By Brian Woolf
Softback, published in September 1992
Table of
Contents |
|
|
|
1. |
A Quick Look in the Mirror |
2. |
Real CEOs Don't Eat Fat |
3. |
The Battle of the Bulge |
4. |
Thin People Live Simply |
5. |
Involving the Whole Family |
6. |
If You Eat What Everyone Else does, |
7. |
Shed Ounces, Lose Pounds |
8. |
The Tofu Diet |
9. |
The Role Model Effect |
10. |
Measuring Your Waistline |
11. |
Getting Started |
|
|
|
Cost Saving Practices |
Appendices |
|
1. |
Norm Form
Example |
2. |
Four Key
Management Reports |
3. |
Regression
Analysis Example |
4. |
Suggested
future reading |
Being overweight is just as much a problem for
corporations as it is for you and me. And just as it is for us, it's usually
the last ten pounds of corporate fat that are the most difficult to shed. This
book is written for those executives who really want to have a leaner
organization, who are seeking additional insight into what corporate cost leaders
are doing to maintain their very trim waistlines, as measured by their expense
to sales ratio. It is also written for the leaders of young businesses who want
to grow up lean and stay lean, who wish to avoid adding unnecessary weight as
they hit business adolescence and adulthood.
Most cost-saving ideas are common sense. Many are
just "ounces" which, collectively, add up to pounds. Cost-saving opportunities
are usually thinly layered throughout the whole corporate body with deeper
layers in predictable places! There are no magic formulas or tricks when it
comes to cost saving. Losing corporate, or personal, weight is not easy. It's a
daily event.
The book has two parts. Part A describes the
advantages and characteristics of cost leaders together with an implementation
plan for companies wishing to improve their relative cost position. Part B is
an alphabetical checklist of cost-saving practices intended to help you review
and improve the cost-consciousness of your company.
Here are a few of the hundreds of cost-saving ideas
listed in Part B of the book...
Accounting, Physical Measures
Wherever possible, record all significant physical measures in your accounting system. Include such things as hours worked by department, miles driven, cartons of merchandise handled, and items sold per department. This information is critical in measuring productivity among similar departments as well as over time. Using physical measures is inflation (or deflation!) proof and eliminates the need for budgeting. Simply aim to beat last year's actual productivity results. Another excellent byproduct of physical measures is that it can help control headquarters costs. For example, you can measure the productivity of, say, the Payroll Department by monitoring the number of hours worked in Payroll, either per number of stores or per number of employees processed. Your report would look like this:
Payroll productivity (Dept. hours per 100 employees processed)
Cur. Period |
YTD |
Better (Worse) % |
|||
TY |
LY |
TY |
LY |
CP |
YTD |
1.86 |
1.98 |
1.93 |
1.91 |
6.1% |
(1.0%) |
The above tells us that for the latest 4-week
accounting period, the Payroll Department used 1.86 employee hours to process
each one hundred employee payroll records on average, a 6.1% improvement over
the same period last year. However, on
a year-to-date basis, the department's productivity of 1.93 hours for every 100
employees is 1.0% worse than for the same year-to-date period last year.
Blanket Purchase Orders
Using a blanket purchase order avoids the cost of issuing
a new purchase order for purchasing similar items over a period of time. For example, you may agree to purchase from
a vendor 100,000 items, at X dollars per item, over the subsequent six months. Then, each time you order that item quote
the one blanket purchase order number.
This can be done for merchandise, equipment, supplies, etc. Another cost-conscious angle on this, when
negotiating price, is to ask: "What
price could you give us if we increased our order 10% (or 20%, or 40%,
etc.)?" After receiving the new, lower
price, respond by giving a blanket order for the larger quantity, together with
a specific first order of, for example, 30 days supply, against the blanket
order.
CEO Challenge
For an organization to be truly cost-conscious, the
CEO must constantly be challenging every part of the organization regarding
costs. He challenges the buyers to
ensure that they are receiving the very best buying terms. He challenges operations to simplify
procedures to improve productivity. He
challenges the insurance department to find better rates. He challenges accounting to locate better
rental car discount rates than at present, etc., etc. After all, an axle that squeaks is eventually oiled! If the CEO squeaks about costs constantly,
the organization becomes very cost conscious.
Deal Terms
On a regular basis, hire an invoice-checking firm
to check your purchase records for the past 3-6 months. The outside firm will collect 50% of the
difference between what you paid and any deals that were offered to the trade
but for some reason you didn't take.
