Business Fitness for the Food and Beverage Industry

Effective cost management strategiesfor healthy profits in 2011

About ExpenseReduction Analysts

Expense Reduction Analysts About Expense Reduction Analysts2

Expense Reduction Analysts works inpartnership with its clients, offering theexpertise and resource to:

• Forensically examine and benchmark more than a hundred areas of business expenditure, in order to present opportunities for significant savings;

• Review and re-engineer procurement functions,in order to ensure optimum buying process;

• Facilitate high value supplier relationshipmanagement programmes, in order to createmutually beneficial working partnerships.

Expense Reduction Analysts is a leader in cost, purchase and supplier management and focuses on reducing operatingcosts, whilst maintaining or enhancing service levels, for private, not-for-profit and public sector organisations.

Expense Reduction Analysts has 170 consultantsacross the UK, with expertise in all sectors of commerce, industry and not-for-profitorganisations and more than 100 categories of business expenditure.

Introduction from Robert Allison Expense Reduction Analysts 3

Welcome to the fourth in our series ofBusiness Fitness Guides for 2011, focusingon effective cost management strategies in the Food and Beverage industry.

Every organisation that produces, distributes or sells food and beverages has many, manyareas of expenditure, and, in a guide like this,we can only touch upon a few. We have chosento delve into the important cost areas of Waste,Logistics and Janitorial and First Aid supplies,which, together with a case study at the end,give you an idea of what savings are possible.

Furthermore, we hope that these examplesgive you the confidence that, if this level ofcost reduction could be extrapolated over asignificant percentage of your outgoings, yourbottom line would indeed look very healthy!

This booklet has been written by consultantswho specialise in finding savings in these areasin the Food and Beverage sector, their

Introduction from Robert Allison, Managing Director, Expense Reduction Analysts

knowledge gleaned from, and their expertisehoned by, many years of delivering significantcost reduction for their clients.

I hope that you find their insights valuable – and may I wish you a successful year in 2011.

Food and Beverage sector savings in 2011

Expense Reduction Analysts Manufacturing in 20114

In the following pages, we discuss thesetwo vital categories of expenditure, as wellas others that you may not have thought offocusing on, but which also offer significantopportunities for savings.

The savings detailed here – and in the casestudies that follow – are just a subset of therange of areas where careful cost and suppliermanagement can offer real benefit andenhanced profit.

Increasing costs, particularly in the areas of wastemanagement and transport/logistics, will threaten toswamp the UK Food and Beverage sector in 2011, if they are not effectively addressed.

Manufacturing in 2011 Expense Reduction Analysts 5

A selection of the categories ofexpenditure most relevant to your

business now

Waste

Reducing operating costs and overheads isparamount for companies operatingwithin tight margins and in a competitivemarketplace. The cost of waste is typically4% of turnover – and in some companies itcan be as high as 10%. Implementing wasteminimisation measures can reduce thesecosts by a quarter – often with little or noinvestment cost. Waste minimisation is goodenvironmental practice and good businesspractice. Reducing material consumption andwaste generation whilst providing the sameservice reduces both environmental impactand costs – and improves profit margins.

Most UK businesses can reduce their wastecosts by a quarter, i.e. by 1% of turnover. Thisis equivalent to increasing sales by 10% oreven 20%. Shopping centre managers in theUK currently spend about £36 million/year onwaste disposal.

This cost is expected to rise to £39 million/yearby 2012. Given the true cost of waste, there is astrong business case for taking action toprevent and reduce waste. Waste minimisationfocuses on avoiding waste from occurring.Waste management focuses on how best todeal with wastes that do occur.

Glenn Cotter suggests ways in which Food and Beveragecompanies can reduce costs through waste minimisationand waste management

Waste

Expense Reduction Analysts Waste6

Top Ten Tips on Waste Minimisation andWaste Management

1. Separate wastes at source (particularlycardboard and polythene) and send forrecycling.

2. Separate food wastes – particularly if awaste compactor is used, to prevent odoursand contaminated run-off (the compactormay hold waste for a number of days).

