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Expense reduction for PR firms (part IV)By Richard GoldsteinRichard Goldsteinis a partner atBuchbinder Tunick &Company LLP, NewYork, Certified PublicAccountants.By way of review, this is the lastpart of a four part series onexpense reduction. Part 1 discussedthe basics of implementation andexpense reduction program, part IIfocused the analyticalaspects ofexpense reduction,and part III providesspecific ideas— specifically legalcosts and mailscosts. This columnfocuses on the environmentof cost cuttingand saving andsavings for officesupplies.Office suppliesNo matter how fartechnology hasadvanced, whenever I ask for supplies, Inotice an endless supply of paper, pens,pencils, staples, paper clips, etc. in thesupply closet.In 1997, it was estimated that over 120million office workers in the UnitedStates consumed over $60 billion inoffice supplies annually. I can onlyimagine what the number is today.The office supply market is big businessand has undergone significantchanges. The channel of distributionbetween manufacturers and end usershas changed. Historically, most goodswere marketed through at least three distributionlayers: manufacturer, to wholesaledistributor, to retailer, to end user —each applying its own profit margin tothe cost of the product as it moved downthe line. Today, the distribution processis being consolidated. There are agreater number of office supply superstores,mail order companies, and contractstationers selling their productsdirectly to the consumer at 30 percent to60 percent below retail prices.Reducing overhead on these items isone way to cut costs. The cost of theseitems can be cut as much as 40 percentor more without impacting the quality ofworker productivity if the purchasingprocess is properly systemized. It is notthat difficult to cut costs of office suppliessince the competition between vendorsis fierce.The perception that office supplies area small expense and since they are overheaditems needed to run the business,everyone assumes that there is littleopportunity to reduce costs. This is farfrom reality.Assessing cost reduction potentialIn 1989 (sorry, I do not have 2010numbers) the average business spentover $500 per employee on office supplies.I do not believe this number haschanged much in 2010. The first step inreducing office supply expenses is todetermine how much you firm is currentlyspending. A systematic approachto understanding office supplies use willidentify areas of potential savings. Asdiscussed in past columns, this approachentails a checklist approach concerningoffice supply use, purchasing practices,current vendor evaluation, and controlof these expenses.Some questions to askThe process of analyzing office supplyreduction entails reviewing over 125areas with a client. Obviously, we cannotgo over all the areas in this column.Nevertheless, the areas we reviewinclude the following: The need forhigher quality supplies; improving efficiencyto decrease costs; other (freesamples, need for fax machines, blowdryers in rest rooms to replace paper, letterheadrestricted to external correspondence,e-mail use of internal correspondence,inter-office envelopes that areprinted on both sides, reducing form sizewhen forms are needed to reduce paperand printing costs).Cost cutting environmentSignificant savings in office suppliesand other expense line items cannot beachieved unless your PR firm fosters acost-savings environment. The tone atthe top influences how employees perceivethe need to cut costs. If managementdoes not appear to be concernedwith reducing expenses, then neitherwill the employees. The followingdescribes how to create a cost-savingenvironment for supplies that can beused for any expense line item:Show employees that the firm is seriousabout cost cutting. No cost is toosmall to worry about. Therefore, managementshould consistently scrutinizeevery expense item so that employeesknow that cost reduction is important. Ifmanagement shows they care about savingmoney on a $10 item, employeeswill look to save money on the largeitems.Get employees involved in cuttingFinancial Managementcosts. Tell employees to save thingssuch as paper clips and rubber bandsand not to throw them in the trash. Haveemployees go through their desks annuallyand gather excess office suppliesand return them to the stock area.Challenge the employees to see who canrecover the greatest amount of unusedsupplies. Be careful that this type ofactivity does not get out of hand andtake more time than is warranted by thecost of the supplies recovered.Reduce your office supply budget by40 percent. Almost all PR firms canstand to have their office supplies budgetcut at least by 40 percent and not sufferin the least. Arbitrarily reduce thefirm’s budget for office supplies and theemployees will adjust accordingly.Don’t stock it. One of the best ways toreduce office supply expense is simplyto not stock anything other than the verybasic essential supplies. If the item is notavailable they probably aren’t neededand won’t be requested unless reallyneeded.Charge office supply costs to departments.When department managers orgroups know that the cost of suppliesused will be charged to their budgets,they tend to control theses costs muchbetter than if the costs are simplycharged to their budgets.Reevaluate all internal reports. It hasbeen estimated that 75 percent of theinternal reports distributed in any businessare a waste of time and money.Reevaluate each report generated byyour firm and determine if it is essential.Institute a forms management program.In large PR firms, the number offorms available may be overwhelming.Have an employee or team of employeesmonitor and manage forms usage.Much of the unnecessary waste can beeliminated.Join or develop a buying group.Consider joining or developing a buyinggroup with other PR firms. In mostcases the supply needs are very similarand by joining forces, volume savingscan be achieved. For example, firmsthat are members of PRSA NY maywant to consider forming a buyinggroup.This is the final cost savings article. Itrust you found it useful. If you needhelp, just give me a call. I am glad tohelp out or point you in the right direction.