When Primo Water, a four-year-old maker of environmentally responsible bottled-water products, decided to trim travel costs, it took an unusual tack: public embarrassment.
Starting with the new year, Primo began producing a monthly report ranking all company travelers by their travel expenses per day on the road, broken down by hotels, meals, entertainment, and car rentals. The list is sent to group leaders, who share it with their teams.
The report evokes a healthy dose of ribbing at the water cooler — and more, says Mark Castaneda, Primo's CFO. The strategy is apparently working; travel costs per traveler day were down 5% in the first quarter, year over year. "It's more a way to embarrass people a bit about what they spend than to monitor every expense," he notes.
Primo also adopted more conventional cost-cutting measures, such as reducing head count by 10%, freezing managers' salaries, and raising bonus targets. But the new business travel report underscores the creative microsurgical expense trimming that companies are engaged in — especially small ones, for which assorted tiny cuts can add up to something meaningful.
Even for a company that more than doubled in size last year, as Primo did, the recession and its related foibles can trigger an intense focus on cutbacks in every conceivable area. While sales continue to shoot up, thanks in part to the 2008 launch of two new product lines, the weak capital markets put Primo in a position where cash conservation is paramount. "We expect to grow another 50% this year, and we need capital to do that," says Castaneda.
Yet in one sense, cost savings outrank growth on the priority meter. Primo has cut back on human capital, advertising, and promotional costs associated with the new product lines, a move that will limit their growth. "We want to hang on to our capital through this down cycle and not spend as much," the CFO says.
Part of that effort was a 40% first-quarter reduction in capital expenditures compared with last year. Much of that came from reduced purchasing of the display racks, recycle bins, and back-room inventory racks Primo provides to the grocery and other retail stores that distribute its products. The company analyzed the quantity of these items and the inventory turn store by store, and found a significant degree of oversupply.
Further, just by issuing weekly reports on collections activity, as well as meeting weekly with the people assigned to handle collections, Primo has reduced its average days sales outstanding from 56 days to 35 days in a mere five months' time, notes Castaneda.
Like every executive interviewed for this article, Castaneda acknowledges that many such cuts would have been good ideas notwithstanding the recession. "It's back to basics, but this is stuff we should have been doing all along," he says.
Driving a Hard Bargain
At MWW Group, a 225-employee public-relations and marketing firm, one of the biggest changes on the cost front was in its attitude toward its vendors.
Seth Rosenstein, MWW's finance chief, says he went to all the vendors the firm deals with from an operations standpoint — providers of everything from telecommunications and travel to printing and carpet cleaning — and demanded a rate reduction of at least 25%, threatening to switch to their competitors if they didn't comply.
Rosenstein had not appraised the competitors to determine if that would be a viable plan, so the threat amounted to a bluff — but one that the suppliers did not call. "Every one of them gave us revised rates," he says. The move saved "several hundred thousand" dollars.
MWW saved another big pile of coin by shedding many of its contracts with car services and directing employees, when possible, to use self-drive cars from ZipCar. The company provides low hourly rates and abundant pickup and drop-off locations in the 13 major metropolitan areas where it does business. Using ZipCar, plus a reduction in nonessential car usage, will put $150,000 on MWW's bottom line this year, according to Rosenstein.
Moving down the savings list, the firm also has cut down on the number of seats it buys at the many charity events it attends with clients that support nonprofit organizations. Many of the seats it does buy have been reduced in price, so overall spending on these events has fallen 40% this year.
And a decision to stop providing free sodas and juice for staff is saving $1,200 a month just at MWW's New Jersey office. "Our revenue is a function of our clients' budgets, and they've cut those budgets, so we needed to react to that through our operating expenses," says Rosenstein.
This, That, and the Kitchen Sink
Joe Money Machinery, a regional dealer of heavy construction equipment with five locations in the Southeast, has been hard hit by the steep falloff in building that has accompanied the recession. The flow of economic stimulus funds from the government has improved the company's outlook somewhat, but CFO Ron Box is not easing his soup-to-nuts vigilance on costs.
Common types of savings have come from reductions in salaries and workers' hours, cutting in half the 401(k) program employer-match percentage, and debt retirement that will save $85,000 in interest expense this year. Then the creativity starts. "We took the attitude that no savings were too small to be worthwhile," says Box.
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