3. Arrange for returns and unsold products tobe sent back to suppliers.

4. Re-use packaging materials (e.g. bubblewrap and boxes) and utilise re-usable wood,metal or plastic pallets/crates for regulardeliveries.

5. Fit water saving devices in toilets andwashrooms, e.g. urinal timers and cisternvolume adjusters.

6. Turn off lights at night and during closedperiods.

7. Ensure heating, boiler, air conditioning andlighting systems are programmed correctlyto turn off at night and when premises areunoccupied, and that these systems areproperly and regularly maintained.

8. Install energy-efficient heating, boiler, airconditioning and lighting systems. This isparticularly relevant for lighting that is inhigh/continuous use.

9. Set budgets and/or benchmarks for keymaterial, utility and waste managementcosts (e.g. £/m2 of floor space/year orkWh/m2 of floor space/year for energy).

10.Obtain bills from head office if they are notreceived at the branch. Develop incentiveschemes to reward waste reduction andefficient use of energy.

Janitorial and first aid/medical supplies Expense Reduction Analysts 7

A selection of the categories ofexpenditure most relevant to your

business now

Janitorial and first aid/medical supplies

Debjani Duncan reviews the often-neglected areas ofjanitorial and first aid, or medical, supplies and highlightstheir significant savings potentialAt Expense Reduction Analysts, we arefrequently asked to review the janitorialand first aid/medical supplies costs in thefood and beverage sector. In many instances,we find that the staff and management areunder pressure to deliver the best possibleservice, whilst operating under increasinglevels of scrutiny and legislation. These areoften areas of expense that can go unnoticed,but from our experience offer excellent savings potential.

Of paramount importance is productknowledge in order to ensure like-for-likequality is achieved that will maintain standardsand perform properly in an emergency.

Consider all options available includingdispenser systems with concentrates, productsrequiring self dilution and ready to useproducts to ensure that the most cost effectiverange for your level of usage is chosen. You will need to have a good understanding of the volumes required and how to compare one range against another in order to makecomparisons in an equitable way.

Like-for-like comparisons are essential for meaningful decision-making

Many items, such as hand towels, centre-feed rolls and toilet rolls, come in avariety of different pack sizes/roll lengths,etc.. When conducting a comparison of prices, you must ensure that you comparelike-for-like in terms of quality (i.e.,thickness/ply) as well as size, to ensure youbase decisions on accurate information.

Remember to include in any cost review allassociated products such as dispensers,hazard signage and labelling (if required),protective clothing (PPE) and trolleys orstorage equipment.

Take a proactive approach to themanagement of risk, as mistakes can becostly to put right. Review your guidelinesand procedures to ensure that they complywith the latest Health and Safety Executiveregulations (COSHH). Make sure you includeALL staff in your review.

Janitorial and first aid/medical supplies

Expense Reduction Analysts Janitorial and first aid/medical supplies8

Consider using a standardisation approach to product choice to both enhance savingsopportunities and allow you to achieve parity across multiple sites in terms of riskmanagement.

Wherever possible, eliminate the use ofhazardous products – check detail in datasheets to ensure products used are safe as well as 'fit for purpose'.

Celebrate a cost management culture andreward its successes

Consider the use of own brands as well as wellknown (often more expensive) branded items.Instil a cost management culture within staff –celebrate and reward successes through internalcommunications such as staff newsletters.

Establish your costs – you may believe yourcosts are under control, but often a perceived‘well kept ship’ may not be as leak-proof as youfirst thought. Forensically examine andbenchmark your costs. It is our experience thatthis is often where the barrier to making costimprovements lies because it demandssignificant resource.

Understand that savings are not realised at thepoint of the buying decision but only when thepurchase is made – once you’ve decided whatchanges are necessary, you will need tomonitor compliance and address any problemsbefore slippage becomes too much of aproblem.

Create a long-term cost-managementprogramme – potential savings are great, butthey don’t mean anything unless they arerealised. After implementing a culture of costconsciousness, appoint cost champions todrive the programme forward.

