More bang for the buck
To avoid layoffs, employers are tapping consultants for dollar-stretching advice
Brian Lewis/The Gazette
Bethesda janitorial company USSI is consolidating suppliers to get bigger discounts. Rockville media services firm Video Labs is bartering services and looking at buying printing equipment for in-house production.
The practices are among the efforts being made by companies to keep their employees from joining the growing ranks of pink-slip recipients.
Some 92 percent of corporate executives have recently implemented some type of cost-cutting strategy to avoid making layoffs, according to a national survey by Chicago job placement consulting company Challenger, Gray and Christmas. The most popular reduction was in travel expenses, cited by 67 percent of survey respondents, followed by hiring freezes at 58 percent.
"Companies are realizing there are many ways to save money besides reducing headcount," said Philip J. Gross, managing director of the Washington, D.C., regional office of consulting company Expense Reduction Analysts in Rockville. "Eventually, after the economy turns around, they know it will be harder to get back up to speed if they have significantly reduced their workforce."
Maryland has had a "work sharing" unemployment insurance program since 1984, in which employers can avoid layoffs by reducing full-time workers' hours. The employees receive some compensation for time off through state unemployment insurance funds.
"When business improves, the work force is intact, ready to go and employers are able to avoid the time and expense of rehiring and retraining," says a state Department of Labor, Licensing and Regulation publication on the program.
Still, the layoffs have not slowed. The national net job loss, which measures losses due to layoffs, attrition and other factors versus added jobs, reached about 600,000 in January from December, according to the U.S. Labor Department. That was the biggest single-month loss since 1974.
Maryland lost a net 10,000 jobs in December, the latest month for which federal figures are available, after dropping about 15,000 positions the previous month. That was the state's worst two-month performance since 1996. The state unemployment rate rose to 5.8 percent in December, the highest level since 1993.
The national unemployment rate of 7.6 percent in January was its highest since 1992. Economists say that level is likely higher because the Labor Department does not take into account people who have given up looking for work.
Planned layoffs themselves hit almost 242,000 last month, the largest monthly number in seven years, according to Challenger, Gray and Christmas. Retailers have been hit particularly hard, such as The Home Depot, which is closing all 34 Expo Design Center stores nationwide, including the ones in Bethesda and Columbia. About 300 Maryland employees will be laid off from the stores, expected by April.
Such layoffs can almost always be avoided, even in recessions, by cutting employees' hours a little and reassigning jobs so everyone stays employed, said Philip Hyde, a Somerville, Mass., author and webmaster.
"This is timesizing,' not downsizing," Hyde said. "Through timesizing,' companies switch from trimming the work force and the consumer base to trimming the work week."
Maryland's work sharing program and employee furloughs, such as those ordered by Gov. Martin O'Malley (D) in response to the $1.9 billion state budget deficit, are examples of the concept. In the private sector, a General Motors plant in White Marsh that makes transmissions for pickup trucks plans to close for the last week in February due to declining demand.
Consultants work to find savings
Into this picture comes consulting businesses such as Expense Reduction Analysts, which specializes in helping clients reduce overhead expenses, with its fees coming from savings. Office supplies, delivery services and telecommunications are key areas to search for potential reductions, said Gross, a former executive with several companies, including America Online and MCI Telecommunications.
Even existing leases and contracts can be renegotiated in the present downturn, he said. "Suppliers need to know they need to be competitive," Gross said.
Suppliers themselves, as well as employees, can have some good ideas to reduce costs, he said. "Very often, they have ideas to reduce costs but are busy," said Gross, who opened the local Expense Reduction office in 2005. "If you don't sit down and talk, you may not be able to take advantage of [those ideas]."
The company, with headquarters in Carlsbad, Calif., is legally structured as a franchise organization but operates more as an international professional services firm or partnership. Gross has used colleagues in other states on some clients' projects. The local operation is among the best; in 2007, Gross and business partner George Wolfand generated the highest consulting fees among Expense Reduction offices in the nation.
At USSI, one of Expense Reduction's clients, janitorial supplies is probably the biggest expense besides labor, said company controller Stephanie D. Nester. "We have several suppliers, so we are looking at how we can consolidate that with one supplier to get bigger discounts," she said.
The company is also reviewing telecommunications bills. USSI, which has some 60 office employees and about 1,500 workers including full- and part-time cleaners, has also consolidated some offices and encourages employees to save on supplies, such as by using both sides of paper, Nester said.
For most companies, overhead expenses constitute about 15 percent of revenue, and Expense Reduction helps the average client cut overhead by 20 percent, Gross said. Thus, a business with annual revenue of $30 million can save $900,000 a year through such reductions.
