Category Archives: Blog

How do you prepare your business to face this year’s ‘perfect storm’?

The Bank of England has warned households to expect sharp rise in inflation this year.

In terms of business challenges, is this the making of a ‘perfect storm’ – Brexit, rising inflation, government budget cuts, less consumer spending, sterling falling in value, a drop in manufacturing output and now the announcements  from the new US President of policies promoting an ‘America First’ agenda.

Rather than waiting for this to happen shouldn’t we all as business people look at how we operate and the cost of operation.  By ensuring that our cost base is as best we can then the business challenges of maintaining profit is made easier. By examining our supplier base not only in terms of robustness but also cost and country of origin should be the focus of all forward-thinking businesses.

How can businesses best undertake this review?  It could be argued that businesses as part of their natural businesses cycle would do this.  But do they have the time or the knowledge of what is available?  You don’t know what you don’t know.

I am constantly surprised that businesses don’t take this decision and constantly rely on traditional approaches to procurement.  Asking for help is not a weakness but I believe a strength of a good business.  If this comes at no cost, then it is a duty of all managers to seek outside advise and can strengthen the approach to the future

By using external advice with knowledge of different markets businesses can ensure that they are best placed to face the ever-mounting business challenges of remaining profitable in these uncertain but exciting times.

When it comes to business, asking for help isn’t a weakness. It can end up being a pretty smart business move.

Contact us for further details on reducing your business costs.

Whilst discussions around the government’s plans for total academy conversion for English schools in England have mainly focused around teaching standards, another key factor in their ultimate success will be whether academies can survive financially once they have total control of their budgets.

This is the view of leading business cost solutions specialists PES Business Ltd who have worked with a number of academies around the country.

Unlike the traditional LEA led schools model where pupil intake was determined by the local authority and there was little or no competition between schools, now that academies have the opportunity to determine the number of pupils they accept, those academies who are not as popular could well face reductions in their income.

The effective management of an academies’ income and accompanying expenditure can impact on the level of teaching resources available for pupils and will ultimately decide the survival of some academies.

Previously school’s expenditure levels were heavily influenced by their local council or by approved buying groups who would procure goods and services on their behalf. Now that future academies can determine their own procurement strategy, the emphasis is on how well the decision makers within the academies make these financial decisions.

Neville Snell, director of profit improvement at PES Business comments; “As Headmasters now become CEOs and Accounting Officers for these academies (effectively companies) it is clear that many academies lack the right skills or knowledge to best determine the large buying decisions that they make, and fulfil their duty to provide best value for any level of expenditure incurred.

“We have seen many examples of where a reliance by an academy on using incumbent buying groups or local council procurement instead of undertaking a full review of alternative sources of advice, has led to purchasing decisions which have turned out to be costlier than necessary for the academy.”

Amongst their clients PES Business have worked with a high performing secondary school in southern England that converted to an Academy. The Academy were facing increasing utilities costs but lacked the necessary procurement experience and expertise, and so brought PES Business in to help review current contracts due for renewal and implement a new procurement strategy.

As a result savings of 26% were made on a single gas supply contract and further significant savings identified on their telecoms spend plus future janitorial and business supplies contracts.

Neville adds; “As academies are required to operate more like businesses, their accountability has to be more like a business with a clear, transparent use of skills and knowledge available. Businesses are used to using outsourced expertise to provide a service with a higher level of knowledge and awareness of the markets, but at a fraction of the cost.

“Academies need to ensure financial propriety and ultimately financial survival, and so the markets that academies can access for their procurement requirements should not be limited to “education industry” experts. Rather best practice should dictate using alternative supply channels to secure the best value for money and not just settling for ‘more of the same’”.

Whatever decisions are made by the management of the academies, the ultimate winners or losers will be the pupils who will either benefit from the additional resources available for learning through good income and expenditure management or conversely lose out from a reduction in these resources.

 

Schools

With the recent announcement, of £3bn potential cuts required to school’s budget by 2020 is it time for a fresh look at how schools operate financially?