Know the marketplace – do not rely on yoursuppliers for information on the prevailingmarket prices and practices. Also, don’t wastetime and energy on looking at individual itemcosts from different suppliers. By enhancingyour knowledge of the supplier marketplaceyou will increase your confidence of using onesupplier for a number of items and can oftengain from a ‘basket’ cost rate.

Reduce the number of suppliers you usewherever possible – this will reduce adminoverhead on invoice processing and will alsoenable you to achieve commitment discountson products in some cases.

Logistics Expense Reduction Analysts 9

A selection of the categories ofexpenditure most relevant to your

business now

Logistics

Ken Rogers details the supplier attributes to look forin this complex and challenging areaLogistics plays a pivotal role in the food and drink sector. The overwhelminginfluence of the Retail Multiples, with their constantly changing sets of demands,permeates all the way back through thesupply-chains. Supply-chains can be extremelylong, with the added potential complications of limited shelf-life, temperature control, andvery considerable disciplines in the final deliveryto the retailer. Traceability throughout thesupply chain is also a pre-requisite for mostparticipants. Now add the impact of risingcommodity prices, in particular fuel, and theimpact of ever-changing external influences onsupply routes, and you have a complex andchallenging mix.

To manage this complexity, most food and drink suppliers will be outsourcingcomponents of the supply chain to specialists.Deciding which activities to outsource can take considerable effort in terms of carefulanalysis that may involve every function in the organisation. However, wherever anorganisation stands in this process, there aresteps that can be taken to deliver a significantimpact on the cost base whilst maintaining or improving existing service levels.

Your suppliers should be exhibiting signs ofenhanced efficiency, innovation and service.

Driven by multiple retailers’ constantinnovations in efficiency, food and drinksuppliers have to be flexible and adaptable tochanging requirements. Your suppliers shouldalso be adopting a similar approach in order to ensure that they are providing you with thetools to meet your customers’ requirements as cost-effectively as possible. Logistics service providers themselves are under costpressures, through rising commodity prices (e.g. fuel) and legislative changes.

Revisiting service requirements and pricing on a regular basis with your suppliers can bringsubstantial benefits not only in cost, but also in service. Competition in the market to deliverthese services is strong, and service providersare striving to maximise their efficiency,develop innovative solutions and improvecustomer services. If you are not seeingevidence of these ambitions in your ownsuppliers, or if they are unable to respond toyour developing requirements, then perhaps it is time to take a closer look at what is outthere in the market!

Expense Reduction Analysts Essential Trading Cooperative10

“We managed to achieve a 53% reduction ofprint cost which brought the spend down to£35,000. We’re now undertaking a strategicreview of all our costs areas with a view tomaking similar savings”– Stuart McDowall, Co-director

Great profitimprovements forEssential TradingCooperative

Cost savings at Bristol-based Essential Trading Cooperative have helped the companyto increase their customer base by 15% sincethe start of 2009, as well as to achieve a year-on-year increase in turnover despite thewidespread economic challenges felt by UK plc.

Essential Trading Cooperative Expense Reduction Analysts 11

Essential set about conducting a strategicreview of their business costs with help fromcost reduction experts, Expense ReductionAnalysts. Stuart continues: “We realised thatwe didn’t have expertise in, or knowledge of,the supplier market to help the company getthe right service and prices.

“So we outsourced the process. We managedto achieve a 53% reduction of print cost which brought the spend down to £35,000.We’re now undertaking a strategic review of all our costs areas with a view to makingsimilar savings.”

Hugh Swainston, Expense Reduction Analystsconsultant, said: “Savings go straight on thebottom line, and, to achieve the same levelof profit, the company would have toincrease sales by £400,000 (if operating on an average margin of 8%).”

As a wholesaler supplying organic foodstuffs to independent retailers around the country,Essential Trading Cooperative knows thatmarketing is an essential part of the businessmodel but one where they’ve been able toreduce their costs. Co-director, Stuart McDowall,said: “Our full colour catalogue is our mainmarketing tool and drives our sales, but at£70,000 it’s a high cost aspect of the business.

“We can’t charge our customers for it becausethere are plenty of other catalogues they get forfree. But, like all businesses, we look to manageour costs effectively and this was an area wethought we could improve upon.”

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