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The downturn experienced in 2014 left its mark on the energy industry. With market pressures forcing organizations to look inwards, companies were forced to undertake cost reduction and containment strategies, adjusting their cost base to align with the new fiscal environment.
Many companies in the industry found and implemented opportunities to reduce spend and move forward with a more efficient operation.
These activities should not be treated as one-time events. To keep the benefits previously achieved, you should constantly be revisiting and analyzing your costs and identifying opportunities to save. Here are three key areas to look.
Spend Analysis and Consolidation
Spend analysis and consolidation can uncover opportunities to consolidate spend and reduce the vendor base, providing the opportunity to leverage the increased volume and reduce cost.
Spend analysis can also assist your organization with the identification of trends and changes in your spend profile, which may uncover strategies to contain or reduce costs and drive value for money.
When the ink dries on a contract, the real work is just beginning. Energy companies need to actively manage contracts to ensure the vendor is delivering the benefits negotiated in the contract.
This is a key cost-containment strategy. The International Association for Contract and Commercial Management found that up to 50 percent of negotiated benefits from a contract were not realized because of a lack of contract management.
Managing contracts can be meticulous work, but given the potential costs to your business, it is a worthwhile investment of time.
Cost-containment starts at the negotiation stage. Energy organizations can leverage their size to drive down cost through guaranteed spend amounts, volume discounts and early payment terms.
Vendors value cost certainty. If you can provide visibility to, or even guarantee, a spend volume with them in a year, you may be able to leverage that value to drive down or maintain cost.
Another strategy is to negotiate volume discounts. You may not know how much you will be spending with a vendor, but you can use your loyalty as a bargaining chip. Vendors are often open to providing cost reduction incentives when a spend threshold is achieved.
Discounts for early payment of invoices is another proven strategy to drive down cost. When cash flow permits, paying invoices early to take advantage of negotiated early payment discounts can benefit both the parties, as the Company lowers costs while the Vendor benefits from better cash flow.
Let’s Turn Ideas Into Action
These strategies are not one-time events, but rather they are ongoing activities that will drive a culture in your business to continually focus on reducing and containing cost. They establish channels for your entire organization to critically think about your business.
MNP has the experience and expertise to get your teams started on integrating these strategies into your organization. Contact Troy Laursen, CPA, at 587.441.6034 or [email protected] to learn how MNP can assist your company to build a cost-conscious culture.
Related Topics:Energy ＆ Resources
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