When you’re a large retail company, even minor cost savings can be meaningful. Case in point: Brett Biggs, Walmart’s chief financial officer, recently described his company’s plan to save millions annually.
The strategy? Better floor wax.
“Not only is the new wax cheaper, it’s also sturdier,” Biggs explained in October during investor day at its headquarters in Bentonville, AR. “It doesn’t need to be buffed as often, resulting in less spent on the actual buffing, as well as fuel for the machines.” That one change in floor wax will save Walmart more than $20 million per year, he estimates.
The retail behemoth also announced plans to replace all fluorescent fixtures with LEDs in stores and parking lots. After rollout is complete in the next few years, the switch is expected to net Walmart savings from lower energy costs totaling $200 million annually. It’s stark proof that a small savings project—tallied over time and multiplied across a chain—can add up big.
Loss prevention directors have certainly done their part to help in this regard. Over the years, they have aggressively tried to eliminate waste, used technology to reduce costs, maximized staff productivity, and employed other cost-cutting strategies. And, like Walmart, they have reported that seemingly minor operational changes can yield significant budget savings. For example, a national cost-control survey, conducted by IOMA/LPM, revealed the following:
- Sixty percent of retail respondents have undertaken a project related to security lighting to reduce energy consumption and save money. These retailers gave their projects an average score of 3.48 for meeting cost-control expectations (where 1 is “failed to meet” expectations; 3 is cost savings “as expected”; and 5 is “substantially exceeded” expectations).
- Thirty-eight percent of security departments overall have tried to save money by making changes to patrols or in the fuel efficiency of security fleets. (Not surprisingly, this is a more popular strategy in organizations where there is a good deal of patrol work, like among utility and telecom companies.) The average rating of these projects was 3.45, indicating that security departments typically saved more money than they had expected.
The security chief at a Florida shopping mall said his department replaced its fleet of Ford Explorer V6s with six Toyota Highlander Hybrid vehicles, and because each vehicle logs an average 24,000 miles per year in patrols, the mall sees significant savings from vehicles that get twice the gas mileage. One survey respondent said his security department’s switch to hybrid vehicles is saving his company $12,000 per year.
The Supplier Side of Retail Security Services
The loss prevention director for a food company said it saved $129,000 in a single year by conducting an evaluation of key contracted security services to see whether they were getting their money’s worth.
“In some cases, we’ve changed providers to increase service for the same cost. In other cases, we’ve reduced costs for the same services,” he said. “In all cases, our providers no longer take us for granted, and do a better job of providing quality service and equipment.” The food retailer also canceled contracts with some service providers and, by moving the services in house, they managed to provide the same services at a lower overall cost.
The vendor relationship is the focus of a Perpetuity Research report released in July 2018, “The Barriers to Effective Buyer-Supplier Relationships in the Security Sector.” This new study makes the point that a close relationship a security supplier not only leads to better outcomes, it can save money.
“In collaborative relationships suppliers are most often subsidiaries or affiliates of the buyer; there is often some form of interdependence. Buyers typically engage in these long-term relationships with a few select suppliers, with whom they establish high levels of trust,” according to the report. “Compared to transactional relationships, the benefits of these types of relationships include enhanced communication, costs savings, reliable delivery, higher quality, and greater flexibility.”
The report also warns against allowing cost-control initiatives to dominate a relationship with security suppliers. “When an opportunity to reduce costs presents itself parties can jump on these opportunities in a way that undermines their relations with each other, with adverse consequences for levels of trust and cooperation,” the report warns.
Said one director of global security, “You should always require your supplier to sharpen the pencil, but don’t make them regret the relationship.” A divisional loss prevention manager was more forceful: “Are you going to be able to get what you are looking for if you keep drilling on price?…They need to make a profit too. You can’t keep screwing the supplier.”
It’s not a surprise that focusing on finances can be a significant source of conflict between security suppliers and end users. The report identified cost issues as the top barrier to buyer-supplier relationships, with 74 percent expressing the opinion that buyers are ‘frequently’ or ‘always’ too focused on price over quality.
But price is always a concern, and there are ways that buyers of security services can control costs without chasing the lowest price in a way that sparks a “rush to the bottom” in terms of service level.
One way, suggests the new Perpetuity Research study, is to truly understand your own security needs. When a buyer does not fully map its needs, or misunderstands them, it is unlikely to get the best fit and it becomes difficult to manage costs effectively.
Another way, the report suggests, is for operations personnel to have sufficient power in the procurement process. If they are only brought in after the fact, some costs associated with how the service will be utilized may be ignored in the contract phase.
Organizations may also pay a hidden price for their lack of involvement. “It can mean risks not being properly identified and mitigated and even in the buyers incurring additional costs to correct errors, let alone the inherent cost of having inadequate security in the first place,” according to the study.
Finally, LP leaders may want to review the composition of their LP teams. Respondents suggested that having staff members who are former suppliers is often valuable during negotiations and for assessing suppliers’ expertise.