How Expense Reduction Analysts Can Save You A TON of Unnecessary Costs
Listen to my latest audio podcast interview with Dileep Kulkarni, Director of Expense Reduction Analysts.
Below is the transcript of the interview.
Our topic today is expense reduction. My guest today is Dileep Kulkarni, Director at Expense Reduction Analysts. Expense Reduction Analysts helps organizations put additional cash flow to work by lowering supplier costs, without any compromise to quality and service.
Welcome, Dileep. Thanks for being with us today.
Thanks Lonnie – It’s my pleasure.
All well-managed businesses work to maximize the cost-efficiency of their expenses, so why do many good companies leave a lot of cash on the table in terms of potential areas of efficient expense reduction?
Good Question, Lonnie. I am sure many CEOs and CFOs are asking themselves the same question.
First reason is every supplier is a for-profit business. Their goal, just like their customers, is to win as much business at highest possible margins. Most sales folks are now compensated both on revenue and margins.
Secondly, most companies spend lot of marketing and sales efforts to know their customers well but not as much efforts to know each of the supplier’s industry. Suppliers know lot more about their clients and their industries than vice versa. This mismatch in information gives suppliers a much better leverage to negotiate.
Part of the supplier industry information which is critical and difficult to know is the competitive pricing benchmarks. If you remember how difficult it was to negotiate the new car price until we got the invoice information, once that transparency took hold, the negotiating leverage quickly shifted towards the buyer.
Lastly the prioritization of time is a factor. Most organizations rightfully spend 80% of their time focused on critical aspects: headcount, key raw materials, inventory, operational efficiency, strategic growth initiatives etc. That leaves limited time to pay attention to overhead cost reductions.
As a healthcare marketing consultant myself, I’m always looking for opportunities to make marketing expenses more efficient but those kinds of expenses are not unique to healthcare businesses. Are there expense buckets that are unique to healthcare practices and health systems or that healthcare organizations don’t manage as well as other industries do?
Healthcare, like any major industry, has some common overhead expenses like insurance, payroll services, etc. But there are some areas that we find unique to the healthcare industry.
Unique areas to the medical field are medical supplies and pharmaceutical purchase and expenses related to biohazard cleaning.
But there are other categories we find common to healthcare and other industries: Credit card fees – many of the patient copays are done through credit cards. Uniform and Laundry – sanitation is critical in medical environments. But there are many more categories we find once we analyze the expenses.
Could you give a few examples of surprises and potential misconceptions that you find when you work with a healthcare organization?
We do a detailed analysis of the current spending – we call it our benchmark report. Often times, the client is surprised how much more they are spending with a supplier than they had previously believed – mainly because the expense is categorized into different buckets for accounting purposes. One example is a client where we were looking at the credit cards fees, we found they thought that only their retail sales were subject to credit card fees but forgot all about the online sales which they were doing through a third party.
Another surprise is when we find substantial savings from a supplier who has been with them for a long time and with whom they have a strong personal relationship. One large medical practice was using the same payroll service for over a decade and they were surprised that we found nearly 50% savings with that same vendor. Part of the savings pertained to the client having charged for services that had no value to the customer but were included (and charged for) within the vendor’s bundled pricing.
I assume that health systems have large savings potential from expense reduction, but isn’t that the job of the CFO and department managers to control? Why would these larger organizations hire outside consultants?
Very good questions, Lonnie. It really comes down to 3 main things.
The first reason for hiring an outside consultant like our firm is industry expertise. Do you want to spend lot of time learning to understand how the credit card industry (which is multi-billion-dollar industry) works and prices their products? It takes a lot of time and effort, which may not have payback for each company. In fact, we couldn’t afford to have that expertise unless we had hundreds of these projects around the country every year.
The second factor is access to valuable competitive pricing data. The hundreds of projects we do every year give us real-time competitive pricing information, which helps us find the most competitive pricing for each customer.
The third reason is having experts get the job done and done well as a better use of time and expertise. As an example, for our clients, we are directly involved in the project until the expense reduction has been achieved and our clients reap the annuity benefits for a long time.
For independent healthcare practices, have you found that there is a minimum size of practice in terms of providers, employees and/or current revenue or expenses where it makes sense to engage an outside expense consultant?
In Healthcare, we have diverse set of clients. For example, most medical practices that benefit from our expertise and help have 15 providers or more because the potential for meaningful expense reduction is greater. We also work with community health clinics. Additionally, we work with community and rural hospitals as well as long-term care facilities and hospice centers.
In your experience, how big is the savings opportunity from efficiently reduced expenses for healthcare organizations?
I want to give you two real life examples:
When we worked with a Senior Care Center, we focused on 4 main categories: Food, Pharmaceuticals, Office supplies and Payroll. For these four categories, we saved between 17%-32% in each category, resulting in $130,000 annual savings, which allowed the center to hire more staff with the same budget.
A second example is when we worked with the Community Health Association of Spokane, which operates 12 clinics helping many Medicaid and uninsured in the eastern WA area. We identified expense savings in medical and dental supplies, janitorial, uniforms etc., creating a $640,000 positive cash flow over a 3-year period.
We are encouraged and excited that we are delivering substantial savings for our healthcare clients.
For healthcare organizations that work with outside expense analysts, how much time should organization employees expect to spend in working with the outside analyst and which of their employees are typically involved in this process?
Another good question, Lonnie, as this is a big concern with many busy executives. Most consultants say that they won’t need much time working with staff and management, but they have to learn the inner workings of the organization and that inevitably requires staff time. Given that we focus primarily on external suppliers and because we are staffed to do the project analysis to management ourselves, our time requirements for staff involvement are very limited. Clearly, we can’t work in vacuum of information, but we usually don’t need more than 3 hours of client time for each expense category over a 3-4 month process.
In the case of your company, how long do these engagements require in order for you to be able to make your expense reduction recommendations?
Our process includes detailed analysis, review of the strategy, options available in the market, then negotiating on behalf of our client and then implementing the savings. But we don’t stop there. We also monitor the financials to make sure that our clients are receiving the negotiated savings and, during our normal 2-year monitoring period, we many times renegotiate the agreements based on either changes within the company requirements or market changes. So it is most often a long term relationship of 2-3 years.
In terms of deliverables, what kinds of reports and other services does your company provide to your clients?
The key reports we deliver include:
Baseline Report, which quantifies current spends and pricing with different suppliers. We include qualitative aspects like service and quality. We address our strategy regarding how we would find savings. This becomes the yardstick from which to calculate savings.
Options Report. We always include incumbent suppliers and we normally have 1-2 best options or alternatives. We cover both pricing and qualitative aspects of selection. Our client gets the final decision on the selection based on both pricing and qualitative aspects.
Implementation Report. We help with new supplier selection (if different from the current supplier) and help with implementation. We also provide the final report of savings.
Monitoring. We provide a monthly or quarterly report of cash savings and any market dynamics information. We also do the training if any process changes are required.
Does your company offer any sort of guarantee in terms of identifying areas for expense reduction?
Yes, actually we do. In fact, we are so confident that we will find expense reduction savings for our clients that we are willing to work with our clients on a contingent basis. If we find no savings, there is no fee. Our clients get a validation that they are managing their expenses in the best possible way. So we take the risk out of engaging with us.
How should healthcare organizations interested in your services contact you to get more information?
Information can be found on our website, http://www.ExpenseReduction.com and I can be personally contacted at 503-781-9367 and by email to DKulkarni@ExpenseReduction.com.