With most long established institutions, the ability to change and examine new ways of operating is a challenge.  The changing landscape of education funding whereby most schools will become academies and therefore self-managing, further compounds this challenge.

As the report states, approximately 60% of secondary schools will be or are currently operating in deficit, meaning there is a radical change needed to manage the operating expenses of every school.  Worryingly the call from the sector seems to be that this will result in staff cuts.  Whilst it is inevitable that some staff cuts will take place due to the size of the required cuts there could be other areas of opportunity that can be realised, thereby reducing the need to reduce staffing levels so severely.

From our experience of working with a variety of schools and institutions ,we are often faced with a reluctance to change from “what we have always done”.  Such reliance on existing recognised buying clubs and council run procurement activity has not produced the required levels of savings or efficiencies that schools require to meet future education funding targets and the demands of expenditure cuts.

Whilst dealing with some schools that are open to change, we have been able to use our experience from other sectors to optimise their operating costs. It does seem however that whilst commercial businesses recognise the need for outside expertise, the education sector seems reluctant to accept this.

Many suppliers are keen to work in the education environment but are often prohibited due to the use of framework agreements or OJEU.  Therefore, the availability of alternative sources of supply and a challenge to existing costs may be limited, again making the challenge of cutting costs difficult.

Commercial businesses have long faced the challenge of ensuring costs are comparable to income and it could be argued (as I have on previous blogs) that schools must now operate in a similar manner.  Added to this the need of future governments to balance the fiscal budget means that such challenges will not diminish over time, but actually will increase.  So schools do need to look at new ways of operating and explore services that are outside of the existing ones that have been used.

As a wise man once said; “If you always do what you’ve always done, you will always get what you’ve always got”. In the case of schools this could be a budget gap of £3bn – and increasing.

 

business cost reviews

A recent survey undertaken by the Resolution Foundation and the CIPD, has revealed that the majority of the companies surveyed aim to minimise the effect of the new National Living Wage (NLW) by increasing productivity.

The report, based on a survey of more than 1,000 employers followed by in-depth interviews, showed that the ways in which employers expect to respond to the NLW varies greatly between small and large employers, and across different sectors of the economy.

Over half (54 per cent) of employers expected the NLW to have some impact on their labour costs. It also suggests that employers are far more likely to absorb the cost of the increase than pass it on to consumers through higher prices.

The report highlighted a desire by organisations to raise productivity, with 32 percent of large employers expecting it to be part of their response. However, there was considerable uncertainty about how to raise productivity and small firms were more pessimistic about their ability to do this.

Amongst organisations with less than 250 employees, the proportion expecting to absorb the cost through lower profits (26 per cent) was higher than the proportion expecting to offset costs through higher productivity (25 per cent). Many argued that improving productivity was not viable, with one business summarising concerns by saying, “we’ve done all this before. I don’t think I can get any more out of the staff again”.

Mark Beatson, Chief Economist at the CIPD, said: “Our reports suggest there is uncertainty among employers on how they are going to make sure this step up in pay isn’t one that threatens jobs or the business. Large employers appear to have more options available to them when deciding how to respond. Small and medium sized businesses are more likely to absorb the cost through lower profits, at least in the short term.

“Many employers say they intend to manage the cost through increased productivity, but we often find a gap between good intentions and reality, due to a lack of knowledge about how productivity can be improved and other pressures on management which mean they never quite get round to changing the way the business operates.”

Surprisingly when asked about their 10 “coping strategies” not one of the employers interviewed mentioned a plan to review their cost base as a whole.

Whilst most of us are used to being told in our domestic environment to undertake cost reviews on a virtually hourly basis, it never ceases to amaze me that a large number of businesses are happy to accept costs as a “given”. Furthermore if there is someone assigned with managing these costs within an organisation there is an acceptance that the prices obtained are the best they can get.

Adding Business Cost Reviews to the mix

At PES Business we work hard to identify those areas of client’s spend that are either of the highest value, operationally challenging or considered to be of the most risk to their organisation. We understand that some things are more important to your organisation than others so we work with you to ensure we are clear on your priorities and requirements from our work.

