Service: Business strategy

Topic: Coronavirus

Cost and procurement – the road to recovery

By Stephen Coleman

17 Apr 2020

The impact of the COVID-19 crisis on UK businesses has been tough, and for many it looks set to get tougher. Some businesses may not survive, many will take on additional debt and the very fortunate few will flourish and prosper. 

For the vast majority however, the focus will be to get on the road to recovery as quickly as possible. To reset, to open their doors once again, to retain their employees and the brands they have worked so hard to build over the years.

After the crisis, sales revenue may not kick in on day one, and in reality, it will be a gradual process of restarting the engines and getting back up to speed. This process may take anywhere from three to even 12 months. To a degree, sales revenue will be an unknown, it will be driven by demand and the impact of pricing and supply in the markets.

What we can do right now is manage cashflow, and in particular our costs. Now more than ever we need to control our expenses and manage the debts that we are accruing in the background. 

Perhaps you were already astute with procurement or cost control, but perhaps you had never positioned yourself against the rest of your industry or markets. To a degree, much of what you did before will be outdated now, your supply chain will be built around your business pre-crisis, and for nearly all companies the landscape will have totally changed over the recent months.

From our experience, companies are typically quite astute at managing direct costs, raw materials, goods for resale, and people. It is “everything else” on the P&L that can often be overlooked, or not get the same strategic level of focus. We refer to these as indirect costs, for which most businesses will have spends in 30/40 different categories, many of which will be nominal values, but combined they will be material, they will be significant, and they will have the ability to bleed your business of valuable cash. 

In early 2019, we engaged Auditel Cost & Procurement to support the business with our own costs. Auditel are the UK’s largest indirect procurement consultancy, with over 3500 clients nationwide, including FTSE 100 and 250 companies, local charities and SME’s. They are specialists when it comes to indirect costs, and they typically have in excess of +100 categories of expenses under review at any one time. They know all key suppliers for each industry, they know what the realms of possibility are for each supplier and industry, and, they will know what most of your competitors are paying, and how your competitors are managing their indirect cost base. 

We have introduced Auditel to a few selected clients and on every occasion, they have identified significant savings opportunities. 

In the case of one client, they have saved them in excess of £500,000 in the first year of working with them. This is £500,000 of additional profit which has been released into the client P&L and will change the landscape of their published accounts for this year. Read more about this case study here.

As our business adapts to support our clients through the crisis and onto the road to recovery, we have asked Auditel if they can add to our initiative, and they have stepped up to the plate.

Auditel have allocated some resource and are covering their costs/fees to offer our client base a review of their P&L to identify, and potentially implement, any “low hanging fruit” savings opportunities. As pure indirect cost and procurement specialists, they will almost certainly find opportunities that you have missed, and at the very least will provide assurance.

There may be an opportunity to migrate to a supplier who could be sturdier in this environment or an opportunity to be more cost efficient with an existing supplier. Ultimately, the objective of Auditel is to try and provide you with some valuable savings on expenditure to help support you through this difficult period, and to allow you to focus your resources on only critical expenditure.

Following the review process, if the savings opportunities look to be significant, then Auditel can either educate you internally on how to execute the results, or they can come up with a plan to implement the results themselves and provide assistance going forward. 

Auditel don’t require much information to conduct this review for you, nothing more than a copy P&L, a supplier spend report and access to a sample of invoices. This is all information that can be accessed remotely, either via your systems, or alternatively they can contact your supplier base and request it themselves. The input from you and your team can be absolutely minimal. 

The value of what they can bring is clear. Whether you have a procurement team already or not is irrelevant, nearly all their clients have existing procurement teams, and in the case of FTSE 100 businesses these teams can be 100 people wide. Auditel approach their work from a different angle and they will find results that you haven’t, couldn’t or wouldn’t identify internally.

In terms of what the ideal cost areas are, below are a few examples of common spends:

  • Food and catering
  • Electricity and gas 
  • Telecoms (fixed, mobile, data, broadband, leased lines).
  • IT and managed services
  • Logistics (freight, couriers, shipping)
  • Packaging
  • Waste and recycling
  • Business rates
  • Merchant cards
  • Insurance
  • Private medical cover
  • Company cards
  • Fuelcards
  • LPG
  • Marketing and print
  • Managed print 
  • Hire purchase and lease assets
  • Forklift trucks
  • Cleaning and janitorial, and hygiene services

The above is just a small selection. It can be almost any area of indirect expense, for example Auditel has just saved 60% and £200,000 per annum on footfall cameras for a large retail client.

Our view is that it is worth a look, especially given that Auditel will conduct an initial review as a goodwill gesture. 

Please contact Richard Kleiner or Steve Coleman initially who will arrange a conference call or video call for you to speak with our Auditel Partners. In the meantime, you can view their corporate brochure here, which includes a number of household names that you will no doubt be familiar with.
 

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