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Keep your cost-cutting and profits in balance

(Mon, Aug 17, 2015)

It is possible to cut spending in practically every area of a business - marketing, stationery, courtesy vehicles, utilities etc. However there is a fine line between reducing operating costs to the point that it becomes inefficient and costly and ensuring a company is well resourced to deliver maximum profits.

Investment in systems can streamline processes, enable employees to work smarter and faster, thereby increasing productivity. However, quantifying these can be difficult, so many motor dealers include a healthy dose of gut feeling when it comes to assessing their impact. Subjecting costs to regular scrutiny, though, is an absolute must for effective cost management.

Perrys Motor Group has used Purchase Direct since Chairman Ken Savage led the company's management buy-out in 2001.

"It's a continual process, which requires constant re-visiting because costs are always changing. We appoint one supplier for gas or electricity today, but in 12 months' time their package may not be the most competitive," he said.

Savage scrutinises the costs himself, looking at the details, where savings and improved cost management are usually identified. "It requires management and direction from the top to make a difference. We go through every line of cost and you have to apply that level of discipline for it to be worthwhile."

Part of the process includes measures to ensure suppliers are utilised group-wide to net the best savings. Appointing the same every suppliers for its 40 dealerships is relatively straightforward, but difficulties often arise in areas such as stationery. General managers are sometimes tempted to use a local supplier and this 'leakage' receives particular attention from Savage. He also compares mobile phone usage among his staff so discrepancies are easily spotted, such as high data roaming charges abroad or an unusually high number of calls. "Often a quick call from me is all that's needed," said Savage. "It is usually enough for everyone to know that we are watching and we will act."

Perrys monitors energy consumption and tariffs closely and in 2014 saved almost £170,000 on gas and electricity expenditure compared with previous years. Purchase Direct has been commissioned by Perrys to undertake an analysis of its valeting contracts, worth £2m, to determine best value for money and potential savings.

Dealerships have a massive turnover and the difference between success and failure is marginal, which makes cost management critical.