Cost Reduction for Management Consultants & Managers

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Cost Reduction for Managers &
Management Consultants
Practical guide how to cut costs in business & in private life

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In business you have to make a lot of important decisions
As a manager quite often you will have to find ways to spend less, reduce costs. This is
not an easy task as you will have to increase efficiency and quality at the same time.

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Luckily, there are a lot of techniques that will help you in a structured way
look for savings that will help you improve the profits of your business.

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In this course I will teach you how to find potential savings, estimate them
in Excel and how to make sure that they don’t impact quality or efficiency.

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We will use for that management consulting tools, techniques
and frameworks from top management consulting firms.

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How the presentation is
organized

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In this presentation I will show you how to find potential savings, estimate
them in Excel and how to make sure that they don’t impact quality or efficiency.

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Quick wins
Process optimization in
practice – Retail chain
example
Cost reduction
frameworks
Investment analyses Reduce usageMake-or-buy analyses
How to spend less in
private life

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What you will see in this presentation is a part of my online course where you
can find case studies showing analyses along with detailed calculations in Excel
$190
$19
Click here to check my course

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Cost reduction frameworks –
Introduction

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Frameworks are great because they help you see the big picture. They
also provide you with guidance what to do to achieve your goals

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In this section I will discuss frameworks for cost reduction. I will show you also
2 cases where we will modify the framework to better address specific industry
General cost reduction
framework
How to increase the
profitability for cosmetics
producer
How to increase the
profitability of a retail
chain

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Let’s have a look at the general framework we can use to cut costs
Cut costs
Reduce usage Automate
Optimize process and
costs
Renegotiate contracts
Eliminate fully certain
expenses
Change specification – use less
of certain thing
Change specification – use
cheaper substitute
Standardized the process
using the best practice
Automate with software
Automate with machine
Simplify and optimize
processes
Replace Opex with capex
(analyze Opex vs capex
tradeoff)
Make it or buy it analyses and
if needed outsource or buy
outside
Renegotiate contracts with
current suppliers
Change the supplier
Change the form of using (i.e.
owing something instead of
leasing)

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How to increase the profitability for
cosmetics producer – Problem

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Imagine that you are working for a cosmetics producers. And you have
to increase his profitability
2 brands. 1 stong in Poland the
other in Romania
No e-commerce
Penetration in some regions is
stronger than in others
Has 2 Head Quarters (in Romania
and in Poland) and 4 factories
Every factory has different supplier
base and buys independently

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Divide your answer into 2 fields
Increase sales Cut costs

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cosmetics producer – Solution – Sales
Increase

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Let’s have a look how we can increase sales in the cosmetics
Increase sales of
cosmetics
Increase distribution Increase Product Range Price & Discount Policy
Increase demand for
your cosmetics
Add e-commerce
Improve sales in the regions in
which you are under-
represented
Enter other new channels or
enter new markets (regions,
countries)
Increase your shelf space
within the existing partners
Consider introducing the
Polish brand in Romania and
Romanian brand in Poland
Add new products within
existing categories
Add new categories within
existing brands
Changing price structure. Look
at the prices vs competitors
Changing discount policy used
toward channels
Changing pricing for specific
channels
Increase consumption per
capita
Find new segments of
customers i.e. different age
groups / men
Find new customers

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cosmetics producer – Solution – Cost
Reduction

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Let’s have a look how you can cut costs in a cosmetics producer
Cut costs
Improve factories Standardize the product
Reduce head offices
costs
Optimize process in the
factories using best practices
lean manufacturing, TOC
Consider consolidating the
production in smaller number
of factories
Automate production if
necessary
Check how similar the
products are
Standardize materials or
products
Create 1 universal version for
all markets
Go through the Head Offices
costs and organizational chart
and check the overlaps
Consolidate some functions in
1 place and reduce FTE
Get best practices and
implement them in both
Consolidate purchases of main
materials in 1 -2 places
Consolidate suppliers
current suppliers or get new
ones
processes at the head-office

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How to increase the profitability of a
retail chain – Problem

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Imagine that you are working for a fashion discounter that operates a
retail chain in Easter Europe
Sells mainly cheap fashion, toys and
small items for the home
No e-commerce
Competes with other low cost
discounters and hypermarkets

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Let’s have a look at some KPIs for the firm you are advising and their
competitor
Size
Profitability
Pace of growth
Cash
generation
Debt level
 Revenues
 % EBITDA
 % Gross Margin
 # of new stores
 LFL Growth
 Cash to EBITDA ratio,
 Inventory in DOS
 Payables in DOS
 Debt to EBITDA ratio
Your Customer Competitor 1 Competitor 2
 USD 2 000 M
 8%
 45%
 30
 2%
 50%
 140
 70
 5.5
 USD 1 000 M
 15%
 55%
 10
 5%
 55%
 90
 150
 1
 USD 3 000 M
 17%
 57%
 100
 5%
 40%
 120
 200
 2
Costs
 Head office as % of Sales
 Average # of employees per
managers and directors
 # of managers and directors
 11%
 4
 80
 7%
 6
 30
 8%
 10
 70

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Divide your answer into 2 fields
Increase sales & Margin Cut costs

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retail chain – Solution – Sales Increase

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Just as a reminder you are working for a fashion discounter that
operates a retail chain in Easter Europe
No e-commerce

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Let’s first start by analyzing the sales and margin increase

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competitor
Size
Profitability
Pace of growth
Cash
generation
Debt level
 Revenues
 % EBITDA
 % Gross Margin
 # of new stores
 LFL Growth
 Payables in DOS
 USD 2 000 M
 8%
 45%
 30
 2%
 50%
 140
 70
 5.5
 USD 1 000 M
 15%
 55%
 10
 5%
 55%
 90
 150
 1
 USD 3 000 M
 17%
 57%
 100
 5%
 40%
 120
 200
 2
Costs
 11%
 4
 80
 7%
 6
 30
 8%
 10
 70

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Let’s have a look how we can increase sales and margin for our coustomer
Increase sales & margin
Open more new stores
Find ways to increase LFL
sales
Expand some categories Gross Margin
Build faster more stores in
existing markets – 2x or 3x
Enter new markets (regions,
countries)
Create new formats if needed
Bring more traffic to existing
stores
Improve % conversion
Increases Average Transaction
Value (ATV)
Check sales and margin
densities per category
Consider expanding some
categories
Consider totally new
categories for the same target
group
Renegotiate with suppliers
Do value engineering
Look for cheaper suppliers
Consolidate some products or
suppliers
Increase selling space within
existing stores

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retail chain – Solution – Cost Reduction

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operates a retail chain in Easter Europe
No e-commerce

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Let’s first have a look at how to cut costs

