Attack of the Penny Savers

Small companies don their creative cost-cutting caps to shore up cash reserves and ride out the downturn.

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.

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