This is a partial preview of the document found here: https://flevy.com/browse/business-document/cost-reduction-93 Description: This document discusses various cost reduction methodologies and concepts, including the following: Process Optimization, Strategic Sourcing, Shared Services, Business Process Outsourcing.

1. Cost Reduction Presentation
This document discusses various cost reduction methodologies and concepts,
including the following: Process Optimization, Strategic Sourcing, Shared Services,
Business Process Outsourcing

2. Cost Reduction Strategies have become the focus of executive management
due to global economic challenges
External Drivers for Cost Reduction
 Increased Marketplace Competition
– Competitors providing similar products at lower prices
 Fear of Recession
– Less cash flow in the marketplace
 Rising Costs of Production
– Increasing cost of Energy and Material
 Inflation
– Declining value of currency and/or rising prices of goods and services
 Increased pressure from Investors and Boards of Directors
– Missed Revenue Targets
– Mergers and Acquisitions
The Burning Platform: $1 = $6.87
$1 of cost reduction = $6.87 of new sales when viewed from the impact to the
bottom line
3

3. The Savings Realization Matrix may reveal a focus on several cost reduction
strategies… for example, Strategic Sourcing
 In many cases, there is lost cost Key Elements of a Successful
maximization simply due to a lack of Strategic Sourcing Program
centralized insight into which suppliers are
providing work to each business unit
Visible
– This insight would lead to opportunities to Leadership
consolidate vendors to deliver the same work Commitme
Standardized
but for less based on volume discounting Vision nt
Repeatable
Processes
 Typically, there is inconsistent
accountability tracking of whether
suppliers are meeting deliverables within Strategic
Value
agreed upon Service Level Agreements Based Sourcing Technology
which can lead to excess costs Outcome Enablement
 Most importantly, organizations may lack
an understanding of the contractual cost Risk
drivers that would otherwise give the Manageme Innovation
client clear insight as to what “levers” can nt
be pulled to reduce costs
Strategic Sourcing assessments typically identify a variety of “quick-wins”
and measure the alignment of key elements against best practices
5

4. Agenda
 Overview of Cost Reduction
 Process Optimization
 Strategic Sourcing
 Shared Services
 Business Process Outsourcing
7

5. Process Optimization assessments across people & process has become a
basic focus cost reduction
Process Optimization: Activity-Based Costing indicates the Costs of
Total Bank
• Measures the cost and financial performance of Activities and Objects
Expenses
How much
activities, resources, and cost objects do we
Book costs to
appropriate
spend? Cost Cost Cost Cost Cost
cost centers
• Assigns resources to activities and activities to cost Center 1 Center 2 Center 3 Center 4 Center 5
objects based on their use, and recognizes the casual
Drive cost
relationships of cost drivers to activities center costs
What to activity
Activities Activities Activities Activities Activities based
do we
do? process
cost pools
Cost Inputs Process Costs Cost Objects Reporting
Customer
For which Drive pool
Product Product Product Product Product costs to
Raw Material Related products do
Costs A B C D E
Activities Customer Groups we do it? objects
Product Profitability
Product 1
Manufacturing Package / Product 2
Costs Distribution
Activities
Product 3 ABC ABM
Product 4
Packaging/
Distribution
A c tiv ity -B a s e d C o s tin g in d ic a te s th e A c tiv ity B a s e d M a n a g e m e n t
Manufacturing
Costs Product
Related
C o s ts o f A c tiv itie s a n d O b je c ts fo c u s e s o n u n d e rs ta n d in g
Activities
Customer Profitability W H Y and H O W W ELL
Customer 1 R esou rces W h a t is u s e d to d o
Direct Business Customer 2
Center/ w ork W hy? W h a t? H o w W e ll?
Customer 3
Marketing Manufacturing Packaging/
Costs Activities Distribution
C o st P e r fo r m a n c e
(W h a t w o r k ) is d o n e D r iv e r s A c tiv itie s M ea su res
R&D Costs A c tiv itie s
Support
Activities Process Costs
Sales & Mktg.
W hy
R&D (W h a t w o r k )
Corporate
Product Groups T o w h a t, o r fo r is w o r k d o n e o r
Pkg/Dist C o s t O b je c ts w h o m is w o r k d o n e w h a t im p a c ts a n is d o n e H o w w e ll
Charges
New Product Mfg a c tiv ity ’s c o s t, is w o r k d o n e
Development tim e , o r q u a lity
Activities
9

6. Phase 1 Focus Interviews help spotlight where costs do not align with value
Level 1
Insights Delivered
Detailed discussion
Components
Underlying issue discovery
Internal Focus
Interviews Headline cost reduction opportunities
Hypothesis guidance
Level 2
Insights Delivered
Broader opportunities in cost reduction
Priority cost components and watch outs Awareness Services Purchase Delivery Manage Evolve
Subject Matter
Interviews Detailed option flesh out
What is the What are tier 1 Where does What is the How should What opportunities
awareness must have purchasing preferred delivery accounts be are there to tighten
perception of services? reside? model? managed? the relationship?
services offered?
Which services Who are the key What part(s) of What push vs. pull What are the
What is the does customer decision makers/ the overall services should be broader priority
awareness of believe can be Influencers? service suite enabled? services that could
Level 3 broader service effectively does the be streamlined?
What is the What are the key
Insights Delivered suite? enabled?
spend
customer wish to
Service Level
keep internal?
How do How will breakdown? Agreements to
Questions
customers customer maintain?
Focused discussion perceive the purchasing
competitive patterns evolve?
Prioritization of key value add areas across
landscape?
experience
External Customer
Mapping to costs of operation for cost/ value
Focus Interviews mapping
Including internal and SME inputs to shape the
discussion helps open up customer experience
insights and areas where spend is not valued
11

7. Interviewing, benchmarking, and other techniques are used to identify bottom
up savings opportunities measured against your current state processes
Acquisition Illustrative Macro Process Overview
= Indicative
Pain Points
Acquisitions, Marketing & Sales
Asset
Creative Services
Management
Consumer Marketing SKU
Sales
Planning Management
Research
Media Advertising
Business Intelligence & Publicity Promotions
Planning
Budget / Planning Category
Management
Bus. Decision Collaborative Post Event Knowledge
Data Integrity
Framework Forecasting Analysis Management
Manufacturing Distribution Merchandiser Supply Chain
Demand & Transformation
Supply Matching “Inbound”
Product
Pre- Production WIP Inventory Planning VMI Retail Returns Credit &
Planning Invoicing
Management Visibility “Outbound” Merchandising Management Deductions Mnmt
“Prod. Config”
Pick, Pack &
Customer
Ship Planning
Service
Manufacturing
Manufacturing Assembly FG Inventory Order
Assembly & VMI Deliveries
& Distribution Planning Visibility Management
Distribution
Inventory
Sourcing Non VMI
Planning Pre Replenishment
Procurement Deliveries
release
13