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competitor
Size
Profitability
Pace of growth
Cash
generation
Debt level
 Revenues
 % EBITDA
 % Gross Margin
 # of new stores
 LFL Growth
 Payables in DOS
 USD 2 000 M
 8%
 45%
 30
 2%
 50%
 140
 70
 5.5
 USD 1 000 M
 15%
 55%
 10
 5%
 55%
 90
 150
 1
 USD 3 000 M
 17%
 57%
 100
 5%
 40%
 120
 200
 2
Costs
 11%
 4
 80
 7%
 6
 30
 8%
 10
 70

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Let’s have how we could cut costs in the Retailer
Cut costs
Reduce Head-office costs
Improve inventory
management
Reduce Store costs Renegotiate contracts
Decrease the number of
directors and managers
Simplify the structure
processes in the Head-office
Check why they keep so high
level of stock and change the
algorithm / policies
Sell deadweight stock (non-
rotating)
Keep more stock in the central
warehouse
processes in the stores
tradeoff)
Destock the stores
Renegotiate contracts to
increase the payment terms
Make the supplier do certain
things currently done by you
Look for optimal size of
logistic delivery batches

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Quick wins – Introduction

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You want obviously to get the savings fast. Therefore you should
concentrate on the quick wins. We will discuss this in this section

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In this section we will discuss how to identify quick wins in cost
reduction.
What is 80/20 Pareto
principal
Low hanging fruits
Quick wins for cost
reduction
Quick wins for cost
reduction – drugstore
chain case study

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So let’s start with the low hanging fruit frameworks and later we will move on
to 80/20 rule
Low hanging fruit framework 80/20 rule

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Get the low hanging fruits first. By
low hanging fruits we mean things
with big impact and easy to
accomplish

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Resources needed
Impact
SmallBig
High
Low
 Things with big impact that
require little work
1
How to find low hanging fruits?
 Easy but with low impact
3
 Things with big impact yet
expensive, time consuming
2
No

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 Office hours
1
Low hanging fruits for StartupAkademia
2
4 3
 Blog posts
 Slideshare presentation
Impact
High
Low Resources needed
SmallBig
 Udemy Course
 Sniply
 Youtube
 Events
 Twitter
 Additional resources

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Applying 80/20 rule in
practice

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What does 80/20 mean in practice
 Concentrate only on the big items
 Concentrate on the big customers
 Analyze the most typical cases
 Concentrate on the most frequently occurring problems
 Analyze problems with big impact
 Your analyses should have only 20% of the variable that
generate 80% of the impact
 Start with subjects where you see the biggest difference
between actual results and benchmarks

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Here are 3 examples of using 80/20 rules
 Learning Visual
Basic for Excel
 Checking
competitors
 Salsa course
Area
 Learn only the 5 most used items that will take only 20% of full course and will
be used by in you in 80% cases
 You check only 20% of competitors that sales add-up to 80% of the market
 Go through 20% of the course to learn the moves and the figures used in 80% of
cases
Description

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Quick wins for cost reduction

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How easy it is to
implement it?
What is the potential savings we
can achieve
EasyDifficult
Big
Small
 Holly Grail
1
 Compounding savings
 You need a lot of them to make the
difference
3
 Second best
2
4
Let’s look how the quick win framework looks for savings
 Big effort savings
 To be considered at later stage

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How easy it is to
implement it?
can achieve
EasyDifficult
Big
Small
 Cow savings – easy to kill and big
1
 Chicken savings – easy to kill yet
you need to kill a lot of them not to
be hungry
3
 Elephant – difficult to catch yet big
2
4
Let’s look at what animals could represent every category
 Bat savings – small and difficult to
catch

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Remember that the potential reduction in costs depends on 2 elements:
potential percentage cost reduction and the cost starting point.
Potential % cost
reduction
x Cost starting point = Potential Saving
10% x 100 = 1
50% x 2 = 1

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When it comes to cost savings what would you be more happy about?
% $
 Big savings
expressed as % of
initial costs
 Big savings
expressed in
absolute value (i.e.
in dollars)
regardless of the
initial cost

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Quick wins in Drugstore – Case
Introduction

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Imagine that you have to identify quick wins in cost reduction for
an international chain of drugstores. We know their cost structure

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A few information about the firm that we will be analyzing
They have 4 000 stores
We have their cost structure
They have send us a list of projects that
will help them reduce costs
Estimate the potential and group them
using the quick wins framework

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How to estimate the potential
reduction in costs

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How easy it is to
implement it?
can achieve
EasyDifficult
Big
Small
 Cow savings – easy to kill and big
1
 Chicken savings – easy to kill yet
you need to kill a lot of them not to
be hungry
3
 Elephant – difficult to catch yet big
2
4
In quick wins for cost reduction we want to set priorities to projects
 Bat savings – small and difficult to
catch

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As we said potential reduction in costs depends on 2 elements: potential
percentage cost reduction and the cost starting point.
Potential % cost
reduction
10% x 100 = 1
50% x 2 = 1

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Cost starting point is known. What is a mystery is the potential percentage cost
reduction. We have to somehow estimate it
Potential % cost
reduction
? x 100 = ?
? x 2 = ?

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There are some ways to estimate the potential reduction in costs
Get benchmarks
Carry out 1-day audit
Measure a sample
Ask experts
Ask suppliers of tools / IT solution /
machines
Organize auction / tender
Do a consulting project with a
consulting firm

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Let’s start with a short definition
 NPV stands for Net Present Value
 NPV is the difference between the present value of cash
inflows and the present value of cash outflows over a
period of time usually related to some investment
 It’s used to determine whether something (action,
investment etc.) makes sense or not
NPV =

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Just as a reminder Present Value of money is different than the Nominal
Value
100 100
Today After 1 year
100
After 2 years
Nominal Value
Interest rate you can earn
every year 5% 5%
Present Value
100 95 91
Nominal
Value
(𝟏 + 𝒓) 𝟏
Nominal
Value
(𝟏 + 𝒓) 𝟐

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Let’s have a look at the NPV for a small investment
- 1 000 300
Year 1 Year 3
300
Year 5
Cash flows generated by
the investment in nominal
value
300
Year 2
300
Year 4
- 1 000 272 247
Present value of cash
flows generated by the
investment for interest
rate r=5%
286 259
64
NPV 5 year for the end of
Year 1; rate r=5%
300
(𝟏 + 𝟓%) 𝟏
Formula for the present
value calculations using
interest rate r=5%
300
(𝟏 + 𝟓%) 𝟐
300
(𝟏 + 𝟓%) 𝟑
300
(𝟏 + 𝟓%) 𝟒

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NPV enables you to make decisions about specific investment
NPV 0>
 The investment can generate more cash than it
requires. Can be considered to be done
NPV 0<
 The investment will be eating away cash. Rather
consider not doing it
NPV 0=
 Neither creates nor destroys value. Look for
other criteria i.e. strategic, tactical factors