You get the other 50%. It is
also an excellent, cost-effective way to have a free audit of your buying and
payables department.
Elimination
This is the greatest cost saver of all. Rather than cutting costs 10% across the
board, it's preferable to identify those functions and departments that are no
longer critical to the long-term success of the organization and eliminate
them. Across the board cuts are unfair
to those departments that are cost conscious.
After a while, they'll give up and say,
"There's no reason to be cost conscious if we are penalized equally with
other departments."
Forms Review
Once a year, conduct a company-wide forms
review. New forms are always being
introduced. Old forms are seldom
eliminated. This review should
challenge the use of each form, the simplicity of it, the number of carbonized
sheets involved, and its distribution.
Review also whether several forms can be merged into one form. Recently, I was horrified to see one
company's internal stationery supply request forms in quadruplicate! Even headquarters people had to complete
such forms to receive supplies from another part of the building! A single one-page request form would have
been perfectly adequate!
Garnishments
Charge a fee for each check garnished. Yes, this is legal. (See the fine
print!) The charges are against the
person paying the amount. The income
received will help offset some of the administration costs of this procedure.
Health Pay
Rather than having one week's sick pay available to
employees each year, reverse the concept and make it one week's "health
pay." This means that when an employee
has a minor sickness during the year, he does not receive any payment for time
off. However, during the first pay
period of December, each employee receives 1.92% of his year's income for
health pay. This encourages employees
not to take time off to use up accumulated sick days. Further, it rewards your healthy employees. Its also acts as an incentive for employees
to stay with the company through the end of each year, as anyone who leaves
during the year loses their health pay for that year.
Idea Groups
On a regular basis, have groups of employees come
together on a voluntary basis, to suggest ways to reduce costs and improve ways
of dong things within the company.
Every business is a process flow.
The process can always be refined and improved.
Job Descriptions, Cost Clause
Cost-Conscious companies often include a cost
clause in their job description.
Somewhere in the job description they will insert the following
phrase: "To find more efficient ways to
do the job and to seek to reduce costs and improve labor productivity." Is a phrase similar to that in every job
description in your company?
Kaizen
This is the Japanese word meaning continuous
improvement. This attitude is typical
in cost-conscious companies and is reflected in such practices as quality
improvement, suggestions, procedure manual reviews, etc. It's a mindset that underscores that no
matter how well you are doing, you can always do better. It also reflects the mindset that, in a
world of constant change, parts of your business are constantly becoming
outmoded and are in need of change simply to stand still, let alone
progress.
Labor Scheduling
Labor hours should be scheduled based upon
standards for the core functions that must be performed every day and week,
with an additional variable allowance for physically handling and selling the
merchandise. Labor standards should be
based upon the physical needs of the business and not in terms of a target wage
percentage. They are expressed in
physical terms related to physical items (e.g., items per hour) for
year-to-year productivity comparability.
Once fair labor scheduling standards have been introduced, simply
monitor and manage major exceptions each week.
Management Statistics Book
A simple way to avoid wasting of executive time
looking for management reports is to develop a standardized management folder
for each executive. Have separate tabs
for week, month, quarter, year, and multi-year. At the start of each section, identify the reports that will be
in that section, together with who prepares that report and the page number of
the report. Also, the page numbering
system should be identified on the management report, for standardized easy
filing. For example, your monthly tab
might include the following.
. |
Monthly sales per store per week |
... page M1 |
. |
Monthly comparative sales data |
... page M2 |
. |
Store sales ranking report |
... page M3 |
. |
Year-to-date shrinkage, by month |
... page M4 |
. |
Store 3-month rolling shrinkage |
... page M5 |
. |
Store telephone exception report |
... page M6 |
Your secretary can update your statistics book as
soon as each new management report is received.
Norm Forms
An effective alternative to budgeting is to compare
one store's results against the average of all stores with similar sales
volume. For example, a company with
individual stores sales ranging from $5,000 a week to $100,000 a week may break
them into sales volume classes of
|
Weekly
Sales |
Class A: |
less than
$10,000 |
Class B: |
$10,000-$19,999 |
Class C: |
$20,000-$29,999,
etc. |
As expenses usually vary in direct proportion to
volume, comparing each store against its peers' actual results and not against
a budget provides a real comparison and incentive to improve. Every manager wants to perform better than
his peers. Further, as managers improve
their individual performances against the average, that, in turn, improves the
overall average for their sales volume class.
