Value Republic predicts change in how companies handle fix costs as of 2010

 

Zwijndrecht, 11 januari 2010 – Value Republic, a consultancy firm that supports businesses and institutions to efficiently manage fixed and commercial costs, predicts a turnaround in how these companies will keep spending under control in 2010. To keep spend under control, only well justified spend is allowed and even these will be followed up closer than ever before. No company can afford unnecessary costs in times of reduced sales and shrinking margins.

 

A lot has been written already about the sometimes draconian measures taken by companies in 2009 to face the crisis. The media were full of messages on massive lay-offs, production closures and bankruptcies. Articles in which companies announced their  next round of savings were common. In short, “cost cutting” was in. They acted severely, hard and quickly because one was expected to do so, but often it was executed blindly, with consequences only getting visible over time. During the exercise some companies came to surprising findings.

 

“After years of growth build on innovation, sales- and production optimization, companies were confronted with melting margins and shrinking markets resulting from factors they couldn’t influence.

Since production and sales were most well-known, they were the first activities looked at to further reduce. Quickly it became apparent that addressing the variable cost wouldn’t be sufficient. Fix costs that are volume independent, had to be addressed, ”says Tom Timmerman, 1st Citizen and founder of Value Republic. For most companies these fix costs aren’t that transparent, and is their procurement department less involved. Still too often, is spend with a small unit or sequence cost considered to be neglectable, while consolidated these costs can add-up to 20 or more percent of total costs of a company. Examples are office supplies, IT, Telco, travel, catering, services,…  marketing and consulting costs are typical examples of spend where sourcing and negotiation is left to the consumer without interference of a professional procurement organization. This is the result of a historic growth of a company, but it’s impact is larger than anticipated. Companies getting aware of the above lack of sourcing expertise in these areas quickly called upon companies like Value Republic, who have this expertise as their core business. This results in additional savings at zero investment in their own procurement department.

 

“There is more,” continues Davy Verhulst, Mayor @ Value Republic,” companies assess that fix costs have grown over the years and most often no one even bothered to questioned why. Often the detailed insight was lacking at decision level. Time pressure to decide (or to communicate to the financial world) was high, and therefore severe saving decision were made bluntly without checking the impact.”

 

Aware of the fact that  “cost cutting” is not a long term solution, companies start searching on how they can manage their fix and commercial costs in a more active manner, because there is possibility to free funds for investing in more appropriate areas in the companies.

It is here that Value Republic locates the turnaround. A fix cost is no longer to be treated as a given- but should be challenged and optimized. Until recently a budget presentation was all about explaining how to realize the top line, with optimized variable cost and as if time permitted a quick footnote on the fix costs increased with inflation.

 

In the end who is responsible for the fix costs? And how do you get control over it?

 “Spend Responsibility”, they answer at Value Republic. A responsibility that starts with the creation of the budget and tracked through the year. In their approach the responsibility is split in three dimensions: spend expertise, spend consumption and spend price. Within the company one person is made responsible for a certain spend across all departments, e.g. travel, telco, … and defines the policies on how to spend. Price is covered by the procurement department. The internal user consequently is responsible for the volume he consumes, making it impossible for him to hide in the pack! This way a culture of cost consciousness is created that is born by the whole company.

 

“It goes without saying, that implementing a culture of Spend Responsibility, isn’t done over one night sleep”, explains Tom Timmerman,” For each company the path will be different. That is why the Value Republic team always starts with an assessment of the company in terms of policies, spend visibility, spend coverage by the procurement department,… Depending on the company culture a plan is set up with different stages. Due to the presence of in depth finance and procurement knowledge in the team, we can support our clients every step of the way. Nonetheless, it is and remains a big change process that needs to be borne by the company itself. That is why we work ‘with’ the client and not ‘for’ the client.”

 

In closure, one could state that Spend Responsibility is nothing more than bringing the good housekeeping practice of cost management to all levels of a company, with the necessary insights. This allows companies to manage their costs in the future in a more transparent and active manner, enabling corrections along the way.

 

Fixed costs are less fix then presumed…

 

Value Republic is a young procurement consultancy that supports companies and institutions in effectively managing their fixed and commercial spend . In addition to budgeting and financial tracking processes, Value Republic offers solutions to optimize its customers' sourcing activities through consultancy, outsourcing or interim-management. Going beyond the presentation of a concept it implements these solutions together with its customers' organizations using the perfect mix between people, technology and process. Established in 2008, Value Republic has quickly grown to become a significant player in the field of procurement consultancy and offers procurement services and solutions to a growing national and international customer base.

 

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