69
Let’s have a look at the NPV for a small investment
- 1 000 300
Year 1 Year 3
300
Year 5
Cash flows generated by
the investment in nominal
value
300
Year 2
300
Year 4
- 1 000 272 247
Present value of cash
flows generated by the
investment for interest
rate r=5%
286 259
64
NPV 5 year for the end of
Year 1; rate r=5%
300
(𝟏 + 𝟓%) 𝟏
Formula for the present
value calculations using
interest rate r=5%
300
(𝟏 + 𝟓%) 𝟐
300
(𝟏 + 𝟓%) 𝟑
300
(𝟏 + 𝟓%) 𝟒

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 IRR stands for Internal Rate of Return
 IRR is a discount rate that makes the net present value (NPV)
of all cash flows from a particular project equal to zero
 IRR tells us how much you would have to earn on saving
account every year to get to the same results as from the
investment you are anlayzing
IRR =

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If you want to decide on whether to do certain investment or not
compare IRR with the right interest rate
IRR
Interest
rate
>
 The investment can generate higher returns than
the alternatives. Can be considered to be done
IRR
Interest
rate
<
 The investment will generate lower returns than the
alternatives. Rather consider not doing it
IRR
Interest
rate
=
 The investment is as good as other alternatives.
Look for other criteria i.e. strategic, tactical factors

73
NPV and IRR gives you the same directional information
NPV 1 NPV 2>
 Investment 1 is better than Investment 2
IRR 1 IRR 2>
 Investment 1 is better than Investment 2

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For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
$190
$19

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Process optimization in practice –
Retail chain example

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Process optimization in practice –
Introduction

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As you may remember we said that there are 4 main direction when it
comes to cost cutting
Cut costs
costs

78
We will concentrate on optimizing processes
Cut costs
costs

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Optimization of in-store
processes – Introduction

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Let’s have a look at the value creation at the Fashion Retailer firm
Selling the
products in the
stores / website
Shipping the
products to the
stores
Develop &
design products
Sourcing /
Purchasing
Products
Putting the
products on the
shelves
Get & open new stores
Create new store formats
Maintain / Renovate stores
Recruit & Train

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As you can see majority of people are working in stores. That’s why
optimizing store processes is crucial for the profitability of the business
Selling the
products in the
stores / website
Shipping the
products to the
stores
Develop &
design products
Sourcing /
Purchasing
Products
Putting the
products on the
shelves
Get & open new stores
Create new store formats
Maintain / Renovate stores
Recruit & Train
30
1500
10
30
10002004020
10

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We will use a case study of DIY Retailer to show you how to optimize
store processes
+70 stores
2 countries
Average size of the
store: 3 500 sq. m

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Steering
Committee
Implementation
Team 1
Implementation
Team 1
Implementation
Team 1
SMI
Project Team
• Project Sponsor
• 2 Board Members
Members
• Asen Gyczew
• 9 People from DIY
• Asen Gyczew
• 9 people from Project Team
• Store Managers
• Regional Managers
Below you can see how the project was organized

84
Below in short how the whole process optimization looked like
Project definition Workshop Optimizing 1 store
Optimization of 50%
of stores
Optimization of
100% of stores
 Defining the scope of
the project and how it
should be delivered
 Optimizing +20
processes in a
selected store – done
by the customer team
supervised by me
 Defining on the basis
of that the processes
with biggest impact
on cost to be
optimized in all stores
 Implementing
optimization of
selected processes in
the 50% of stores
 1 day workshop at the
end of this phase to
rethink and modify
implementation plan
 Teaching team
members how to
optimize processes
 Full implementation
in the whole retail
chain

85
In this section I will show you how the workshop looked liked and how
we optimized the process in the 1st store
Project definition Workshop Optimizing 1 store
Optimization of 50%
of stores
Optimization of
100% of stores

87
Introduction to the
Workshop

88
Workshop was very important as I was getting a team that I did not know and
that did not trust me. On top of that they did not know how to optimize
processes. Therefore, the workshop had following goals:
Get to know the team
Teach them basic techniques that they
will need
See who could be a team leader (I
needed 3) and a believer
Show them on example how to
optimize processes
Redefine with them the scope if
needed
Convince them that the project is
doable within the assumed timeline
Build my authority (despite young age)

89
Workshop – the scope of the
project

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 Lower costs
 Improve the quality of service
 Increase the sales and margin per
1 employee
We have the following aims in our project

91
• In-bound Logistics including
replenishment of the shelves
We will look at the following process
Group Process
• Special orders
• Direct orders
• Orders from Central Warehouse (CW)
• Cyclical orders
• Price change management • Price change
• Price monitoring
• Communication between stores and
Head Office
• ?
• Promotion area management • Promotion area management
• Change of assortment • Range Change
• 1 to 1
• Customer support • Selling the product at the cash till
• Return of goods
• Complaint from a customer
• Sales via telephone
• Deposit and transportation management
• To be confirmed
• Direct deliveries
• Deliveries from Central Warehouse (CW)
• Direct returns
• Returns via CW
• Transfers between stores
• Partial stocktaking
• Control of empty spaces

92
Observation and initial
analyses
Data gathering
Process
optimization in
1 store
Modification of
the process for
other
Implementation
in the whole
chain
• Observation of process in
real life in 1 of the store
• Analyses of the formal
description of the process
• Analyses of available data
• Proposal of KPIs needed to
set goal for each and every
process
• Preparation of list of data
and format for data entry
• Workshop
• Data gathering
• Data preparation according
to provided formats
• Analyses of the process as is
especially its efficiency and
costs
• Redesign of the process
• Creation of tools supporting
the execution of the new
process
• Test of new processes in
chosen locations
• Modification of processes
• Creation of manuals
supporting the new process
• Implementation of new
redesign process in the
whole chain
• SMI
• DIY
• DIY • SMI
• DIY
• SMI
• DIY
• DIY
Process optimization will be divided in the following phases
Execution
Description

93
Name of the process
• Cost analyses • Decision on whether to perform it or not
• Lean manufacturing
• Queuing systems
• SIPOC methodology
• Cost analyses especially the impact on
bottlenecks
• Finding the optimal way to perform each
activity
• Queuing systems • Cost analyses especially the impact on
bottlenecks
• Finding the optimal way to perform each
activity
• Theory of Constraint
• Queuing systems
• Transportation optimization
• Description on the frequency of logistic
replenishment from the store warehouse
• Reorganization of the store warehouse
• Lean manufacturing • Reducing the amount of price changes
• Reducing time devoted to price changes
• Queuing systems
• SIPOC methodology
• Cost analyses especially the impact on
bottlenecks
Methodology used Examples of possible changes
• Price change management
Head Office
• Promotion area management
• Change of assortment
• Customer support
We will be using different optimization techniques for different
processes

94
Steering
Committee
Implementation
Team 1
Implementation
Team 1
Implementation
Team 1
SMI
Project Team
• Project Sponsor
• 2 Board Members
Members
• Asen Gyczew
• People from DIY
• Asen Gyczew
• To be decided
We propose the following organization of the project

