Four Keys to a Corporate Expense Management Program for the 2020 Downturn

By Jerry Wilkinson

Executive teams at most U.S. corporations entered 2020 with optimistic business forecasts and with expense budgets that were based on reasonable growth assumptions. But in March, those forecasts and assumptions were rendered moot for large swaths of the U.S. economy, as some business sectors came to a virtual halt in response to the COVID-19 pandemic. The practical result of this unprecedented economic slowdown is that we could be on the brink of a GDP downturn and unemployment spike with the potential to be more severe than anything we have witnessed in the U.S. for some time.

CFOs and their corporate procurement managers are now working hard to identify areas where they can tighten their spending and find ways to reduce their expense budgets to help their organizations weather the storm. Here are four key steps that I believe most companies can take to reduce expenses during this year’s downturn and obtain significant cost savings on their P&L statements in 2020:

1.    Temporary Service Reductions

Start by identifying business services that require significant reductions — or perhaps even suspension — if your organization has transitioned to a work-from-home environment. Examples might include reduced needs in the copy center, mail room or food services for the staff at various company locations. Then get a clear understanding of your contract provisions with each relevant vendor and engage them in a candid discussion of your changed service needs. As the year progresses, monitor your activity with each vendor to identify additional reductions that may be required or to scale back up quickly as we exit the downturn.

2.    Preferred Vendors

This is an ideal time to implement — or expand — a preferred vendor program, in which the organization secures enhanced cost-efficiencies through enhanced relationships. Start by establishing a program goal and then develop program guidelines to determine which vendors will be subject to the initiative. For instance, you may want to consider IT service providers, employee benefits vendors, professional services firms, and knowledge management or other information services. Once you have obtained internal alignment with company leadership and department leads, put in place a project governance structure that can oversee the consolidation of suppliers and monitor the results. 

3.    Demand Management

Take a careful look at how you can find cost savings by revisiting how you forecast, plan for and manage the demand for products and services across the organization. A first step is to identify the scope of services for your demand management review; this might include office supplies, wireless service contracts, courier services, user-based software licenses and/or other recurring expenses. Then request usage data from the appropriate vendors and ask them to provide alternative options for how you might procure their services. Review this spending data with your procurement team and then engage your department leads (or other internal stakeholders) to explore cost-saving ideas, opportunities to right-size purchased services to align with changing demand in the organization, and areas where you may be able to eliminate redundant products.

4.    Aggressive Controllership and Cash Management

Finally, consider the potential value of enhanced controllership during the downturn. This might include more granular, pro-active budget tracking; financial hygiene; and the implementation of new policies and procedures to actively control costs. For example, this could be a good time to increase centralization of budgeting activities and financial management operations across the organization. Revisit the thresholds for approvals of all expenses above a specific amount and more closely enforce those requirements. Adjust accounts payable timing from “daily” to a “fixed cycle” and extend the use of P-Cards (Purchasing Cards) throughout the organization in order to more aggressively manage employee purchases. These cultural and management cash management shifts are likely to prove valuable during the challenging months to come in 2020.

 These four steps are not a panacea for what ails corporate P&Ls right now, but over the course of more than 30 years of counseling clients regarding their revenue optimization, strategic sourcing and corporate procurement operations, I have seen most companies find ways to reduce expenses during downturns and obtain significant cost savings.

In fact, we have used this approach to routinely identify “soft spots” from which we can help CFOs and their procurement managers identify anywhere from 10 to 20 percent in cost reductions. Clients tell us that our added business intelligence, insight, resources to take on the heavy lifting, and speed to results are a welcome collaboration and makes a profound difference as challenges persist. That can make a meaningful impact on operating margins during a time of economic contraction.

For more information regarding steps that your company can take to reduce expenses during the economic downturn and achieve recurring cost savings in 2020, please contact jwilkinson@hbrconsulting.com.