1. Business Fitness for Retail & Wholesale
Effective cost management strategies
for healthy profits in 2011

2. About Expense
Reduction Analysts
Expense Reduction Analysts is a leader in cost, purchase
and supplier management and focuses on reducing operating
costs, whilst maintaining or enhancing service levels, for
private, not-for-profit and public sector organisations.
Expense Reduction Analysts works in • Review and re-engineer procurement functions,
partnership with its clients, offering the in order to ensure optimum buying process;
expertise and resource to: • Facilitate high value supplier relationship
management programmes, in order to create
• Forensically examine and benchmark up to mutually beneficial working partnerships.
a hundred areas of business expenditure,
in order to present opportunities for Expense Reduction Analysts has 170 consultants
significant savings; across the UK, and numbers Paul Smith, Scotmid,
F Hinds, Pizza Hut and Aquascutum among its
retail and wholesale clients.
2 Expense Reduction Analysts About Expense Reduction Analysts

3. Introduction from
Robert Allison,
Managing Director,
Expense Reduction Analysts
Welcome to the first in our series of
Business Fitness Guides for 2011, focusing
on effective cost management strategies
in the Retail and Wholesale sector.
After the December snows hitting
pre-Christmas sales, the VAT increase in
January, and the seemingly never-ending rise
in fuel prices, you will be glad to hear that we
have good news for you.
The good news is that you can increase profits
– without selling any more product. With the
relevant expertise, it is possible to reduce costs
significantly. And this guide is all about setting
you on your way to doing just that. This booklet is packed with information, advice
and tips from consultants who specialise in the
We know that, in retail and wholesale, you retail and wholesale sector – as well as two case
have to keep one eye on service levels at all studies that demonstrate best procurement
times. It is no good switching suppliers to get practice in action.
an extra percentage point or two, if the service
standards of the new incumbent compromise I hope that you find it valuable – and may I wish
your commercial activity. you a successful year in 2011.
Introduction from Robert Allison Expense Reduction Analysts 3

4. Retail and Wholesale
– the marketplace in 2011
Tracy Follows introduces the issues facing your sector
Between 2000 and 2008, retail sales grew In this changing market, consumers are also
year on year by around 4% with half of all demanding real value, with quality and
spending being classed as 'indulgence’ service becoming important factors
purchases. During a downturn, this is the alongside price, especially for major
most vulnerable area for retailers, as purchases. In the early 2000s, value was
consumers revisit their budgets and revise often confused with price, but the more
their luxury, non-essential spending. sophisticated consumer is now looking
4 Expense Reduction Analysts Retail and Wholesale – the marketplace in 2011

5. harder at the quality of the merchandise and Most retailers have revisited their business
taking more time to consider his or her strategy to cope with the online marketplace,
purchase. Technology is driving this trend as well as the economic downturn. However,
with a proliferation of Internet comparison some well-known but poorly financed names
sites and Smartphone apps. have vanished from our high street, leading
to an overcapacity in premises, all too evident
While most retailers have been swift to from the empty shop-fronts. While this may
address the changes in consumer spending put retailers in a strong position with many of
habits brought on by the increasingly their landlords, on the other side of the coin,
dominant Internet, the impact of online there has been the negative impact of the
spending continues to have an effect on high Business Rate Review in 2010.
street sales.
In the light of all of these financial pressures,
it is clear that good housekeeping and cost
reduction should now be an essential part of
any retailer’s operational strategy.
Retail and Wholesale – the marketplace in 2011 Expense Reduction Analysts 5

6. From Chip and Pin
to Carrot and Stick
Steve Whitlam describes the changing landscape
of the credit card industry
Having seen chip and pin become widely After a few years of a softly-softly “carrot”
accepted by cardholders and retailers for approach, the “stick” has appeared in terms of
face-to-face transactions, the card industry increased – and avoidable – transaction costs
has turned its attention to cutting identity and penalties where businesses do not comply
fraud where the retailer and cardholder with the common standards for cardholder not
don’t meet. present (CNP) transactions through mail-order,
by telephone or via the internet.
6 Expense Reduction Analysts From Chip and Pin to Carrot and Stick