95
Project Sponsor
SMI
Project team
 Participate in Steering Committee Meetings
 Supervise of the project on the behalf of Company A
 Select of Solutions
 Support in implementation (when needed)
 Participate in Steering Committee Meetings
 Manage the project
 Choose the approach to be used.
 Workshop organizations
 Carry out part of analyses
 Support the implementation teams
 Gather data
 Participate in workshop and project work
 Carry out part of analyses
 Optimize process on chosen test stores
 Modify the process after test
 Participate in implementation teams
Implementation
teams
 Implement new process in the whole chain
 Modify the process when needed
Every participant has a role to play in the project

96
Workshop – Tools overview

97
 Lean Manufacturing
 Theory of Constraints
 Queuing theory
 Overall Labor Efficiency (OLE)
We will be using the following techniques to optimize the processes

98
Workshop – Elements of lean
manufacturing

99
5
60
35
Adds value Does not add value and
not obligatory
Obligator but does not
add value
Source: Report Going Lean, P. Hines, D. Taylor; Lean enterprise research centre; Cardiff Business School; 2000
In lean manufacturing We
have different types of waste:
 Overproduction
 Defects
 Inventory
 Over-Processing
 Transport
 Motion
 Waiting
Share in total
%
Due to different of waste we only use 5% to create value

100
We will be using the following techniques to optimize the processes
Overproduction  Overproduction is making too much or too early. This is usually because of working with oversize
batches, long lead times, poor supplier relations and a host of other reasons.
Defects  You produce faulty things or not up to agreed standard. This may be due to errors done by production
people, quality issues or faulty materials
Transport  Transport is the movement of materials, people, machines from one location to another. This is a waste
as it adds zero value to the product.
Waiting  Long periods of no action due to lack of materials , resources, people
Motion  Unnecessary motions of workers due to the way working space is organized
Inventory  Too high inventory that costs you money, space and causes operational problems
Over-Processing  When you use the wrong tools, procedures or methods you are creating waste as well
You have not used the
employee’s creativity
 If you waste peoples’ efforts and creativity you will stop developing
Definition

101
In the case of DIY you will see 2 main wastes
Too much movement
(people, resources, materials)
Lower the need to move
Move faster
Change the timing of the
movements
Eliminate the movement
Peak of activities
Set priorities
Assign specific people to perform
the activity during peaks
Decrease the difference between
high and low periods
Use different frequency for
different activity

102
Workshop – elements of theory
of constraints

103
Bottleneck is always at the place where you have the lowest capacity.
Have a look at 3 examples below
Example 1
7 5 7
Example 2
5 10 20
Example 3
5 5 3
x Stage
capacity
x Bottleneck

104
Due to bottlenecks the system the whole system is not efficient. Some people
have nothing to do whereas others are stranded with too much work

105
We can use in DIY elements of theory of constraints that is most often used in
production
 Throughput of the whole system
 Inventory
 Operational costs
Production
 Throughput measured in number of
customers served
 Inventory
 Operational costs of the store
DIY

106
The aim of the theory of constraints is to increase the throughput in
bottlenecks. For this you can use
 Identify the bottleneck
 See how you can use in better way the time of the bottleneck
 Everything should be aligned with the bottleneck
 Increase the capacity of the bottleneck to meet the full demand (add machines, people,
resources, increase the time of work)
1
2
3
4

108
Open hours
Maintenance Machine uptime
Uptime utilizationIdle time
60%
60%
OEE =
60 %
60 %
x
x
98%
Proportion of good quality
products
98%
35%
In the case of machines you can measure Overall Equipment Efficiency (OEE).
Similar concept can be used to measure efficiency of people

109
 Estimated for machines
 Shows you what percentage of the
machine is used to create value for
which you are paid by the customer
 It makes sense to analyze it especially
for expensive machines and
bottlenecks
OEE
 Estimated for people
 Shows you what percentage of the
people is used to create value for
which you are paid by the customer
 It makes sense to analyze it especially
for people that are representative of a
big group of your employees
OLE
Similar to OEE that is designed for machines you can define the Overall
Labor Efficiency (OLE) for people

110
31%
29%
21%
18%
100%
Sales advising
Shelf replenishment
Transport and
movement
Others
Total
 Only sales advising and shelf replenishment
are added value activities for which customer
is willing to pay
 This means that the OLE for a sales reps is
equal to 60% at most
Below example of results of OLE analysis for sales representatives working at a
store

111
Workday
Time that you can devote
Time left for real workLack of work
100%
54%
OLE =
100 %
54 %
x
x
98%
Work
98%
37%
No work due to
organizational
issues
Movement
70%
Work well done
70 %
Overall Labour Efficiency how much work there is in the work ?

112
Workshop –
Queuing system

113
You have to identify queues in your system to be able to serve your
customers in the proper pace
Customer appears
Exit
Number of service
point (servers)
Queue
Delivery of service

114
In Queuing system there are 2 parameters you have to estimate to see
how big the problem is
We have to parameters that we should look at
• λ – average number of people appearing in the system
• μ – average number of people that the system can service
We have 2 possible situations
• λ> μ – we are not able to service all customers – they are leaving the store
• λ< μ – We are able to service customers quite well yet occasionally we can
have still queues. The customer in the queue may give up purchasing or can
be less satisfied (not return for new purchase)

115
Even small difference between the number of appearing customers and
your capacity to service can cause fast big queues
0,0
20,0
40,0
60,0
80,0
100,0
120,0
1,0 1,4 1,8 2,2 2,6 3,0 3,4 3,8 4,2 4,6 5,0 5,4 5,8 6,2 6,6 7,0 7,4 7,8 8,2 8,6 9,0 9,4 9,8
λ – average number of
people appearing in the
system
Size of the queue
μ =10

116
In complicated systems you can have 2 types of queues
 Clear service points
 People know where they are and how to
queue
 A good example is the queue to cash till
Visible
 No clear service points or service points not
visible
 People cannot find the service points and
don’t know how to queue to them
 A good example is the invisible queues to
sales reps for advices
Invisible

117
Have a look how the service level (advice during the purchasing process
of the customer) looks like in the test store
DIY test store example
• λ = 126 customers
• μ = 6 sales rep x 9 customer
serviced in during the hour 54
customers
Conclusions:
• A big part of customer cannot be
served
• Some of the customer will not buy
at all (lower conversion) or will
buy less (lower average
transaction value – ATV)
• μ can be increased by increasing
the number of sales reps,
increasing the time they devote
to servicing customers or
shortening the time of service

118
Workshop – Defining metrics
and cost drivers

119
I divided the team into 2 groups and ask them to work on
process metrics
Group Process
• Special orders
• Direct orders
• Cyclical orders
Head Office
• ?
• 1 to 1
• Return of goods
• To be confirmed
• Direct returns
• Returns via CW
Group I
Group II

120
For selected process in 2 groups perform 2 tasks
 For every process define KPIs
 Name cost drivers and cost position that it influence

