What? You’re not shocked by that news? No, you wouldn’t be, because when it’s revealed that a government has wasted money with poor spending decisions and inefficient processes, the news is trumpeted in the media as a scandal. Everyone learns about it.

When people then consider how such wasteful spending precipitates tax increases and cuts to services, they’re naturally upset. And they demand action.

However, while most of us scrutinize our business operations to uncover wasteful spending, we seldom demand action from ourselves and our colleagues to eradicate it. So why is that? It’s clearly in everyone’s best interest to eliminate waste, make processes efficient and maximize profit. We choose executives with the skills required to achieve this, just as we elect governments based on our belief that they can get things done as we’d like. Yet governments and companies rarely, if ever, achieve optimum performance levels; certainly where cost management is concerned.

They face a common challenge: politics. And politics are scary.

Influential people and groups cause political disruption in companies as much as anywhere else. They can derail projects that would benefit everyone; cost management projects included.

Often, the problem is rooted in the way a project is communicated to stakeholders.  Delivering the wrong message at the outset, or mishandling negotiations, is likely to damage the long-term prospects for a worthwhile initiative. Executives understand this; and fear of missing the target sometimes prevents them from pulling the trigger.

Most of us can point to political issues that affect our organizations. But we cannot allow them to stand in the way of the results we’re paid to achieve.

When politics stand in the way of progress at your organization, help from an impartial third party expert can be essential. Experts can typically deflect the internal politics you face; they’ll get the job done more effectively using proven processes; and they instate efficient business practices you could otherwise not attain. Find your experts today and fear no more inefficiency.

Some of us believe our spend is under control and well-managed; we’re often unaware of overcharges, unnecessary and costly services, inefficient processes and creeping prices. But even when we know they exist, it can be difficult to identify the costs that are hiding in our businesses.

One thing is certain: these costs are not going away, so it’s time to commit to hunting them down.

When searching for wasteful spending, it’s important to understand the categories in which costs hide. Waste might be lurking in insurance premiums, janitorial contracts, merchant card fees, office equipment, telecommunication costs and a number of other areas, each of which has unique hiding places. Typically, a general familiarity with purchasing products and services in these areas is insufficient when it comes to uncovering waste. The lure that brings costs into the light is category expertise: knowledge attained over years working in an industry, earning its respect and learning its tricks and traits.

ERA Canada has experts in many cost categories. They know where to look for hidden costs. And they uncover them quickly, saving money that clients would otherwise never see.

On February 8th, ERA Canada’s Julia Harrison and Ross Pinkerton visited Dans La Rue’s Montreal offices. Pinkerton, ERA’s President, presented a cheque for $1,000 to Mr. David Crockart.

Mr. Crockart, who worked with ERA to reduce his organization’s Telecommunications spend, said “Thanks for the visit and accompanying donation. It is greatly appreciated. Again, it was a pleasure dealing with a professional organisation such as yours.”

Dans La Rue does fantastic work with street kids and youth at risk. We believe it is a wonderful charity. Please visit danslarue.com to learn more.

Now, let’s look at how you can overcome such challenges.

You must ensure your wireless service contracts are based on what you actually do, rather than what you think you do. If you’ve analyzed your actual wireless usage over the 12-month period prior to signing contracts, you are likely to pay only for what you need; and you can also establish benchmarks for your business. This simplifies ongoing management by letting you identify and focus on exceptions rather than combing through mountains of data that may or may not be important.

Average-cost-per-unit (ACPU) is the key metric in monitoring and managing wireless costs. You can calculate it each billing cycle by dividing the Total Amount Billed by the Number of Active Devices. It’s useful for budget and cash flow management to drive down ACPU, then stabilize the cost as much as possible from month to month.

Naturally, it’s easier to reduce your ACPU for wireless if the collection, analysis and reporting of usage data is automated and customized to your specific needs. This gives managers and CFOs contextualized information they can use to make strategic and practical decisions for the business. Automation also frees valuable resources from the mundane administrative task of analyzing complex service provider reports in spreadsheets.

