Cost-cutting study

Manufacturers in the UK could do more to reduce their business expenditure, according to the latest research conducted by YouGov.

Commissioned by the Expense Reduction Analysts‘s Centre for Cost Reduction, the ‘Is your Business COSTING you?’ study reported that manufacturers are missing a significant opportunity to reduce their business expenditure and retain profit during the recession.

The survey revealed that manufacturing companies were failing to increase their bottom lines through neglecting their cost bases, with more than half of the 109 respondents stating that they could achieve cost savings of six per cent or more. A third of respondents had not conducted any contract renegotiations with suppliers since September 2008, when the steep decline in the economy started. Of those who did, only six per cent managed to change payment terms from advance to arrears.

The research also suggests that around 22 per cent of companies had not put in place any cost-reduction programmes during the last six months and only 33 per cent were either satisfied or very satisfied with their organisations’ initiatives to reduce such business expenditure.

According to the companies participating in the survey, the biggest barriers to cost reduction were lack of time and lack of resources. Companies also highlighted negotiating (38 per cent) and cost management (37 per cent) as key skills gaps to support the reduction of costs in the future.

Robert Allison, managing director of Expense Reduction Analysts, a UK cost and purchase management consultancy, said: ‘It is clear that a major opportunity to retain profit during these harsh times is going begging.

‘The prime focus for companies in the manufacturing sector is on the top line – with 47 per cent of respondents stating increasing sales as the priority for increasing profitability. However, the study highlights that there is also a major opportunity to increase the bottom line by reviewing and taking action on day-to-day business expenditure, which, in many cases, has gone unchecked for a long time.’

He added: ‘It should be noted that any reductions in business expenditure go straight to the bottom line. Therefore, on a typical industry profit margin of around eight per cent, a manufacturer would need to generate sales of £250,000 to make the same bottom line impact as cost savings of just £20,000.’

Colin Mills, chief executive of the FD Centre, a provider of part-time financial directors, said: ‘It is clear to see that there is a significant untapped opportunity for manufacturers to reduce costs at a time when their output has been badly hit.

‘Manufacturers have been feeling the pressure of the recession for some time now and they really now need to step up to the mark in terms of developing effective cost-management strategies, whether it be wider and tighter benchmarking of suppliers, measuring cost-reduction achievements or renegotiating contractual terms. By doing so, not only will they steer through the current economic crisis, but they will ensure they will be stronger when recovery returns.’