7. It is very unusual for us to find that retailers The other primary area of avoidable costs is
are not now capturing the 3-digit signature to ensure that cardholder data is handled in
strip code in all CNP transactions, but it is compliance with Payment Card Industry Data
common to find a belief that it is adequate Security Standards (PCI-DSS), and when
for web transactions. While it is a useful tool systems are compliant, to ensure that the
for reducing the potential for fraud when merchant acquirer is aware. Penalties can be
transactions are through the Internet, cost as high as 0.85% of all transaction values and
savings flow from 3D Secure being in place. the solution can be as easy as filling in a form
(3D Secure is the catch-all name for systems for smaller retailers with only face-to-face
such as Verified by Visa or MasterCard transactions.
Secure Code.)
It is more complex for larger retailers and
The non-compliant will have their ability those who transact through mail order,
to accept card payments revoked telephone or the Internet, but I believe that it
will not be long before the non-compliant have
Even where 3D Secure is available, it is often their ability to accept card payments revoked.
not functioning and penalties run on average
at 0.5% of credit card transaction values and
10p per debit card transaction. Every single
penny of that penalty is avoidable.
From Chip and Pin to Carrot and Stick Expense Reduction Analysts 7

8. Savings and service
– the vital combination
Derek Hodd discusses what to look for in a retail
sector supplier
Retailers are naturally looking for good It is therefore vital that service accompanies
prices in the products and services they savings.
purchase – but not at any cost. Retailers
have to be service-orientated, and any Retailers also value new ideas – retail is detail
change in supplier must not be allowed and sometimes the smallest change in
to interfere with the service levels they merchandising, for instance, can reap huge
need to receive in order for them to be benefits in sales. It is therefore important to
competitive. To take an obvious example, partner with suppliers who are ahead of the
switching distribution suppliers must not curve, who can advise on what the market is
stop the right products getting onto the doing and where it is going. There was the
right shelves at the right time. case recently of my advising a client to switch
to a different printer: their existing one was
not really proactive, but their new printer is
providing much added-value by doing such
things as advising them on the new media
that are available, like vinyl static mats on
which to print sales messages.
In general, it is important to think of your
suppliers as potentially strategic partners.
Suppliers can do so much more than simply
deliver on time and to a price.
8 Expense Reduction Analysts Savings and service – the vital combination

9. “It’s the way we’ve always done it” “We always get three prices”
It always pays dividends to review your actual It is surprisingly rare for a company to
current requirements. I analysed one retailer’s undertake a proper survey of the marketplace
cash handling needs. The profile had not and thus to procure from an informed position.
changed since the days when everybody paid Often, different departments use different
in cash or cheque. I carried out an extensive suppliers for the same product or service.
analysis of their collection profile and their Sometimes, it takes me quite a while just to
needs, and was able to recommend changes gather all of the relevant data together, before
that suited their current requirements far commencing a comprehensive review.
more closely.
It is therefore not surprising that busy retailers
It is obviously important to look at the rates themselves struggle to undertake their
you are paying, but it is also vital to look at the reviews, but the time and effort can payback
surrounding processes and overall business handsomely.
need. It is often the case that different
departments deal with different aspects, and
“joining up the dots” is overlooked.
Savings and service – the vital combination Expense Reduction Analysts 9

