, including processing customer requests, paying bills and managing communications in general.

Typically, when a company decides to deliver 'effi ciencies' this usually means a technical solution. However, regardless of the merits of a particular technical solution, results rarely match initial expectations. While this may be a fl aw in implementation or a fl aw in design, often the culprit is inconsistent and laborious processes. Ultimately, a technical solution is only as good as the business processes around which it is built.

Documentation is at the core of ISO 9000. It can be paraphrased as "Say what you do. Do what you say. Write it down." To which we can add "Make sure the procedures make sense." It is important to document procedures. It is even more important to ensure that the procedures implemented are the most effi cient and best-suited for the particular task at hand.