We then take this knowledge and apply it to your existing supply base and our own market intelligence to benchmark and define what the “future state” could look like. We only work with reputable suppliers so we put them through a rigorous “fit and proper” test to ensure that if appointed they will help to enhance your reputation and customer satisfaction levels.

We ensure that a concise plan detailing when savings can be made, how future savings / efficiency can be identified and how resource can be allocated to deliver this. We ensure that a plan can easily be communicated to all key personnel ensuring that “buy in” is across the organisation. We also ensure that a concise plan detailing when savings are to be made, how future savings / efficiency can be identified and how resource can be allocated to deliver this.

A danger of continually focusing on productivity is that a happy workplace can quickly descend from a team-working environment into a disaffected and disassociated band of disgruntled employees. Asking employees to do more to negate the additional cost of the NLW by working harder can be missing the point.

Surely all businesses are obliged to ensure that the increases in the NLW provide an opportunity to have an holistic look at the efficiency of the business and see that value is produced for every penny spent on whatever cost line. The introduction of the NLW has the opportunity to increase productivity as a by-product of a happy workforce with increased standard of living.

SchoolsThe announcement by the government to continue its drive toward total academy conversion for schools in England has been high on the news agenda in recent weeks. The main point of discussion has been focused about the teaching standards provided to the children of the country, and coupled with the latest views from the NUT about exams, you can easily be distracted from one of the other important questions that must be considered. ‘Can the academies survive financially once they have total control of their budgets?’

Historically the financial decision that affects most businesses is how to ensure that expenditure does not exceed income. This point has previously been mute in the educational environment where a school’s income has been determined by the number of pupils it would accept in their yearly enrolment. Places were allocated by the LEA and there was little or no competition between schools in the state system.

Now that institutions have the opportunity to determine the number of pupils they accept, will academies who are not as popular be facing reductions in income that will force them to make difficult decisions?

One only need look at how the university landscape has changed over the last decade to see how their focus has now become ever more targeted toward recruitment, both domestically and overseas, to ensure income levels remain at the required level.

When the focus is then turned toward the management of this income there is a real threat that faces the survival of some academies and in some cases the level of teaching focus that pupils may be exposed to.

Why is this an issue? Previously the expenditure levels driven by usage and cost were heavily influenced by the local council or council approved buying groups who would provide and procure goods and services on their behalf.

As to how well these were purchased is for another debate but with future academies able to determine their own procurement strategy, how well placed are the decision makers within the academies to make these financial decisions, especially when OJEU framework rules need to be adhered to?

As Headmasters now become CEOs and Accounting Officers for these academies (effectively companies) it is clear that many academies lack the right skills or knowledge to best determine the large buying decisions that they make, and fulfil their duty to provide best value for any level of expenditure incurred.

A reliance by such decision makers on using incumbent buying groups or local council procurement instead of undertaking a full review of alternative sources of advice, has led to many examples whereby purchasing decisions have turned out to be costlier to an academy than necessary.

The markets that academies can access for their procurement requirements should not be limited to “education industry” experts. Rather best practice should dictate consideration around using alternative supply channels and not just settling for “more of the same”.

One area where knowledge of procurement procedures is especially varied is with regards the rules around when purchasing should be undertaken through European OJEU. Recently a tender request for a single new printer was issued asking for it to be submitted within OJEU regulations. Lack of knowledge or getting the wrong advice can cost time and money – neither of which academies have an abundant supply of.

As academies are required to operate more like businesses, their accountability has to be more like a business with a clear, transparent use of skills and knowledge available. Businesses are used to using outsourced expertise to provide a service with a higher level of knowledge and awareness of the markets, but at a fraction of the cost. Should not academies do likewise in order to ensure financial propriety and ultimately financial survival?

Whatever decisions are made the ultimate winner or loser in this situation is the pupil who can either benefit from the additional resources available for learning or conversely lose out from a reduction in these resources.