"Little things can add up," Gross said.
Avoiding layoffs in a downturn
The reductions have helped companies from laying off even more workers as the economy has worsened, executives said.
Michael Weiss, CEO of Video Labs, which formed in 1978, said he has had to lay off only one employee from his 22-worker staff in the past year or so. "That was necessary, but it's not terrible," he said.
The company barters services with some other local businesses, such as a design company that redesigned a brochure in exchange for some CD and DVD duplication work, Weiss said. Video Labs is also looking at purchasing printing equipment.
"We do thousands of copies of DVDs a month," Weiss said. "We have to print graphic or text onto disks and usually send that out. But we have located some printing equipment we can purchase to do this in house and reduce our costs there."
A recession is not necessarily a time to cut services, he said. Video Labs has found it can add to its revenue base with some new services for clients, such as document scanning, particularly for offices that need to electronically store medical records, legal documents and financial data, Weiss said.
Then, Video Labs also takes steps such as slashing energy bills with more efficient light bulbs and telling employees to power down computers and turn off lights when they leave the office.
"Having been around a long time also helps us," said Weiss, a University of Maryland, College Park graduate and past chairman of the ITVA-DC advisory council. "We have good relationships with clients and name recognition."
Video Labs is a client of Santos, Postal and Co., a Rockville certified public accounting and consulting firm. The company is more than the average CPA firm, said Robert Greenfest, a Santos principal who has expertise in real estate, corporate finance, operations, investment banking, financial planning and wealth management.
"We have started a consulting practice that uses my background as a turnaround expert on how to cut costs and manage debt," Greenfest said. "There is a real need for that here."
Other ways to save include bulk purchases of telecommunication services, shopping for the best insurance rates and restructuring bank loans, he said. The company also works with clients on issues that can increase revenue, such as more effective debt collection systems, Greenfest said.
Clients are often surprised to learn they can renegotiate existing office space leases with landlords, he said.
"That does require a certain skill set," Greenfest said. "Often, you need a third party to do that."
-Consolidate purchasing with fewer suppliers to maximize volume-based discounts that may be available.
-Cut paperwork by requesting monthly consolidated invoices, rather than transaction-based invoices.
-Don't accept a price increase without challenge. Obtain alternative quotes and advise current suppliers that you are seeking other bids, giving them a chance to reduce their prices.
-In negotiating with suppliers on prices, use the "good cop-bad cop" approach. The "bad cop" removes emotion from the process, while the "good cop" preserves the day-to-day relationship.
-Ask suppliers for suggestions on improving how you work together. Could ordering weekly instead of daily allow them to reduce their own administrative costs and enable them to pass the savings on?
-Reduce your stock levels and encourage suppliers to hold stock.
-Consider using second-hand or recycled products when they meet requirements, and cutting back on the frequency of garbage collection if you aren't filling your trash bins with the current schedule.
-Review what couriers charge to take advantage of the best price for the time of day of deliveries. Don't pay for morning delivery if afternoon delivery will suffice.
-Watch out for automatic renewals in contracts, such as for leased equipment. You want to renegotiate these contracts before the automatic renewal locks you into another year or longer.
Source: Philip Gross, managing director of the Washington, D.C., regional office of Expense Reduction Analysts in Rockville
WAYS EMPLOYERS ARE CUTTING EXPENSES:
*Reduced travel expenses: 67 percent
*Hiring freeze or reduction: 58 percent
*Canceled employee holiday party: 32 percent
*Salary freeze or reduction: 27 percent
*Reduced year-end bonus: 27 percent
*Cut workers' hours: 24 percent
*Reduced or eliminated matching contributions to employees' 401(k) plans: 11 percent
*Cutting work weeks: 7 percent
*Furloughs: 7 percent
*Increased telecommuting to cut office space: 7 percent
Source: Challenger, Gray & Christmas survey of employers
*Maryland Work Sharing Unemployment Insurance Program, allows companies to avoid layoffs by reducing employees' hours while those employees qualify for some unemployment benefits: 410-767-2671, www.dllr.state.md.us/employment/worksharing.
*Expense Reduction Analysts, consulting company that specializes in helping clients reduce overhead expenses. Rockville office: 301-467-4832, www.expensereduction.com.
*Santos, Postal & Co., certified public accounting and consulting firm that recently started a practice to help clients cut costs: 240-499-2040, www.santospostal.com.
*Signature Restaurant Solutions, provides services and products to help restaurants and bars cut costs and increase revenue: 301-760-9660, www.signaturerestaurantsolutions.com.
*Timesizing.com, Internet site that advocates for avoiding layoffs by reducing work hours: 617-623-8080, www.timesizing.com.