Three Ways To Mine For Cost Savings

Confidential and Proprietary©2009 Ed Kerbs KERBS

Best Practices In Cost Savings and Expense Reduction:

Ed KerbsFebruary 2010

Use three effective and proven methods to mine for cost savings.

Auditing

Rationalization (Demand Management) and Business Process Reengineering

Negotiations


Best Practice

Three Common Tools To Deliver Savings:

1) Audit• Forensic accounting• Auditing inventory, contracts, invoices • Performance - SLA’s

2) Demand Management & Business Process Reengineering• Spend Rationalization• Vendor Consolidation• Process Enhancement and Re-Engineering • Insource / Outsource – Nearshore, Onshore & Offshore

3) Negotiations• Internal & External • Domestic & International • Tangible ($’s) & Intangible (Something else)• RFP, RFI, SOW, Contracts

Taking full advantage of these three proven tools can feed a thriving cost savings pipeline. This presentation excerpt coins cost savings mining ideas and best practices.


How To Find Cost Savings:“Audit”• Auditing – see that you get what you deserve for the dollars paid

• Can be the easiest form of deliverable cost savings • Start a cost savings office with a tracked managed pipeline of opportunities & results• Mine areas neglected for 1 year or more • Look for empty category management slots, downsized orgs – offer a consultative review• Put out an APB for initial leads during cross divisional global “Lunch and Learns” • Offer on the spot rewards ($1, $5 and $25 cafeteria / Starbucks credit) – log names and publish • E-mail and “interoffice mail me any anonymous confidential leads” Build relationships on trust• Increase rewards for big game via existing or newly sanctioned mechanisms

• Review all contracts approaching end of term (EOT) for savings opportunities. • Consolidation, volume discount, enterprise agreement, insource, outsource, terminate, bid out• Don’t let EOT force you to do suboptimal deals • Do now as this may uncover a top priority• Get in front over time via managed portfolio and system – do contract management • 90 days may not be enough

• Start with big $’s or complex monthly deals – 80 / 20• Look for big contracts that do not have a person assigned (or understaffed)• Ask legal, purchasing, finance for sources of fire drills

Best Practice – Mining for Savings

Cost Savings pipelines thrive with governance and structure.



• Examine & bring laser focus to non glitzy & sacred cow contracts in reluctant or neglected areas • Irrational responses to savings partnering attempts may indicate need for finesse & large upside potential• Focus relevant discussions around Corporate, Real Estate, Marketing, IT, Finance, HR (Sacred Cows)• Take on persnickety, traditionally rogue buyers. Offer a fresh look confidentially on a consultative basis

• Some Sacred Cows will remain long after your tenure – be careful • Hidden financial arrangements – get a high level executive sponsor to vet first, “eyes wide open”• Understand 2 way business relationship, circumvent blindside executive escalation during negotiations

• Make sure global demand is well understood and agreed to. Don’t forget to: • Challenge risk and assumptions, especially if sniff test fails • Ask users about internal sunk costs• Ask users about potential for internal systemic increase / decrease • Ask users internal cost drivers and external linkages & drivers• Partner with architecture or other logical rational internal or external helper• Ask users in all divisional, departmental or international about demand usage• Ask vendor to share information as appropriate and necessary

Best Practice – Mining for Savings Immediately get any and all dollars owed credited Set up a Cost Savings Office Track all savings via managed, rationalized and prioritized pipeline reporting venue



• Neglect = overbillings, underbillings, doublebillings, misbillings• Two edged sword – Always risk of “collateral damage”• “Law of averages” & “test of time” say you will benefit more than vendor from any audit activity• Large dollars at stake, tread lightly and challenge rationally - “peel onion” & “get the whole story”• You will find underbillings. Promptly pay recent underbillings net of savings (take high ground)

• Compare invoices to inventory to contracts • Supplier by supplier review of any inventory on your premises, get the details check contract & invoice• Full review of any inventory via on site supplier premises visit, get the details check contract & invoice • Even if there is no contractual recourse log and note for future leverage as appropriate • Go find them and see if you are billed correctly currently (P * Q)• Put out an APB for initial leads (outsource above) • Prioritize and get “Quick Hit Wins” via Forensic Accounting

• “Forensic Accounting” • Go back in time, “walk the trail” see if billed correctly (P * Q)• Audit invoices and agreements to see TAX, COLA is being paid correctly • Check to see that every agreement with first year warranty was not doublebilled maintenance• Request credits immediately with a professionally crafted case with spreadsheets• Maintain 100% accuracy & precision, 100% Ethics and integrity with all credit requests

Best Practice – Mining for Savings Elevate all relevant helpers to rock star status via top down praise and with monetary remuneration as possible Check contract to see if there are limits to the ability to get forensic accounting credits If credits are contractually restricted, track and maintain list for future negotiations (big list = big leverage)


How To Find Cost Savings:You have seen a 5 page excerpt of a 23 page presentation

• I give four presentations covering cost savings• Delivering Precise Reporting In Cost Savings – 8 pages - accurate/precise savings financials

• How To Set Up a Cost Savings Office – 10 pages, day 1-100, pipeline structure & governance

• 3 Ways To Mine For Cost Savings – 23 pages, 3 effective & proven methods to mine for savings

• Vendor Management Office (VMO) -15 pages, maps VMO goals, function & KPIs

• Contact me any time• Ed Kerbs

• 847-323-9986

• [email protected]

• LinkedIn Profile http://www.linkedin.com/in/edkerbs

Contact Ed Kerbs I am a procurement executive with a background in IT and the financial industry. I am different in that I build and

manage teams that save money via Cost Savings Offices (CSOs). I am expert and highly experienced in mining for savings by looking at contracts, invoices, inventory & business process (6 Sigma Black Belt) to determine ways to reduce expense.

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Three Ways To Mine For Cost Savings