Neville crop  As most business people in February know there is a last minute dash to get that present for their “loved one”.

With the pressure of time against us all, we end exasperated at the cost of those roses that seem to double in price between 1st February and the 15th.  Is this savvy business practice by the florists or is it bad planning by the business owner?

I can sit here quite smugly knowing that I sorted my Valentine’s Day present out the first week of January when prices were low and so was demand.  The reward for me is knowing that the price I would normally have to shell out was reduced by over 75%. I feel no pressure as everything is sorted and hopefully I will get the “other half” in a good mood for the rest of the month!

This time reminds me that life as always reflects business.  We all know we have to sort things out but life / business seems to take over and we finish off up against it and seemingly paying over the odds for something that we can’t do without.

We all know the typical harassed Christmas shopper looking for presents on the 24th knowing full well that the prices will drop on the 26th.  Christmas like Valentines, like Birthdays, like anniversaries are always on the same date each year, but still we rush around at the last minute to get it sorted.

Running a business the pressure is constant and that decision to commit to future costs always seems to arrive too late for us to scout the market, and leaving us at the mercy of the incumbent supplier who knows they can relax for another year or even further, happy they have secured the business at an increased margin.

I am often amazed at the costs and service that businesses seem to accept. Fortunately for my clients this is now not the case as we are always aware of the costs / deals that are around and the timings to ensure we get those deals for our clients.

One thing I still haven’t got sorted for them though is the roses!

Neville cropWhether you’re a small business or a large corporation, your main goal should be focusing on running your core business, which includes managing your costs. Bringing in a third party cost consultant will help you better manage expenditure so your company can become more profitable.

Rather than tackle this task on your own, companies are encouraged to hire a professional who has knowledge and experience to assist or take care of it completely. A cost consultant can develop and implement a strategy that will stop your cost base from increasing exponentially.

While hiring a cost consultant has many benefits to your company, they are not to be confused with a cost broker. Although they have some similarities and work in the same sector, they are not the same thing. While you are considering bringing in a cost control service, it is important to know the difference between a broker and a consultant.

Cost brokers are like a “middle-man” that assists companies in procuring cost rates from suppliers. Like a cost consultant, a cost broker will shop around, comparing prices from a variety of suppliers, present those rates to their clients and make suggestions on which supplier the client should contract. Since they have access to multiple providers they should be able to produce rates much faster than if a company was shopping around on their own. A good consultant will be able to assist further in that he will have access to better deals than most companies will have access to and potentially better than some brokers

Unlike a cost consultant, cost brokers do not typically perform an analysis of the company’s current and future needs and determine the most suitable product type or service that will enable increased savings on costs.

When working with an experienced cost consultant, the needs of each individual company will be established and matched with a strategy that has that company’s best interests in mind. A cost consultant will provide on-going support and expertise, whereas a cost broker will usually offer a one-time service for the initial purchase.

In many cases, a cost broker will recommend specific suppliers and products because these preferred options will help that cost broker make more money through commissions and other fees. For the same reasons, a cost broker might recommend that their clients sign contracts that are over a longer term, regardless if it’s in the best interest of the client.

When you work with a cost consultant, you are not getting a “middle man” who works on commissions from the cost suppliers. You are getting a procurement manager who becomes a member of your team.

As cost consultants, we don’t receive compensation based on how many specific units your company uses, how much you are contracted for, or on the length of your term. We work together with suppliers and companies to procure the best product specific to each individual client’s needs and goals.

A cost consultant can help you to understand contractual terms, conditions, volume thresholds, products and services so that you can make a decision for your company that is within your budget.

Unlike a cost broker, a consultant will constantly monitor your portfolio, benchmark your performance, and keep an eye out for billing issues and any new products or services that will be beneficial.

Learning the differences between cost brokers and cost consultants will help your company make the best decision for its needs. With professional consultation and on-going management, choosing the right type of service can, increase cost efficiency, produce substantial savings and ultimately drive your profit in the right direction.

Maybe we should produce a sticker “a consultant is for life not just for Christmas!!”