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"We're encouraging CEOs, CFOs and CPOs to examine their spending habits and make eliminating waste their number one New Year's resolution," said Procurian CEO Carl Guarino. "Like dieting, it's important to avoid 'fad' cost-cutting quick fixes in favor of a holistic and ongoing approach to managing expense. When done correctly with a partner that brings deep market intelligence, understands the process, and knows how to get employees on board, executives can save millions to fund growth and innovation for years to come."
Procurian's analysts say the top issues impacting corporate costs include:
-- Energy Management Gets a Reboot: Energy costs account for 1 percent to 2 percent of sales for the average company, and up to 4 percent to 5 percent of cost of goods sold for manufacturers. Yet, most traditional energy management programs fail to deliver sustainable value, because most firms address energy management as a one-time audit rather than a sustainable business practice. Companies that adopt ongoing active energy management programs with continuous monitoring can achieve 15 percent to 40 percent in energy savings.
Furthermore, in 2011, governments and utilities paid out $6.8bn in incentives and credits. A more active energy management process approach can qualify your firm for these incentives that executives do not want to miss out on. Utility bill audits help ensure businesses are paying the right energy prices. By also deploying monitoring equipment across the business, managers can identify opportunities to reduce consumption and can use utility market intelligence to qualify for improved rates and tariffs.
-- Affordable Care Act (ACA) Here to Stay: With President Obama's re-election, firms that have been taking a wait-and-see approach to compliance will need to shift into high gear. The cost implications are significant for most businesses, ranging from penalties to the new costs associated with reporting requirements and plan design changes. Procurian's advice? Quickly assess the most pressing mandates of the ACA to avoid penalties, and proactively attack near-term requirements and opportunities, redesign total rewards if needed, and manage costs to avoid unnecessary overspending.
-- Manufacturing "Reshores" to the U.S. - Reexamine Total Costs by SKU:
The outsourcing trend to China is reversing after years of double-digit labor inflation and higher logistics costs and even non U.S.-based companies such as Japanese auto manufacturers are setting their sights on America's skilled workforce. Executives should decide if the trend is right for their business by reviewing market insight on labor rates, skilled labor availability, shipping costs, tax structures, supply reliability, and inflation projections.
-- M&A rebounds in 2013 - Improve the Probability of Capturing Synergy Savings: M&A activities were down in 2012 vs. 2011, although corporate balance sheets carried historically high cash levels. Expect that cash to be spent in 2013 on potential acquisitions and growth, especially with uncertainty over the U.S. presidential election behind us, as fiscal cliff fears die down and Europe and Asia begin to stabilize. However, according to Procurian experts, up to 70 percent of mergers fail to deliver expected value. The top-line synergies are always tough, but driving bottom-line savings should not be missed. The key to ensuring value is delivered lies in closely evaluating spending across both firms, identifying points of leverage, and applying market intelligence, process rigor and tracking to realize those opportunities when two companies become one.
- Skills and Labor Shortages Force New Thinking about Recruitment: As the economy recovers and gains speed, skills and labor shortages that have been somewhat under the radar will emerge front and center and require action by affected businesses who are already running very lean. For example, driver shortages are a significant constraint in trucking and existing physician shortages could become exacerbated as expanded medical coverage rolls out. Healthcare fields and professional, scientific and technical fields are projected by the Bureau of Labor Statistics to add the most jobs in absolute numbers through 2020, but these same fields require advanced or technical degrees. Competing to attract talent in labor-constrained markets can negatively affect cost structures and impede growth and expansion plans. Executives should make it a point to partner with experts in temp and full-time labor sourcing to determine the best recruitment strategy for today's environment to ensure their firm will not be caught short as competition for scarce resources heats up.
- The Commodities Conundrum - Revisit Fixed vs. Floating Market Exposure: Will the price of oil, agricultural commodities, metals, and energy continue to rise in 2013? While the 2012 U.S. drought has hurt some production, signs point to potential price decreases in natural gas, oil and steel. Executives are cautioned to look beyond commodities indexes, which don't always translate to operating costs due to factors like regulatory requirements, labor turnover, and local capacity constraints. Procurian experts predict overall commodity pressure will ease in 2013, providing an opportunity for companies that apply a comprehensive approach to manage input costs. It will take careful and ongoing commodity-by-commodity analysis to determine whether to lock in long-term pricing now, or allow more capacity to float to take advantage of market price moves.
- Looming Port Strike is Most Pressing Supply Chain Risk: Shippers are scrambling to prepare for a potential longshoremen strike that could cause the closure of East Coast ports from Houston to Maine when the extension of the labor agreement expires at the end of December. With negotiations still heated, the odds are that a work stoppage of some sort is likely. A late November strike along the ports of Southern California cost an estimated $1bn per day, and effectively negated the risk mitigation strategy to divert East Coast port traffic to the West Coast in the event of full closure. Contingency plans for shippers are a must, and even then, expect a period of increased logistics costs due to expediting, a higher mix of airfreight, and hiccups in the general supply chain flow. Then, revisit contingency plans and stress-test them now that a port closure is more likely and the ripple effect on the domestic intermodal rail network is yet to be determined.
"Now that we've undergone several years of significant pressure to increase margins, deeper, more sustainable cost-cutting approaches must be uncovered to support growth," said Guarino. "This means actively managing all addressable areas of spend, applying market intelligence, ensuring savings are realized, and driving continuous improvement."
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