Faced with intense pressure from office supply discount superstores and the worsening recession, the Miller family, owners of the Quill Corp., challenged their employees to launch a dramatic cost-reduction program.
In good times, it's easy to exceed budgets and encourage spending to grow your business. But in these tough times, cutting both fixed and variable costs may be the only way to keep your doors open.
Until 1990, Quill, based in Lincolnshire, Ill., grew quickly, selling office supplies to thousands of businesses across the country through mail and telephone orders. But aggressive moves by discount office supply chains, such as Office Club and Staples, forced Quill's owners to compete in a new ballgame.
To maintain market share, Quill slashed its prices an average of 18%. But the new, lower prices cut deeply into Quill's profits. Quill's founder and president, Jack Miller, turned to his employees to help him save time, money and their jobs. Challenged and encouraged to think creatively, Quill's employees came up with scores of money-saving measures.
"We are a much better company now than we were before 1990," Miller said. "The management set the major goals, but the people really doing the work are below management level," Miller said. "They are meeting, using their brains and coming up with tremendous solutions."
Although Quill is a big business, with sales of about $300 million, smaller businesses can learn from its successful cost-cutting program.
Here's how Quill is saving big dollars:
* The company renegotiated its long-term, long-distance telephone contract to save about $32,000 a year.
* The purchasing department negotiated a discount on shipping cartons to save another $25,000 a year.
* Quill's facilities manager hired a new cleaning company for an annual savings of $7,000. Another $7,000 was saved by changing copier maintenance companies.
* Flooded with paper, the company began recycling scrap cardboard to bring in additional revenue of $7,200 a year.
* To save jobs, Quill offered shorter summer hours and leaves of absence to those employees who wanted them. During the slow summer season, several employees worked in different departments, including telemarketing, where they helped bring in new business.
"There are hundreds of ways to save without massive layoffs or sacrificing customer service," Miller said. "In fact, we are actually enhancing the level of customer service."
Miller urges small business owners to set aggressive goals. At the same time, figure out a specific way to measure your accomplishments and share the good news with everyone. Motivating a group is much easier than motivating an individual.
Cutting business expenses is like losing weight, Miller said. If you tell yourself you plan to lose some weight this year, you'll probably never do it. But if you tell someone you plan to lose 12 pounds by Easter, you're more apt to reach your goal.
Another good tip: Don't ask your employees to do anything you are not willing to do. The cuts at Quill began at the top with Miller and his brothers, Harvey and Arnold, forgoing bonuses. Contributions to the company's profit-sharing plan were also reduced.
Although the companywide trims have been painful at times, overall response has been positive.
"People stop me in the warehouse and thank me for saving their jobs," Miller said. "And, our profit-sharing is also going up as sales and profits increase."
Miller said companywide cost reductions pushed 1991 profit for the privately held business up 47%.
So look around your company today and see where you can begin trimming costs. A new book, "Cash Traps: Small Business Secrets for Reducing Costs and Improving Cash Flow," by Jeffrey P. Davidson and Charles W. Dean (John Wiley & Sons), is filled with practical tips. The authors encourage business owners to negotiate price reductions from their current vendors and increase your number of suppliers. They also discourage you from taking advantage of volume discounts when cash is tight. Instead, place the minimum reorder to meet your immediate needs. The book, $14.95 in paperback, $34.95 in hard cover, can be ordered by calling 1-800-982-BOOKS.