121
The team managed to do the following process and to define for them
KPIs that we will use to optimize them
Name of the process
• Number of indexes audited during 1 day
• Average stocktaking time
• % of stocktaking carried out outside the peak
• Cost of 1 stocktaking
• Price change • Time needed to change the prices
• Number of changes per week
• Number of prices changed during 1 session
• Cost of 1 change
• Promotion area management • Time required to change the assortment
• Number of SKUs changed during the 2-week
promotion
• Cost of promotion per type of promotion
• 1 to 1 change of assortment • Time required to change the assortment
• Number of SKUs changed
• Cost of 1 change
• Customer service in the store • Number of customers per 1 sales rep
• Conversion rate
• Average Transaction Value
KPI

122
Workshop – Optimizing 1
process

123
Optimization means doing 3 things:
 As a result of our process optimization we want to create new process flow that will help
us achieve better results (when it comes to metrics, KPIs we have defined for every
process) at lower cost
 Before optimization starts for every process estimate the cost of 1 execution and think
what are the current KPIs value for this process
 The new process has to define:
 New flow of activities
 People carrying out the specific activity
 Frequency of execution of specific process

124
I have shown them also example of another process – price monitoring
 KPIs
 Number of price checks performed every month
 Time needed to perform the price check
 Cost of 1 price check
 Cost positions
 Time devoted by people carrying out the price check
 Cost of fuel
 Cost of print outs and paper
 Cost drivers
 Number of price checks performed every month
 Distance to main competitors
 Number of people doing the price check
 The person doing the price monitoring

125
….and the results that they could expect from it
204,2
154,5
Current Target
Example of improvements
• Change of the person doing the
data entry after the price check
(currently store manager)
• Decreasing the number of
people performing the price
check
• Decreasing frequency
Cost per 1 execution
In USD

126
Workshop – Timeline of the
project

127
At the end I showed them the timeline and explained them what we will
do on the specific day
Tasks 20 21 22 23 24
Overview of process – definition of KPIs and measuring the current costs
Designing of new solution, testing and modifying them
Final touch, creation of tools and final modification to the processes
February

128
Introduction to processes
optimization

129
Process Optimization went much better than expected
It lasted 4 instead of 5 days
Most of the things were done in 2
days
The team changed from skeptics to
deep believers
Leaders of each implementation team
were the driving forces
I was mainly coordinating, motivating
and arguing
We did more than the planned scope

130
As a reminder the original timeline
Tasks 20 21 22 23 24
Overview of process – definition of KPIs and measuring the current costs
Designing of new solution, testing and modifying them
Final touch, creation of tools and final modification to the processes
February

131
We managed to do much more as assumed in 4 days
 Tried to apply techniques they have learnt during
the workshop
 Measured assigned process – how long it took
what where the obstacles
 Looked for ways to improve
Day 1
Implementation teams Me
 Explained techniques and showing them the waste
 Gave them tips on how to improve
 I was moving between groups and sometimes talking to
the leaders separately
 Continued activities from Day 1
 For some of the process they have implemented
the quick wins in improving themDay 2
 Continued activities from Day 1
 Monitoring changes
 We made a trip to the competitors to try to see how the process are organized there
 We tried to see the pros and cons of the whole process
 We came back to improving the process at the DIY
 We measured the results with t he new processes
Day 3
 We finished the changes to the process
 The team that was doing the customer service went beyond the scope and worked on improving the
basket (ATV) size as well conversion rateDay 4

132
The store and the processes

133
The test store was 4 000 sq. m big (43 000 sq. ft.)
Warehouse
Offices
Warehouse /store racks
(shelving)
Cash Till
Employee
Customer

134
As you may remember there were over 20 process that we optimized in the test
store
Group Process
• Special orders
• Direct orders
• Cyclical orders
Head Office
• ?
• 1 to 1
• Return of goods
• To be confirmed
• Direct returns
• Returns via CW

135
I will show you in detail what we did in the case of the following 4
process
Price change
Shelf replenishment
Advising customers
Cash till and info point

137
Price change is the process of changing the price tags. It generated 7% of
cost in the test store but generated 16% of all savings
CC: Wikimedia

138
Let’s have a look how the price change process looks
Printing and
preparation of new
price tags
Price tag distribution Change of price tags
 Done by an Office
Specialist
 Around 300-400
changes per day
 Office Specialist calls 4-
7 Sales Reps to the
Office and hands them
over the price tags
 Sales Reps change
prices in their
departments
 A lot of problems were
caused by lack of tools
and infrastructure
(scissors, ladder, pallet
truck, dustbin etc.)
CC: Wikimedia

139
In the test store all sales rep had to go to the office for the new price
tags
Warehouse
Offices
(shelving)
Cash Till
Employee
Customer

140
In the first iteration we made the specialist from the office chase the
sales reps
Warehouse
Offices
(shelving)
Cash Till
Employee
Customer

141
Later we introduced pigeonholes for every department, so the specialist had to
leave the new price without looking for the specific sales rep
Warehouse
Offices
(shelving)
Cash Till
Employee
Customer

142
We have increased the number of tools an infrastructure

143
292
107
Before After
The change in the process was giving quite big potential savings
Cost of 1 price change
In USD per change
6 124
2 249
Before After
Change in monthly cost in the test store
In USD
 Given the number of stores
(70) this could give potential
savings of USD 3.3 M

145
Before we proceed to results have a look what the typical store
employee does during his 8 h work
31%
29%
21%
18%
100%
Sales advising
Shelf replenishment
Transport and
movement
Others
Total

146
5-6 times a day the sales rep would go to the warehouse to see whether
there is something for their department
Warehouse
Offices
(shelving)
Cash Till
Employee
Customer

147
We totally changed the order – we made the Warehouse specialist 2 a
day bring the thing to specific departments
Warehouse
Offices
(shelving)
Cash Till
Employee
Customer

148
We have increased the number of tools an infrastructure
CC: Flickr

149
We have drastically improved the internal logistics within the store by
placing all necessary equipment in the store

150
25
18
Before After
Cost of 1 replenishment to the shelf
In USD per pallet
23 311
17 280
Before After
In USD

152
Most of the time sales rep advice customer on what product they
should choose
31%
29%
21%
18%
100%
Sales advising
Shelf replenishment
Transport and
movement
Others
Total

153
Warehouse
Offices
(shelving)
Cash Till
Employee
Customer

154
There are plenty of problems in advising properly customers
Customers couldn’t find the sales reps
Sales reps were hiding from customers
Sales reps didn’t know what creates the
margin
Sales reps didn’t help each other
The products were grouped by types and
not according to purchasing logic
Sales reps didn’t know how to increase the
basket
Sales reps were trained to say “Can I help
you with something”

155
In the set-up we have seen in the test store was far from optimal.
Customer had to literally hunt for the sales rep
Warehouse
Offices
(shelving)
Cash Till
Employee
Customer

