When given an expense reduction mandate, how do you prioritize your options? What is the wackiest idea you have ever implemented?

Linda Wright's Profile

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The easiest cost reduction areas are a) T&E and b) Office Supplies/Expenses.

The most complained about reduction areas are a) T&E and Employee Benefits.

The easiest to remediate and end the conversation is Employee Benefits; just have them look around them, at other industry players and industry as a whole.

T&E is always problematic because it is perceived as an individual entitlement (versus a company-wide benefit) and ego says my job/T&E/etc. is most important to the company.

Wackiest, couldn't say...

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Linda -

T&E is arguably at the top of the list. But it is also one of the more 'touchy' areas. Depending on the nature of your business, there may be several other areas where reduction in expenses can be had. Here are some examples -

1) Computer maintenance, printing supplies & IT services (Do you have the best deals? Are you getting the maximum bang for the buck?)
2) Telecom services (What services are really needed - company cell phone, long distance, internet...?)
3) Equipment maintenance (if you are a manufacturing firm how periodic must the maintenance be? Is more frequent better?)
4) Merchant processing
5) Shipping/courier services (another area that is often overlooked that may cost thousands of $$)
6) Overhead related (utility, cleaning, office supplies etc.)
7) Real estate - rents, leasing (are you paying too much for rent?)
8) Vendors & Representative agencies - (is your prototyping vendor too expensive? Do you have too many Reps in a small area?)

and many others

As you can see, a lot of it comes down to understanding what a company really needs. Some of the areas in the list cannot be touched without loss of productivity and efficiency.

The wackiest idea I've heard is a company that saved cents by moving to cheaper paper towels in the break room, only to find that people were using more of the poor quality towels that caused an overflowing garbage bin. They changed it when a visiting customer commented on a rather unclean break room!

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T&E is probably the line item that sticks out the most; but I tend to look at Marketing first. A lot of marketing is justified under the banner of "we always have done that, and if we don't continue doing it our customers will think we are in trouble."

Marketing is vital to a company's success, but the methods need to be evaluated regularly to see if they are still working.

I have worked with a number of companies who go to multiple trade shows because that's what they have always done. Yet when you look at the returns from the show, the justification is not there. Even if a presence is needed, you can usually get the same returns with a smaller footprint. (Not to mention the fact that trade show trips are often viewed as a reward for performance, resulting in a large number of extra people going along for the ride.)

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Personally, I think you look at all of them. Are the necessary? Do they provide a benifit? Is this the best price to pay for the service/product?

It is amazing how much you can save by just looking and questioning.

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Zero-base budgeting. To Tina's point, it is best to look at all of them. Are office "rent-to-kill" plants more important than orthodontic benefits? Is an extra field-sales tech a better ROI than the 40-40 booth at XYZ show (to Randy's point)? Assume that every year you *can* shut it down. This helps build a "trim the fat" culture and one that is thoughtful on spends.

At a larger company, this is an impossible task, so you need to boil it down to the departmental level, and take a different approach at the corp/consolidating level. If your GM's continued position depends on a timely delivery of a "I looked at everything from zero, at least *once* this year, and here is the ROI", you'll at least know they looked at it. You'll also be challenging them to reflect on their priorities...which one hopes will change from year to year.

Notably, this needs to come from the top with strength if you've not done it before. Many people, especially those who come from mature industries/companies, seem to take a steady-state vs. opportunity approach to budgeting, as opposed to the "if you were to build this today, what would you build?" approach forced by a ZBB. In a dynamic industry/company or simply in dynamic times such as we have now, the former approach is absolutely toxic.

I have seen some tops-down targeting that works, and some that doesn't. "Eliminate the plant service" for example was used to send a message...not that we needed the $100 a month, but the CEO wanted to communicate that we would only do what we needed by visible example. "We don't do X" as a blanket statement can be, however, disempowering. Better to say, "GM, you get as much budget as you want, as long as you demonstrate the ROI." If that means keeping his salesfolks on the road 24/7 and giving out iPads like jellybeans...if there is margin in it, then yay.

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Also, start with a quantified goal. While looking at various departments/areas makes sense, equally important is knowing how much you plan to reduce expenses by - X% or $Y. Then, communicate it to the stakeholders.

From a priority standpoint, look at areas where there would be least disruption to start with. After you implement changes, create a feedback loop to understand the results and fine-tune as needed. Depending on how aggressive you want to be, this could be more incremental improvements or a complete clean-up.

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With any expense reduction program, the first thing to address is....what can I cut that will have little or no impact on the health of the business? I have been in companies that have reduced marketing expenses, since they could never establish a direct connection with revenue. This eventually hurt us in the market place. T&E is the quickest/easiest to cut. Mandating approvals for trips by a manager or the next level manager always worked to significantly reduce travel. The wackiest thing...We had a person issue a memo mandating that no one buy supplies. I don't think anyone really reduces the amount of ink they use during the day or changes their printing habits. It was mentioned in this memo that we would save over $1mm per annum for a 630 person office and 28 plants. With about 1,000 office workers each person would somehow generate $1,000 of savings.

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