4C Associates: The 4C-Able Future – Edward Ainsworth

Continuing inflation and the volatility of commodity and raw materials prices has been a major concern for all companies. Edward Ainsworth, managing director of 4C Associates, reveals how specialist cost transformation solution providers can offer executives the resources they need to actively manage their cost base.

Earlier this year the Markit/CIPS UK Manufacturing Purchasing Managers' Index (PMI), which measures new orders, output and employment, revealed that UK manufacturing input costs rose to a survey record high at the start of 2011. Food producers have been hit hard; at the heart of the cost inflation lies supply-side disruption, and an array of inputs have risen in price. Although food manufacturers face higher input expenditures in several areas, passing these on to the supermarkets is a struggle.

"The industry has faced an increase in input costs but has been unable to pass this on to consumers due to the market power of supermarkets," says Edward Ainsworth, managing director and founder of 4C. "This has forced them to consider other ways to reduce their expenses."

4C is an award-winning cost transformation company working closely with multinational and FTSE 100 organisations such as United Biscuits and Cadbury to drive added value, increase flexibility and reduce expenses for clients. It has found that 20% of cost reduction comes from decreased input prices, 40% from managing demand more efficiently and 40% through better managing specification.

Since its inception, 4C has experienced triple-digit growth, managing around £2bn of client spend and employing more than 70 people. It was founded on the insight that companies are good at managing direct expenditure but poor at other costs. Research carried out by the company has shown that organisations can increase their share price by 2-10% as a result of a cost reduction programme.

"We provide a mixture of upfront analysis that compares input and output costs against the industry and across sectors," says Ainsworth. "Our output cost comparison is functionally based, analysing the total outgoings that relate to a customer's product or service. We then combine staff costs with external and supplier expenditure to ascertain the total spending of each function. Next, we work with clients to implement specific functional cost reductions, and finally put in the tracking and monitoring to ensure that the benefits get delivered."

Level-headed solutions

When 4C is working on savings opportunities, the company outlines three levels. The first level involves fast and simple change including negotiation with, or changing, suppliers. Level two centres around demand and specification review; changing how companies perform a given activity. This might include reducing the need for the service through better specification. Level three is transformational and involves changing the activity itself. For example, moving from print advertising to the use of social media, at a decreased cost.

"Organisations can increase their share price by 2-10% as a result of a cost reduction programme."

For example, the company is working with a food manufacturer on its logistics expenditures. The project team, which includes members from procurement, logistics and finance, has been able to deliver significant savings by reducing truck costs and implementing more effective purchasing of containers to decrease core transport outgoings. 4C has reviewed demand and is now reducing the number of miles travelled through sophisticated route optimisation.

Ainsworth notes that the company is now working on level three opportunities to optimise the network and to collaborate with other organisations. He adds that while the market for cost transformation specialists is developing, the challenge that such companies face is one of continued innovation.

"Uniquely, 4C focuses on cost reduction; all of our staff are experienced in specific approaches such as re-engineering and procurement. We also have an insight and innovation team, we offer a combination of consulting and senior management experience, and we have our own technology that can be quickly configured to any client."

Saving the day

For the CFOs and financial directors of food manufacturing companies and other industries, 4C provides immense savings opportunities.

"We give them the tools that they need to proactively manage their outgoings, and they have access to a team of dedicated specialists," Ainsworth says. "Typically an organisation doesn't have people who are experts at cost transformation. We work well with existing teams, enabling programmes to be completed faster than they would otherwise.

"CFOs and finance directors are ideally placed to act as the business champion. Where they are leading the initiatives and they are supported by an expert team, we find that they have a high probability of success. The impact can be large."