The business of doing more with less
TEXT OF STORY
Kai Ryssdal: So I’m making a little list here. You’ve got rent, Internet service, electricity, coffee machine, the guy who comes to water the plants. Just some of the little and not so little costs of running an office. Companies don’t usually spend a lot of time trimming the little things when the economy’s humming right along. But when it’s not, when revenues are down and expenses aren’t, then every last nickel counts. Finding those nickels is a business opportunity all by itself.
Andrea Gardner explains.
Andrea Gardner: At the West Coast offices of Vident, CFO Stan Byrde spends a lot of time looking at bills.
His company sells mostly cosmetic dental supplies. Things like porcelain for veneers and dentures. Many customers pay with a credit card, and with each transaction, Vident gets charged a processing fee. Byrde thought those credit card charges were too high, but he couldn’t be sure.
STAN BYRDE: I’m trying to understand the business of credit card processing, it’s very complex. We didn’t even know what was generating the charges, we just knew what the end result was.
When the recession kicked in, Vident’s revenues began to suffer — consumers could no longer afford pricey cosmetic dentists. The company froze salaries. Byrde didn’t want to think about layoffs. He hired a consulting firm called Expense Reduction Analysts. It specializes in cutting overhead costs. ERA’s credit expert helped Vident add a feature to their e-commerce site. It verifies customer addresses so credit card companies know the sale is legit. That lowers risk, and in turn, Vident’s processing fees. Byrde soon realized that one change added up to a quarter of a million dollars in annual savings.
BYRDE: That was a very positive day. We were extremely pleased.
Most managers don’t know the tricks of the trade. So suppliers often have the upper hand in negotiations.
ERA consultant Marylou Garcia says, it’s not like companies don’t ask their suppliers for discounts; they just don’t ask for enough.
MARYLOU GARCIA: And so there was a tendency to go and say, “Oh, I can do that. We’ve done it.” No one really has the time, or the resources, or the knowledge, if you will, to really understand what the pricing should be.
ERA looks at everything from office supplies, to insurance to utilities. But they don’t suggest you cut landlines, or scale back to 1-ply toilet paper. Clients keep the same level of quality; they just pay less for it. ERA handles the negotiations and makes suppliers bid against one another for contracts. That usually drops overhead budgets by 15-20 percent. Garcia says that could help businesses dig out of their debt.
GARCIA: Today many of the companies are still obviously reeling from the effects of the recession. I mean, it is really not uncommon to hear a million dollars in terms of a gap that they are trying to fill.
Last year, revenue gaps were keeping many companies from hiring outside help, even people like Garcia, who can save them money.
John Furth, from the Association of Management Consultants, says business is picking up but expectations are high.
JOHN FURTH: I think at this point, you can’t really survive as a consulting company unless you show an economic benefit. I do think that it is the year, we’re calling it the year of doing more with less.
Furth says, while some consultants like Garcia are in-demand because they shrink overhead costs, other consultants are creating broader, more strategic cost-saving plans for their clients. Things like outsourcing, and streamlining distribution and manufacturing.
Back at Vident, CFO Stan Byrde says his eyes have been opened at what’s possible. And he’ll bring ERA back to look at his shipping costs.
Byrde: The suspicion that you have is well, gee, I bet there’s a bunch of other industries that are very complicated, that — I need to go look at our expenses in those areas too, to see if there’s ways to get those costs down.
He says his freight bills are as convoluted as the credit card bills were, and he expects to find more ways to save there.
In Los Angeles, I’m Andrea Gardner for Marketplace.
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