Rationalising Suppliers Delivers Many Benefits – CFO Series

Alexandra Cain wrote this piece summarising all the takeaways from my chat with leading CFOs on how reviewing your supplier agreements and possibly outsourcing this process could reap your business significant benefits !

This article was first published on the CFO Magazine website here

By Alexandra Cain

Systematically reviewing procurement processes delivers many benefits aside from reducing costs. But all too often, lack of expertise, time and resources means businesses simply roll over supplier contracts without really taking the time to explore all their options. Which is why outsourcing this process can deliver so much value.

Guest speakers at CFO Magazine’s most recent CFO Lunchtime Live event explored this topic, drawing on their experience rationalising the cost base in their organisation with Expense Reduction Analysts (ERA).

Panellist Luke Simmons is the CEO of Norths Collective, which operates hospitality & fitness businesses across five locations: Norths in Cammeray, Seagulls Tweed Heads, The Greens in North Sydney and The Alcott in Lane Cove, as well as a new site coming online soon in Beecroft. Simmons is working with Expense Reduction Analysts at the moment to rationalise suppliers.

“We’re a diverse club group. It’s not a complicated business, but until recently it was siloed, with each club run differently,” he explains.

While Simmons says Norths has some competitive advantages sourcing suppliers for its food and beverage business, he is in the process of rationalising many of the business’s indirect costs such as waste management, consumables, and electricity. Until recently Norths engaged multiple waste management companies. Thanks to the rationalisation process, it now has the same supplier for the entire business.  

At the start of the rationalisation project, he says it is important to build trust between the business and the ERA team. “We started with smaller opportunities to understand the process and establish accountability.”

Expense Reduction Analysts’ managing director David Rounsevell explains the business gives clients clarity around total spend across the business. “It’s a three-month period until we can deliver savings. Initially, we go through a discovery process to find out what the client is spending. Then we look for ways to change practices, equipment or engage new suppliers. We outline a range of options to save. For most companies, it’s an opportunity for a health check.”

Rounsevell noted it is not about screwing suppliers on price. “We want them to receive a sustainable price. It’s all about helping clients to get better service plus lower costs.”

“We could not have done this inhouse, it’s too easy to roll over contracts. We needed ERA – who only get paid on the savings they achieve – to see the program through. They really understood the cost drivers and give great advice about how to improve cost drivers and reduce our use of certain products.”

Toniann Stitz, CFO | Chisholm Institute of TAFE

Indeed, Simmons, like all the speakers, said cost savings are just one of the benefits of rationalising the supply chain. It also leads to more professional management of suppliers, a more rigorous approach to compliance and governance and better accountability around decisions about appointing suppliers.

According to Simmons, working with ERA has delivered Norths many advantages. “It aligns us with a business that has a remarkable footprint and ability to leverage its buying power. It also means the products we procure are priced more aggressively, fewer people in the business are tied up on supplier admin and allows us to focus more on customer-facing work.  We need to ensure the business is underpinned by strong cash flow, but it’s also helping to support our CSR initiatives and has given us an opportunity to look at our supply chain differently.”

Simmons’s advice to other businesses thinking about reviewing suppliers with ERA is to allow them access to the general ledger to give them the right information to be able to analyse the supply chain and report back on where the savings may be in a timely manner.

Another panellist, Peiying Zhang, chief operating officer Schréder, agreed gathering the data about existing suppliers is an involved but essential step to establish baseline costs.

“Collecting the data is not easy and you need to do a lot of data analysis. But it’s all worth it and gives you a great deal of insight into your business.”

One of the speakers, Chisholm Institute of TAFE CFO Toniann Stitz, explained the institute has devolved procurement and therefore used ERA to manage a program of procurement effort. ERA also manages the contract changeovers and monitoring of benefits and savings.

“We could not have done this inhouse, it’s too easy to roll over contracts. We needed ERA – who only get paid on the savings they achieve – to see the program through. They really understood the cost drivers and give great advice about how to improve cost drivers and reduce our use of certain products.”

Working with ERA has allowed the institute to automate processed, take a best practice approach and even achieve workplace health and safety improvements. Toniann recommends having a single point of contact (but they do not need to be a procurement expert) for ERA to help manage information gathering. She also said it is important to properly engage internal stakeholders.

“Sometimes businesses can be protective of supplier information because they think they will lose budget – and yes, there ends up being a cost saving. But there are no upfront costs and expenses are only taken out of the budget based on actuals, so there is no pain. Plus, the outcome achieves a better quality of service and better support.”

Finally, Rounsevell noted COVID-19 prompted many businesses to review their expenses out of necessity and this focus will continue as we come out of the pandemic.

“Spending habits rapidly changed. Cleaning costs rose, but office supply expenses dropped.

People put a microscope on costs and that’s still continuing.”

CFO Lunchtime Live proudly partnered with Expense Reduction Analysts

ERA Australia is a leading network of cost reduction consultants, offering strategic advice and practical methods which optimise costs, improve supplier relationships, and deliver Value Through Insight to your organisation.

Globally we operate in over 35 countries with a network of more than 700 specialist procurement consultants, delivering expertise in a wide range of major cost groups.

Our people have experience gained during long careers at a senior level in their areas of expertise, and we use this experience to advise businesses on how to get the best from suppliers, to help boost business performance by providing tailored solutions which generate success and growth.

For organisations to employ specialists in every area of spend is neither practical nor efficient. However, deployed at the right time during long-term contract negotiations or new project requirements, expert external help to work alongside your staff often proves invaluable.

As one of the world’s leading specialists for cost management, we are offering to optimise your supply chain and processes, finding innovative suppliers and providers to meet your organisation’s needs best.

For more information on how ERA can assist your organisation visit: www.au.expensereduction.com

Published by James Solomons

FCA, GAICD. Innovative Business Leader. Global CFO @Xref (ASX:XF1). Director at @business_Depot (formerly Aptus Accounting & Advisory @AptusAA). Former Head of Accounting @Xero Australia. Advocate, Entrepreneur & Educator #Family #Football #Fastcars!

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