This norm form reporting system provides the company with a method of
constantly improving results and provides a target which floats with the real
conditions that particular week, month, or quarter, as opposed to some static
budget figure determined at the start of the year. It is a far more effective self-management tool than a fixed
annual budget. A simple example of a
Norm Form is included in the appendix.
Operating Balance Sheet
Too much time is spent on the Income Statement and
too little on the Balance Sheet. This
is because the typical balance sheet is not user-friendly. Make it so by dividing each total by the
number of stores both for this year and last year. Then identify, by line item, where investment costs are
increasing and decreasing for the average store. This is a very simple and effective measuring tool that will help
you reduce your net investment per store thereby freeing cash for other
purposes. A typical operating balance
sheet for a chain retail or service company is included in the appendix.
Purchase Terms
Two terms in purchase agreements that have saved
companies lots of money are "most favored customer" and "won't exceed." Include in your purchase agreement a clause
stating that you won't be charged more than the vendor's most favored
customer. If your vendor won't agree to
this, then get a commitment that your price won't exceed $X during the next 4
months.
Quarterly Reports, Shareholders
Simply attach a shareholder's mailing address label
to his or her actual quarterly report and mail using bulk mail rates. Save the cost of the envelope and first
class postage!
Recognition
Wherever possible, recognize people in some
tangible way for cost-saving ideas. For
example, in addition to anything else you do, you could give a coffee mug to
every employee who comes up with a cost-reducing idea. The mug could have something appropriately
inscribed on it such as "I saved the company money," or "I'm helping make the
company great!" Not only does this
recognize the contribution but it also reinforces the cost-conscious culture to
all who see the mug.
Salary Changes
To simplify salary administration costs, all salary
changes below a certain level should be made effective on the first pay period
of each calendar quarter. Employees
above that level could have their salary reviews made effective in the first
pay period of either January or April (or some other month) each year. This will allow for a fairer review of
relative performance done at the same time.
Obviously, exceptions, where really necessary and with the appropriate
approval, can be made to the above guidelines.
Tasks
Allocate tasks and functions to the area most
skilled to do it. For example, the
human resource department is more skilled in giving advice, etc., than in
processing paperwork. Therefore, keep
human resources to a small core of competent specialists working in their
field. Pass on the processing of
payroll, insurance, even the handling of a great deal of their paperwork to the
process-oriented accounting department.
Utilities, Lighting
Light switches for closets and interior areas can
be colored and equipped with a light when the light in these enclosed areas is
on. Similarly, you can use color-coded
light switches to designate which should be on and off during non-operating or
non-office hours. Alternately, you can
put 5-minute shut-off timers on such lights.
In back rooms and storage areas, remove some of the florescent tubes to
reduce the lighting intensity to a level appropriate for such areas.
Vacations
Have a policy of "use them or lose them." One cost-conscious approach is to have
vacations fall due for all employees on the same date each year. Then allow employees 12 months from that
date to use the vacation time earned in the previous period. In setting the date, it's best to choose a
date that is preceded by a quiet period, as some employees will, each year,
delay taking their vacations until the last moment.
What if...
Ask yourself: what if a real, no-nonsense cost
cutter came in to run this business?
What would he eliminate? How
much would someone like "Ming the Merciless" really cut and eliminate from the
way your business is currently run?
What would happen if you did those same things?
Zip Presorting
Wherever possible, presort your mail by zip and get
a reduced rate from the Post Office.
For those companies that don't have a large quantity of mail,
mail-sorting companies will include your mail with their total and share the
presorting price break with you.
Brian Woolf is a global leader in loyalty marketing and has written three definitive works on the subject, Measured Marketing: A Tool to Shape Food Store Strategy, Customer Specific Marketing, and Loyalty Marketing: The Second Act. He devotes his time to helping retailers develop, critique and strengthen their loyalty programs.
The techniques and metrics Brian Woolf has developed have become guiding principles for those operating some of the world's most successful programs. He is the President of the Retail Strategy Center, and has consulted, and spoken at conferences, in the US, Europe, Japan, and Australasia.
Prior to his total commitment to loyalty marketing, his corporate roles included Deputy Managing Director of Progressive Enterprises, a major New Zealand retailer; and Chief Financial Officer of Food Lion, a leading US food retailer. He has an M.Com. (Economics) from the University of Auckland, New Zealand, and an MBA from the Harvard Business School.
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