Stop the Bleeding

Good information and benchmarks let you start your wireless cost reduction immediately. You can “stop the bleeding” by identifying what’s wrong with your existing situation, such as:

• Billing errors such as charges for features that are already included in the contract at no charge or situations where the negotiated contract conditions have not been properly implemented
• Redundant features in your contract
• Over-subscriptions such as paying for a 1,000-minute voice plan when only 200 minutes are actually used

Sustain Savings

Sustaining savings over an extended period requires monthly reviews and interventions. Focus on ongoing contract optimizations, your usage policy, creating device standards, generating useful management reports and getting user feedback.

Also, monitor usage exceptions and trends. For example, periodic business travel may require temporary contractual changes to ensure cost optimization. As part of ERA’s cost management service to clients, our experts perform monthly analyses of invoices from a variety of perspectives:

• Outlier and Rate of Change identifies users who consistently fall outside established cost and utilization parameters. The Rate of Change Analysis uses a 12-month linear regression analysis to determine short- and long-term changes in established cost and usage parameters
• Account Volatility compares the current month’s spending against statistically established spending expectations and identifies users who have significantly contributed to the current month’s volatility index. This information provides a measure to associate the cost of mobile services with specific business activities during the month under consideration (“We had our annual sales conference”) and identifies for follow up users with sudden, unanticipated high spending (i.e. the user’s job might have changed, requiring an adjustment of the user account)
• Usage Volume Analysis reviews the monthly use of resources (including shared resources as part of a contract, such as pooled airtime minutes)
• Low Usage Analysis identifies users who consistently use a substantially smaller-than-anticipated fraction of the resources available to them (and may no longer require mobile services)
• Non-Business Use Analysis captures the use of resources that may not have identifiable business benefits
• Mutations Analysis strictly focuses on Recurring Costs. It operates on the assumption that no changes in recurring costs should occur unless a change order is issued by the person responsible for mobile services

These analyses save ERA’s clients a significant amount of money each year. They remove the hassle of managing the fast moving wireless telecommunications category, too, which in itself is invaluable. If you can perform these tasks in-house, it’s important to do so. But if you cannot, look for a helping hand and reap the benefits as soon as possible, because this is a complex area of expense. And, as our infographic in Part Two of this series shows, it is only going to increase unless managed carefully.

Being a world-class manufacturer means being the fastest and lowest cost producer of quality goods in a competitive market. Those that have excess inventory, a cluttered workspace, and employees who aren’t following rigorous standardization practices will never get ahead of the competition.

You need a system that instills continuous improvement in your products and your manufacturing, distribution and sales processes. And that requires efficiency. In other words: Lean Practices, the philosophy of continually reducing waste in all work areas.

So, where do you start? Many managers have improved their systems by learning from the “5S Program,” the theory started by Japanese manufacturing expert Hiroyuki Hirano’s 5 Pillars of the Visual Workplace.
The program is based on Japanese words that start with the letter S:

• Sort or Seiri
• Set in Order or Seiton
• Shine or Seison
• Standardize or Seiketsu
• Sustain or Shitsuke

(The literal translations of the words in Japanese are: housekeeping, workplace organization, cleanup, keep cleanliness and discipline.)

Here’s a breakdown to help make your business more lean and efficient:

Sort. Separate items you need from those you don’t, keeping only what’s immediately necessary to complete a job. Put a red tag on anything that isn’t required and evaluate each item. After employees review the tagged items, they are returned, stored, sold, or thrown out. This frees up valuable space and eliminates the clutter of broken tools, obsolete items and other junk that creates inefficiencies. This step eliminates the tendency to keep things around “just in case.”

Set in order. Organize the workspace by arranging items so they are easy to find and use. Label them so anyone can find them and put them away. In a manufacturing environment, setting in order includes painting floors, outlining work areas and installing shelving and cabinets for items such as trash cans, brooms, mops and buckets. The ideal is economy of time and motion with a reduction in wasted energy and excess inventory. How could you apply this to your work environment?

Shine. Sweep and clean everything around the working area. This helps employees take ownership of their work spaces and lets them more easily spot leaks, breakage, misalignments and other problems that lead to equipment breakdowns and production losses.

