They are bearing all the risk in proposing a contingency
The first thing to consider is what a consultant might actually be able to do for a company.For instance, does the consultant have a demonstrated track record of achieving cost reduction and the resources to deal with your sized company?Then there cone crusher parts is the question of the fee and how it will be paid. Arrangements can range from a fee for service to a contingency fee (a fee that is based on results). A consultant who receives their fee entirely from the supplier cannot be assumed to be independent.Where a contingency fee is charged, it is generally expressed as a percentage of the savings obtained over a period of one year. The usual figure is around 50 percent, although lower percentages can be found.This might sound a lot, but look at it from the consultant's viewpoint.
They are bearing all the risk in proposing a contingency fee as they are undertaking a lot of work 'up-front' before being entitled to any fee. If no savings are found, then no payment is received. For instance, these are the steps a consultant might need to undertake where a change of supplier is deemed necessary:(a) The company's category spend is analysed in detail to form the basis for selecting an appropriate supplier so that that suppliers will fully understand the company's needs.(b) Tender documentation is prepared to ensure that there is full understanding of what is required from suppliers and that they have sufficient information to be able to offer the most favourable rates.(c) A detailed review of the tenders received is undertaken to ensure the best decision.
(d)The implementation process, which typically takes 6-8 weeks, is actively managed.(e) Once the new supplier is in place the bills are checked to ensure that the correct rates are being applied, and 'teething' problems are resolved.(f) Continued reviews are undertaken over a set period, depending on the overhead category, to ensure that the company receives all that it expects from the new arrangement.(g) Finally, the company is helped to understand movements in rates so that rates can be renegotiated with the supplier in accordance with general movements in the market.Fred Marfleet is the chairman of Expense Reduction Analysts. ERA is an international cost management consultancy operating in over 20 countries.
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