156
Therefore, we have divided the space into fast and slow area and put
the sales reps in the peak our in the main alley
Warehouse
Offices
Slow warehouse /store
racks (shelving)
Cash Till
Employee
Customer
Fast warehouse /store
racks (shelving)

157
Summing up we totally changed the advising process by implementing
the following changes:
We removed the sales reps from the
smaller alleys into the smaller alley
We assigned them to specific area
We divided the areas into fast and slow
ones
We had different goals for fast and slow
areas
We did a bit of cross selling (suggested
products and VM)
We changed the starting text of sales
reps
We introduced hot hours during which
everybody was advising

158
This is an example of tasks to be performed depending on the hour /
sales level
Period Sales level Warehouse specialist Sales Reps
7-8 Low Deliveries from Central Warehouse (CW) Shelf replenishment / Cleaning
8-9 Low Supplying goods to specific location Shelf replenishment / Cleaning
9-10 Average Supplying goods to specific location
Shelf replenishment / Cleaning
Partial customer service (advises)
11-12 Big Receiving goods Only customer service (advises)
17-18 Big Only customer service (advises)
18-19 Average
19-20 Average
20-21 Low

159
On Day 2 by changing the service standard we managed to increase the
conversion
60%
46%
59%
41%
49%
65%
48%
75%
11-12 12-13 15:30-16:30 11-12 12-13 16-17 17-18
Hours with old service
model
18-19
Day 1 of the Test Day 2 of the Test
Conversion rate in the store

160
On specific transaction we saw the result of the new service model, but it is
difficult to trace it on aggregated data as at different hours come customers
with different needs
79
27
43
66 70
49
63
57
11-12 12-13 15:30-16:30 11-12 12-13 16-17 17-18 18-19
Day 1 of the Test Day 2 of the Test
Hours with old service
model
Average basket
USD per transaction

161
We also interviewed customers who excited without buying any products. Most
of them were still at the browsing / wondering phases or did not find the
specific product they were looking for
36%
45%
18%
29%
57%
14%
Lack of required goods Just browsing Others
Day 1 of the Test
Day 2 of the Test

162
1,67
1,32
Before After
Cost of 1 servicing customer
In USD per customer
15 652
12 357
Before After
In USD

164
Warehouse
Offices
(shelving)
Cash Till
Employee
Customer

165
Warehouse
Offices
(shelving)
Cash Till
Employee
Customer

166
We organized also the work of cashiers and info Point. Cashier 2 and 4 will be
taking place at the cash till only when the number of people in the queues is
above 3
Hours
Manager of
Customer Service Info Point 1 Info Point 2 Cashier 1 Cashier 2 Cashier 3 Cashier 4
Total number of
people
7-8 1 1 2
8-9 1 1 1 3
9-10 1 1 1 3
10-11 1 1 1 1 4
11-12 1 1 1 1 4
12-13 1 1 1 1 4
13-14 1 1 1 1 4
14-15 1 1 1 1 1 1 1 7
15-16 1 1 1 1 1 5
16-17 1 1 1 1 4
17-18 1 1 1 1 4
18-19 1 1 1 3
19-20 1 1 1 3
20-21 1 1 1 3
21-22 1 1 1 3

167
Other things that we have
noticed

168
We proposed some changes that could help them further improve the
results
Lower inventory and get
rid off empty space
New products for the
empty space
Creation of new format
 There is big potential to lower inventory and get rid off empty space
 This can be achieved by series of changes
 Smaller shelves / spaces for things like nails, screws etc. It makes sense to introduce standard packages
(shorter time for stocktaking, easier to change the assortment)
 Decreases the minimal quantity of shipment from Central Warehouse – packages instead of panels
 Decrease the space occupied by panels
 Smaller space for carpets (use fixtures)
 Introduce new products at least loosely connected with your business or your customers
 Sub-renting / subletting the space to other operators / retailers
 You can create a smaller format with smaller shelves and higher frequency of supplies
 This will drastically lower the costs of servicing and increase the sales density
 You could achieve roughly the same sales with smaller space and less people

169
Summary of savings achieved in
the test store

170
After groups estimated the cost of specific project, we had to use it and
estimate the cost of the store by process
Group 1 - Logisticsv2
Group 2 - Customer
Servicev2
Group 3 – Othersv2
Cost of the store by processes
- Summary of processesv2

171
1,8
6,0
3,9
1,5
3,8
3,3
8,4
28,8
The test store shows that significant savings can be achieved
12,7
17,3
6,1
2,6
6,2
15,7
27,1
87,7
Direct deliveries
Deliveries from Central
Warehouse (CW)
Price change
Price monitoring
Cash till operations
Advices at the selling
store area
Total monthly costs
In ‘000 USD
Potential savings
In ‘000 USD
Total
 Potential savings are USD 29K
(32% of all addressable costs)
 We assume that 50% of those
savings can be achieved we
can reduce the number of
FTE in the store by 4
Others

172
$190
$19

174
Make-or-buy analysis
– Introduction

175
Make-or-buy analysis is extremely important tool that will help you
decide in a rational way what you should do in-house and what to buy

176
Just as a reminder we are using the following framework
Cut costs
costs

177
One of the ways to optimize the process and costs is to carry out make-or-buy
analysis
Cut costs
costs
processes
tradeoff)
outside

178
Theory of make or buy is simple so in this section I will go directly to 3 case
studies
Car vs Uber
Make-or-by course –
Consulting Firm
What work should you
delegate?

180
 All the cost related to owning or using a specific
item / thing
 It will also include the cost of lost opportunity i.e.
money not earned due to spending time on
repairing the thing
Total cost of
ownership
=

181
 Cost of buying a car
 Insurance
 Fuel
 Cost of maintenance including repairs &
parts
 Time wasted on maintenance, parking etc.
 Other i.e. parking tickets, traffic ticket etc.
Let’s compare the cost of owing a car and using a rideshare /
taxi / cab service
 Cost of rideshares

182
Car vs Uber – Introduction

183
Let’s imagine that you were to decided whether it makes more sense to
buy a car or to use Uber

184
We will consider 3 scenarios
Consider 3 scenarios
In scenario 1 you use the car just
to get to work
In scenario 2 you use it also for
buying and visiting friends
In scenario 3 you also travel on
weekends

185
Let’s see what is the difference for
# of days during
which you use the
car during the
month
Scenario 1 - just to get to
work
 20
Average # of km per
day covered
 50
Scenario 2 - work, shopping,
friends
 26
 70
Scenario 3 - work, shopping,
friends, weekends
 30
 90
% probability of
scenario
 50%  30%  20%

186
A few hints on what costs you should take into consideration
for the own car option
Purchasing of the car & financing
Maintenance
Insurance
Fuel
Parking
Other costs i.e. traffic tickets

187
Make-or-buy courses – Case
Introduction

188
Imagine that you have to analyze for a consulting firm whether it
makes sense or not to produce online course devoted to Data Science

189
They have 15 on the lowest position –
Business Analysts & Associates
They have 3 PM and 2 Directors
Every year 50% leaves
You have to train all new employees

190
A few information about the Make option
The course will take 250 hours to prepare
& 50 hours every year for modification
The delivery will take 30 hours each time
In the group there can be 5 people
Associate / BA costs EUR 21 per hour.
Director EUR 62 per hour

191
A few information about the Buy option
The course can be also created &
delivered by external person
It this case each delivery will costs EUR 3
800 per group
In the group there can be 5 people
Associate / BA costs EUR 21 per hour.
Director EUR 62 per hour

192
Delegating some work to others –
Case Introduction

193
We are back to Maria. Using previous case study we will try to decide
which activities she should delegate using the make-or-buy analysis.