Standardize. Set up best-practice standards and involve employees in developing the standards. Follow the basic examples of some fast-food chains, major department stores or the military, then adapt them to your requirements.

Sustain. This is the most difficult step because it involves everyone in the organization understanding the rules and practising them. People have a natural tendency to resist change and return to the comfort of doing things the old way. Overcome that by getting staff members to help define different ways of doing jobs and coming up with procedures to keep the new status quo. For example, require certain tasks to be completed at certain times so that the whole system becomes the norm.

The thrust of the 5S system is to empower employees to control their jobs and their environment. When they actively maintain the workplace, they take more pride in what they do, gain greater job satisfaction and improve productivity. Ultimately, this leads to better quality and faster lead times, making your company more competitive and profitable.

Our telecommunications experts recently produced a white paper that shares some of this knowledge (as well as research from The Aberdeen Group, the Canadian Wireless Telecommunications Association, and more than 3,200 mobile-user years of data from their own customers).

This article is the first in our serialization of this white paper on wireless telecommunications…

The Challenge of Increased Usage

Wireless revenues are today the largest single component (41%) of telecommunications service providers’ revenues. The demand for wireless services continues to increase; in the business arena, wireless costs are a significant and growing portion of organizations’ overall telecommunications expenditures.

Usage is increasing steadily on all fronts, including airtime minutes, data downloads, text messages and mobile Internet browsing.

Why has the use of mobile devices increased?

In business, a variety of factors is leading to increased use of mobile services and devices and, of course, greater associated costs:

• More employees have mobile devices – cellular phones, Blackberry devices, iPhones and tablets are becoming standard business tools

• Use of airtime minutes per user has quadrupled when compared to 2006 data. We expect this trend to level off or even reverse itself somewhat in the near future with the increased use of non-voice mobile services such as text messaging

• Data usage (for services such as Internet browsing) has skyrocketed from barely measurable in 2006 to sometimes hundreds of Megabytes per month and even Gigabytes per user. We do not expect this trend to level off in the foreseeable future because:
  • Wireless devices are increasingly “data friendly” as the result of larger screen sizes and increased processing power
  • Service providers are upgrading networks because data usage is highly profitable
  • A small proportion of users account for a large proportion of data transfers. More users will mean more data transfers

• The use of text messaging is increasing exponentially over time
• Socialization of business services: social networks, Twitter and video can be used legitimately to accomplish business tasks
• Fixed location wireless connectivity is slowly becoming more popular. Using “turbo hub,” locations can instantly be provided with phone and data services at relatively low cost
• Certain users require more horsepower to display and process data than is currently provided by handheld mobile devices. As people demand mobility, we are seeing wireless modems often provided to users in addition to a handheld device
• As the capabilities of mobile devices become more and more impressive, so the use of non-business services is increasing steadily

What challenges does this present to business?

Given the explosion in mobile usage within business, and as more employees use company-issued mobile devices, telecommunications managers and finance departments are struggling with new challenges:

• Operational management: the time and complexity of managing many devices and the services delivered to them is increasing rapidly

• Cost management: with a greater number of wireless services now being used by employees, it is becoming harder to understand complicated service provider contracts, to match those contracts to a business’s needs, and to isolate business-use wireless charges

• An abundance of opinions: it’s difficult to make the changes and set the standards that are best for the business because users become emotionally attached to their mobile devices and IT/Procurement teams tend to become attached to existing service providers

You can overcome these challenges. The remainder of this series of articles focusing on mobile telecommunications looks more closely at challenges you might face and practical solutions to them.

So, where should you look for ‘easy wins’ when planning your cost reduction initiative? And how should you go about achieving your goals?