10. Best practice in action
Taking a slice off the costs for Pizza Hut
Gerard Carolan, Financial Controller for Pizza Hut (UK), recalls his initial discussions with
Expense Reduction Analysts’ Nigel Rosehill, “During our first meeting, Nigel was immediately
able to relate to our procurement issues due to Expense Reduction Analysts’ own varied
experience drawn from their existing diverse client base. This knowledge enabled him to identify
those areas where we might encounter challenges from an early stage in the investigations.
Category % saving When they met with key personnel from Pizza
Print 15% Hut (UK), there was a minimal amount of
Print Logistics Distribution 40% disruption to the ongoing business.
“It soon became clear that our whole print “All reports have been clear and concise and
process was a complex area and that we could backed up by detailed analysis, which has
benefit from an independent viewpoint. enabled us to take well-informed decisions.
Given the diverse nature of our print Nigel and Paul were then able to follow
requirements and the large number of staff through the recommendations by handling
ordering print, we needed a strategic review the negotiations and implementation.
of the processes, policies and procedures
adopted, and identification of potential areas “This, in my mind, is one of the key reasons
of improvement. why Expense Reduction Analysts is so
successful. Its analysts are totally focused,
“I could see the value of the immediate which means they are able to meet deadlines
manpower that Expense Reduction Analysts and actually make things happen!”
could bring to Pizza Hut (UK), and so we agreed
that this analysis would be undertaken with the Pizza Hut Profile
aim of focusing on key areas and looking at Pizza Hut, with 12,000 outlets in 90 countries
specific unit costs.” and more than 300,000 staff, is the largest
pizza restaurant company in the world. Pizza
The detailed terms of the brief were agreed and Hut serves more than 1.3million pizzas every
Gerard appointed Max Wright, Commercial day to approximately 4million customers
Procurement Manager of Pizza Hut (UK), as the worldwide. Pizza Hut (UK) is a household
key contact point, whilst Nigel invited fellow name and is known to be a dynamic,
Analyst Paul Fordham to join him on the project. fast-growing company and a market leader
in the UK pizza restaurant and home
Max explains, “We are delighted with Expense delivery industry.
Reduction Analyst’s work! Nigel and Paul were
highly focused and were able to pinpoint
exactly how best to approach this project.
10 Expense Reduction Analysts Best practice in action

11. Best practice in action
Tailor-made profits for Aquascutum
Chris Carlisle, Finance Director for Aquascutum,
engaged Expense Reduction Analysts
consultants Andrew Lees, David Mitchell and
Derek Hodd to review the company’s
expenditure levels in a number of cost areas.
Category % saving £ saving Richard Anson, renowned amongst his Expense
Packaging 27% £15,000 Reduction Analysts colleagues for his knowledge
Merchant fees 15% £14,746 of the packaging industry, reviewed this cost
Stationery 40% £12,848 area for Aquascutum. He used his expertise to
Facilities contracts 36% £14,690 suggest alternative packaging designs which
Cash handling 68% £14,425 are not only cheaper to produce, but will enable
Cleaning 5% £4,117 more garments to be packed into each box,
Print 49% £32,456 thus reducing the number of boxes purchased.
Total £108,282
Winning the respect of client staff quickly
The strength of Expense Reduction Analysts is
its people. Andrew Lees and David Mitchell Chris Carlisle explains: “Obviously the
were able to draw upon the experience and appearance of our products is extremely
knowledge of their fellow consultants to assist important. Richard understood this completely
with different areas of the analysis work. and, despite achieving a significant profit,
Fellow consultants Keith Robinson, Marc Page ensured that the packaging changes had no
and Derek Hodd joined the project team to impact upon the way the product looked once
review Aquascutum’s spend levels on facilities it was unpacked.”
contracts, cleaning and cash handling Chris has been extremely pleased with the work
respectively. carried out and concludes: “My experiences of
Meanwhile, Expense Reduction Analysts’ cost management specialists were mixed prior to
Hartley Jenkinson was invited to analyse engaging Expense Reduction Analysts, as much
expenditure on merchant card fees and depends on the manner in which the consultants
stationery. In both instances, following tender engage those involved in the buying process.
to a number of alternative suppliers, it was “In the case of Expense Reduction Analysts,
agreed that Aquascutum should remain with the consultants have won the respect of the
the existing suppliers, both of whom were very staff quickly, due to their in-depth knowledge
keen to keep the business. This meant there of their specialist areas and their willingness
was no disruption to Aquascutum and to understand the specific requirements of
negotiations ensured that good profit a prestige brand such as Aquascutum.”
improvements were achieved in both areas.
Best practice in action Expense Reduction Analysts 11

12. find extra profit
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