Understanding the Fine Line Between Cost Cutting & Adding Value
I want to talk about cost management, specifically, the myths that surround it, especially when it comes to supply chain improvements.
It’s not that I’m against cost management consultants.
On the contrary, I’ve worked with many talented professionals who bring real value. But the problem arises when they take a one-size-fits-all, general approach to cost-cutting.
Too often, they end up treating niche services like commodity purchases, which can create more problems than solutions. This is where I see cost management consultants fall short.
They don't always take the time to understand the nuances of a business before jumping into cost-cutting measures.
Where Can Consultants Bring Value?
Let’s be clear, businesses should always keep tight control over overheads and direct costs, but the key is understanding where to focus those efforts.
Take my recent experience with a client. We brought in a consultant to run an audit, which they initially pitched as a free consultation.
The goal was to review our supply chain and identify potential savings. But as the meeting progressed, I could feel the frustration building.
I was waiting for the consultant to shift gears, to dig deeper into the business, not just offer blanket cost-cutting measures.
Unfortunately, it never happened.
So, what went wrong?
Commodity Purchases vs. Niche Services
Cost management consultants can excel when it comes to commodity purchases. These are items or services that can be easily sourced from multiple suppliers with identical specs and terms.
Think of things like office supplies, standardized tech equipment, or basic raw materials. If the supplier offers a like-for-like product at a lower price, it makes perfect sense to make the switch.
But where it gets tricky is when you’re dealing with niche services, the areas that require specialized expertise, like vehicle leasing, customized software solutions, or outsourced services.
These are not easily commoditized. And here's where I see many consultants fail to recognize the difference.
The Problem with Generalizing Niche Services
For example, I’ve spent years in automotive finance and leasing. So, when a consultant came in and suggested that we could just "shop around for cheaper vehicle leases," I knew they didn’t fully understand the intricacies of that service.
They were treating it like a simple commodity purchase.
In reality, there’s much more to vehicle leasing than just comparing headline prices.
There are hidden elements like:
- Service & Maintenance charges
- De-hire charges
- Inclusive damage charges
- Administration costs
- Insurance fees
These are the variables that matter, and a simple price comparison won’t give you the full picture.
I’ve been involved in lease structures where, despite a higher monthly payment, the terms worked out cheaper over the life of the lease.
The cost management consultant might have saved us a few pounds on the monthly rate if they had had their way, but they missed the bigger picture.
When Price Isn’t the Only Metric
This is where the consultant’s one-dimensional approach hurts. When you’re dealing with niche services, price isn’t the only factor to consider. It’s about understanding the broader context, what’s included, what’s excluded, and how it affects your business over time.
The key takeaway here? Know the difference between commodity purchases and niche services.
Not everything can or should be judged solely by its price tag.
What’s Your Experience?
I’d love to hear your thoughts on this. Have you worked with a cost management consultant who treated niche services like commodity purchases?
Or maybe you’ve been in a situation where you were told to cut costs without fully understanding the impact.
If you’re looking to improve your business’s bottom line without increasing sales, cost management is a great way to do it. But be mindful, don’t let consultants treat everything the same.
The next time you’re looking at cost management or bringing in a consultant, make sure you're clear on the value of what you're paying for and whether the consultant truly understands your business's unique needs.
Always here to help you start, grow, and thrive. Let me know how I can support your next big move.