ERA Canada achieves substantial savings for its clients across all cost areas. Here are just a few specific examples of average category savings:

• Copiers and printers: 42%
• Document storage and disposal: 26%
• Office consumables and paper: 20% each
• Off-site printing: 20%
• Cleaning and janitorial services: 19%
• Insurance: 28%
• Telecommunications: 21%
• Couriers and freight: 19% each
• Uniforms: 34%
• Waste management: 24%

Typically, people believe that there is not much room for negotiation on prices and few differences between suppliers’ services in these common cost areas. Not true. Consider a few methods for revealing savings opportunities:

• Say “No” to price increases. When a supplier tells you its price list has changed, don’t take it lying down.
• Track down the prevailing market prices before you start price negotiations (don’t rely on suppliers for this information).
• You may believe your costs are under control based on historical trends, but what are your competitors paying? Benchmarking data is a useful tool to highlight areas that have the most potential for improvement and will help you to set priorities. Gather the data from outside agencies, consultants, or benchmarking services. Be careful to ensure that you understand the data as they apply to your situation and use them to negotiate with your suppliers from a position of strength.
• Determine your product and service requirements. Is there a better way to procure the goods and services you need? Look at total costs, including item price, the cost of holding inventory and administration costs. Don’t accept premium services unless you really need them: for example, 9 a.m. next day courier delivery service if 5 p.m. is acceptable.
• Find out if there are any new technologies or suppliers that can immediately reduce your costs and administrative time. Work with your suppliers and external experts to identify new cost-cutting strategies.

But intelligent cost reduction is about generating profits by eliminating waste. Cutting jobs is always a last resort, regardless of the prevailing business climate.

So, how do you reduce costs without reducing morale? How do you prevent negative water cooler gossip and make your staff see the benefits of your strategy?

You communicate.

Carefully considered, ongoing, open communication about the nature and scope of cost reduction initiatives engenders a culture of tolerance – if not enthusiasm – for efficiency within organizations. When you identify the benefits clearly and show a direct positive impact on working life, you preempt criticism and give people the opportunity to support you.

Here are some ideas that might help you communicate effectively with your organization:

• Don’t limit the scope of your cost reduction initiative to the extent that it might appear you are singling-out particular individuals, job functions or departments that have not controlled their costs.
• Be honest about why you are cutting costs, if possible.
• Send a note to everyone in the organization. Tell them your strategy is to maximize profits by being efficient in all areas. Be clear that cost reduction needn’t affect day-today operations.
• Use your bulletin board, if you have one, to solicit ideas and feedback. While you must remain firm – you are not asking for permission to reduce costs – it’s hard for your critics to justify negativity if they have not taken the opportunity to have their say in an open forum.
• Consider incentives – financial or otherwise – to reward contributions to cost reduction schemes, or to share savings for a limited period.

Finally, if you are using a third party to help you reduce costs, ask for help with your communications. A good cost reduction firm will have seen and dealt with plenty of internal politics and will know how to handle your specific challenges.

If a company with $50 million annual revenue works on a gross margin of 25%, then it needs to increase sales by $4 million, or 8%, to add $1 million to its bottom line. Increasing sales by 8% is no mean feat for any company.

In contrast, reducing costs by the equivalent of 2% of revenue produces the same $1 million of profit. A comprehensive cost reduction program, covering a broad range of indirect costs and overhead expenses, typically yields savings of between 1% and 2% of annual revenue. And it can take as little as three months to implement.

These figures do not suggest that it is better to cut costs than to increase sales; naturally, most organizations want to do both. However, they do make it clear that cost reduction is a worthy pursuit and should be high on a list of corporate priorities.

What about price increases? Wouldn’t it be simpler for a company to raise prices by 2%?

For many, this isn’t feasible at the moment. For example, those that are sensitive to increases in the oil price have already passed on increases in production and distribution costs. Further price increases – with the aim of increasing profits – would likely be more than the market is willing to bear.

We might conclude that there is a strong case to be made in any company for improved efficiency and cost reduction. But if there is widespread pressure to become more efficient, we cannot expect our suppliers to be immune to it. So, how are we to reduce costs?

Even when suppliers are reluctant to cut prices, companies that have not recently undertaken a comprehensive, professional cost reduction program can find significant savings. A cost reduction team, including category experts, can reduce your costs by developing smarter solutions, identifying process improvements, improving productivity and reducing waste in addition to negotiating with suppliers for better prices. In fact, it can address all the methods you can use to become more efficient.

The extra dollars this adds to your profit are particularly useful in tough times and might be far more difficult to generate elsewhere.