194
Below some information on Maria and meal preparation
She earns EUR 40 per 1 hour
after deducting taxes
She cooks every day. It takes 1
hour to prepare a meal
She uses food that costs per
meal EUR 5
She can order food to be
delivered at price EUR 10

195
Below some information on Maria and how she cleans the house
She cleans the house every
week. It takes 4 hours to clean.
She can hire somebody to clean
instead of her
1 cleaning would cost EUR 60

196
Below some information on Maria and how he does shopping
She shops every second day. It
takes her 2 hours per 1 visit.
She can order online and save
1.5 hour per 1 purchase
Delivery would cost on average 5
EUR per delivery

197
$190
$19

199
Investment analysis
– Introduction

200
Investments can help you reduce costs. You can also reduce
some investment / big expenses by looking at their efficiency

201
Just as a reminder we are using the following framework.
Cut costs
costs
expenses
of certain thing
cheaper substitute
processes
tradeoff)
outside
current suppliers
Change the supplier
leasing)

202
A lot of actions require investment analysis
Cut costs
costs
expenses
of certain thing
cheaper substitute
processes
tradeoff)
outside
current suppliers
Change the supplier
leasing)

203
Theory is relatively simple so in this section I will go directly to case studies
Cost reduction Investment –
Retail
Cost reduction Investment –
Ceramic Tiles

204
Theory is relatively simple so in this section I will go directly to case studies
Efficiency of customer
acquisition in consulting firm
Efficiency of methods to
motivate 3rd party sales reps
Sell non-core assets –
cosmetics firm

205
Investments – General
thoughts

206
Apart from capacity increase there are 4 main reasons why you do
investment
Investments
Replacement
Required by the
customer
Reducing costs Removing bottlenecks
Total cost of Ownership /
Usage – comparison
Margin that may be lost if you
don’t do the investment
Margin that can be gained if
you do the investment
Change in labor costs
Change in materials and
related costs
Change in energy & other
utilities costs
Margin gained thanks to the
removal of the bottlenecks
Reduction of costs related to
production
Reduction of other costs (not
related to production)
Change in maintenance costs

207
To decide whether something makes sense or not we compare Capex and
Benefits
Capex Benefits?
Cash outflow /
Negative cash flow
Cash inflow /
Positive cash flow
?

208
We usually use the NPV or IRR to decide whether the investment makes
sense
NPV IRR

209
Cost reduction investment –Retailer
– Introduction

210
Imagine that you are working for a fashion discounter that operates a
retail chain in Easter Europe
The retailer has 2 000 stores in
Europe
The retailer uses traditional lighting
He wants to switch to LED lighting

211
Cost reduction investment –Retailer
– Solution

212
operates a retail chain in Eastern Europe
The retailer has 2 000 stores in
Europe
The retailer uses traditional lighting
He wants to switch to LED lighting

213
Let’s have a look how to show the results from the change to LED bulbs
in the Power Point
15 624
1 250
620
17 494
3 636
13 858
NPV of Difference in electricity
costs
NPV of Difference in bulb costs NPV of Difference in labor
costs
NPV of Total Benefit NPV of Capex NPV of the whole investment
NPV of benefits and investments – 10 year perspective
In thousands of USD

214
Cost reduction investment –ceramic
tile producer – Introduction

215
Imagine that you are working for a ceramic tiles producer that has 10
factories in Eastern Europe
He has 10 factories
Every factory on average has 15
production lines
Currently loading the tiles is done
mannually (2 people per line)

216
Cost reduction investment –ceramic
tile producer – Solution

217
Just as a reminder you are working for a ceramic tiles producer that
has 10 factories in Eastern Europe
He has 10 factories
Every factory on average has 15
production lines
Currently loading the tiles is done
mannually (2 people per line)

218
Let’s have a look how to show in Power Point the results from the
introduction of robots to ceramic tiles factory
156 890
37 566
16 657
102 668
27 273
75 396
NPV of Difference in labor
costs
NPV of Difference in electricity
costs
NPV of Difference in
maitenance costs
NPV of Total Benefit NPV of Capex NPV of the whole investment
NPV of benefits and investments – 10 year perspective
In thousands of USD

219
How to motivate 3rd party sales
reps – Case Introduction

220
Let’s imagine that you have to decide which method to support sales
reps that work for retailers will be the best one
Your competitors are using
different methods to support
sales reps that work for retailers
You don’t use any of them
Estimate which methods makes
sense

221
Let’s see what methods are using other producers of domestic
appliances
Your customer
LG
Electrolux
Braun
Samsung
Bosch
Philips
Others
Loyalty
programsContestsTrainings
Incentive
trips
Uses the method
Doesn’t use the
method

222
When choosing the right mix of methods you have to take into
account 3 things
Return on Investment (ROI)
Capacity of the method
Other limitations

223
How to motivate 3rd party sales
reps – Solution

224
Just as a reminder you have to decide which method to support sales
reps that work for retailers will be the best one
Your competitors are using
different methods to support
sales reps that work for retailers
You don’t use any of them
Estimate which methods makes
sense

225
Just as reminder there are 4 major things that producers are using to
support sales at retailers stores
Your customer
LG
Electrolux
Braun
Samsung
Bosch
Philips
Others
Loyalty
programsContestsTrainings
Incentive
trips
Uses the method
Doesn’t use the
method

226
From the calculations we did in the Excel we can see that the best return is
on Trainings, followed by Incentive Trips
512%
275%
67%
400%
Trainings Contests Loyalty Program Incetive Trips

227
Let’s have a look how to show in Power Point the impact on the sales
900
135
45
135
60
1 275
Current Sales Trainings Impact Contests Impact Loyalty Program Impact Incetive Trips Impact Future Sales
Impact on Sales – different methods to support the 3rd party sales force
In millions of USD

228
Let’s have a look how to show in Power Point the impact on the net
margin
180
23
7
11
10
230
Current Sales Trainings Impact Contests Impact Loyalty Program Impact Incetive Trips Impact Future Sales
Impact on Net Margin – different methods to support the 3rd party sales force
In millions of USD

