December 17, 2008
CNBC Europe Correspondent: A couple of numbers for you on the employment front. Since the beginning of September, in the non financial sector alone, there has been over 300,000 job cuts worldwide, today in the UK of course the claims count is up by over 75,000, a lot more than expected, and our next guest says that many layoffs can be avoided and that companies can save big money by minimizing the number of jobs they have to trim, JEFF MUSCARELLA is a partner at NPI and is with us from NY, thanks for joining us. Its an interesting point of view, you can save money by not tripping as many jobs, just run us through that.
JEFF MUSCARELLA: Basically, companies are under a lot of pressure to cut costs and managers have been asked to pour over their budgets time and time again looking for cost savings and when they come back, time and again and say that they don't just don't see and other areas to cut costs except for people... what we have found in working with clients is quite the opposite..if you look at some of the key external spend areas IT, Telecommunications and Transportation, and you really pour through those agreements and your spending in those areas, often times with a fresh set of eyes and a market based perspective, often times companies can save million dollars a year, and that translates to a lot of jobs...
CNBC Europe Correspondent: I guess this is on the basis that if you make cuts in those areas the effect is immediate. A job cut does not hit the bottom line for a long time as you have to pay an upfront cost... What's the average that it takes?
JEFF MUSCARELLA: The average pay back on many if these initiatives is 30-60 days, on the outside 90, and as you mentioned with job cuts, the payback for those, in which you may be dealing with severance, unemployment, all kinds if hidden costs, that don't always get factored into the equation fairly and accurately on the front end.
CNBC Europe Correspondent: Yes so you might not get the benefits until 9 months after the fact, right, is what you're saying.
JEFF MUSCARELLA: Exactly, whereas with a multinational company that we worked with recently and looked at a lot of their telecommunications spending, and we were able to reduce that by over 5,000,000 dollars a year, that hit the bottom line pretty quickly.
CNBC Europe Correspondent: Yes but the trouble is, is that message actually getting through? The other thing is that in economic downturns companies do decide "well look, actually, this is an opportunity to get rid of dead wood, we've had a boom, we've accumulated staff, and you can get a little bloated." So how do you work out the difference between the two?
JEFF MUSCARELLA: Well I think that's a very interesting question and that it kind if comes back to how you manage your human capital. Hopefully companies have in place good employee management programs where they are constantly sifting through their folks and obviously retaining the best and maybe finding other opportunities for the others. But at NPI, we focus on helping them manage those external costs, and we've found that 9 times out of 10, if companies are really willing to dig in, eliminate sacred cows (and times are serious now so they need to) that you can find big savings there that will allow them to either reduce the size of the layoff or even forgo one all together.
CNBC Europe Correspondent: well, typically, when you go in and look at a company, what is it that you look for? Is there a normal, number 1 area that you can make up some savings? Is there a typical area that comes up time after time?
JEFF MUSCARELLA: Yes, the commodity purchases seem to be pretty standard, so its areas where they are not so standard, things like technology, Telecommunications, transportation, as I mentioned, professional services, pricing for these goods and services are all over the map, no two companies pay the same, and they change frequently, so it really requires a market depth and expertise in each of those categories to come in and look at those agreements and rates, terms and conditions, and find out if they are in line with world-class practices at that point in time.
CNBC Europe Correspondent: And this is a great time to negotiate on price right? I mean, you should be able to bargain a lower price for all your goods and services right?
JEFF MUSCARELLA: Exactly, everyone realizes they are going to have to give in these tough times, so many people assume that some of these contracts are fixed, and in fact, many of the multi-year agreements which go into place are what you call 'backend loaded.' For example, in an outsourcing deal a vendor may assume that they will recoup some of the cost on the backend so they will artificially give you lower rates on the front end. Obviously if that was two of three years ago you may be paying those higher rates now and so you want to go back and look at the market and see if you should be renegotiating some of those agreements.
CNBC Europe CORRESPONDANT: Yes. Interesting stuff. Thank you. Jeff Muscarella, partner with NPI joining us.
NPI is a privately-held company that provides assistance for its customers in implementing rigorous processes for making sound spend management decisions. Using a combination of market experts and proprietary methodologies, NPI provides assessments of a variety of traditionally difficult spend management categories – information technology, telecommunications and transportation – to ensure that expenditures and operating expenses are in-line with current market conditions. NPI leads this emerging best practice, offering procurement expertise, a fair market value database and experience from both sides of the table with quality and integrity. For more information, please visit www.npifinancial.com.