229
Introduction

230
By non-core assets we mean things that you do not need for your core
business. You may have different strategy
Non-core
Do we use the assets
for current
operations?
Non-core assets that are for some reason used
today
 Spin-off into a new business if they are above
the market average in operating those assets
 Check whether they give you some competitive
advantage with respect to customers, suppliers
of employees
 Go through make-it-or-buy-it analysis to see
whether you are the best owner of this
business
 Try to improve the utilization of those assets
Non-core assets that you do not need
 Spin-off into a new business if they are above
the market average in operating those assets
(have high % EBITDA or ROA, ROCE)
 Try to improve the utilization of those assets
 Sell the assets if they are below the market
standards
Asset that remained from glorious past or give
you room for growth
 Keep them
 If possible rent them
Core assets currently heavily used
 Optimize usage
 Look for efficiency gains and cost cutting
 Apply lean manufacturing and theory of
constraints to use them to the fullest potential
Core
Not-used
Used

231
In the next few lectures we will use the case study of
cosmetics producer
Cosmetics producer

232
Case Introduction

233
Let’s imagine that you have to decide what to do with not used core
assets and non-core assets of a cosmetics producer
A big production site in
Poland
Only 1 factory used
There are some non-
core assets

234
Let’s have a look how their production site and how it looks
like
Factory 1 Factory 2
Kindergarten Hotel
Core assets
Non-core assets

235
Case Solution

236
Just as a reminder. We are trying to decide what to do with not used
core assets and non-core assets of a cosmetics producer
A big production site in
Poland
Only 1 factory used
There are some non-
core assets

237
$190
$19

239
Reduce usage
– Introduction

240
You can achieve a lot by reducing how often you use something or
change its specification. We will discuss in this section this area of savings

241
Just as a reminder we are using the following framework
Cut costs
costs

242
In reduce of usage we have 3 options. We will discuss them in details in this
Cut costs
costs
expenses
of certain thing
cheaper substitute

243
We will do 3 cases studies in this section
expenses – Consulting
firm case study
Use less of certain thing –
Cosmetics producer case
study
Use cheaper substitutes –
Drugstore chain case
study

244
We will do 3 cases studies in this section and I will also discuss in more details
the 3 methods of reducing usage
expenses – Consulting
firm case study
expenses – Tips
Cosmetics producer case
study
Tips
Drugstore chain case
study
Tips

245
expenses – Case Introduction

246
Imagine that you are analyzing a newly bought company that is providing Data
Science services. Your boss wants you to look at usage and decide what to reduce

247
The company has 500 Data Scientists
You got data on what Software and
tools they use
Eliminate things they don’t use

248
Use less – Cosmetics Producer
– Case Introduction

249
Now we will have a look at a cosmetics producer and we will try to measure how
much they can save by using less. We will look at 3 areas of their activities

250
Below some information about the firm we will be analyzing
They want to minimize number of
bottles they use
The are considering visiting less
frequently customers
They want to move 2 offices into 1
bigger office
Check how much they can save

251
Use cheaper substitutes
– Drugstore chain – Case Introduction

252
You were asked to help the drugstore chain find potential savings by
introducing cheaper substitutes. You have picked 4 potential topics

253
They have 4 000 stores
They want you to analyze Head Office
costs
In Head Office you have picked 3 topics:
water, tea & coffee, paper
You have also decide to have a look at
boxes they use for the e-commerce

254
$190
$19

256
Spend less – Introduction

257
In this section we will discuss useful ways that will help you spend less and save
more money
General framework for
spending less
Analysis of your
expenses / spending
Detailed discussion of
methods to spend less
Cases studies &
examples how to apply
them
Other useful things that
will help you spend less
& save money

258
General framework for
spending less

259
Just as reminder in the first step we want to spend less to increase our savings
Income Expenses Savings=-
Savings x # of years = Total savings
Total savings x
1 + increase in
value in %
= Total wealth

260
As you may remember we have the following general framework
How to build your
wealth
Earn more Spend less
Be more
productive
Add new revenue
streams
Invest wisely your
money
Choose your life
partners wisely
Manage your kids
properly

261
In this section we will get deeper into ways to spend less
How to build your
wealth
Earn more Spend less
Be more
productive
Add new revenue
streams
Invest wisely your
money
Choose your life
partners wisely
Manage your kids
properly
Reduce usage /
frequency of using /
purchasing
Eliminate some
expenses
Renegotiate prices &
find cheaper provider
Calculate Total Cost
of Ownership (TCO)
Adjust your choices
and behavior using
TCO & tradeoffs
Be healthy & in shape
Calculate the value of
your time
Do make it or buy it
analysis using value
of your time
Measure happiness
per 100 USD spent &
adjust your choices
Reduce expensive
liabilities
Repurpose assets
that don’t generate
income
Check the endgame
of an action and is it
worth it

262
Why you need data on what
you spend your money?

263
What gets measured gets managed
Peter Drucker

264
There are plenty of reasons why you have to first see on what you spend
currently your money
You will know how much money
you spend every month
You will see what is the structure of
your costs
You will be able to identify so
called one-offs
You can set priorities
You will know which categories you
will have to analyze in details
Awareness helps you already spend
less
You can set daily limits that will
help you get quick wins
You will know which habits /
believes you will have to deal with

265
How to get data on how you
spend your money

266
Let’s start with the goal. You want to see on what categories you spend
money and how much they make in your monthly spending

267
There are 4 approaches to gather data on how much you spend and on
what
Fill in data in Excel by
categories
Fill in data in Excel –
every spending a
separate entry
Use data from your
bank account
 You create a matrix in Excel –
the rows are categories, the
columns are months
 Manually you put data every
time you spend them in the
proper cell
 You create a table in which
you put every spending.
 Every spending is a separate
row
 For every spending you put
not only the amount but also
the date of the spending and
you pick the category
 You can use the table to
create all sort of reports
 You can either do the
analysis directly in your
banking system by adding to
every spending the category
of spending
 You can also download the
data from the banking
system and analyze them in
Excel
Other specialized
tools for analyzing
your spending
 Mobile apps like: Mint,
Pocket Guard, YNAB
 Other similar tools that
aggregate your data from
different banking account
and the data that you put in
manually

268
what
categories
every spending a
separate entry
Use data from your
bank account
 You create a matrix in Excel –
the rows are categories, the
columns are months
 Manually you put data every
time you spend them in the
proper cell
 You create a table in which
you put every spending.
 Every spending is a separate
row
 For every spending you put
not only the amount but also
the date of the spending and
you pick the category
 You can use the table to
create all sort of reports
 You can either do the
analysis directly in your
banking system by adding to
every spending the category
of spending
 You can also download the
data from the banking
system and analyze them in
Excel
Other specialized
tools for analyzing
your spending
 Mobile apps like: Mint,
Pocket Guard, YNAB
 Other similar tools that
aggregate your data from
different banking account
and the data that you put in
manually

269
The fist method would look roughly like this in practice

270
The second method would look roughly like this in practice
Date
Amount spend
In USD Reason Month Category
01/06/2019 400Mortgage 6Flat related expenses
01/06/2019 100
Fees for the
appartment 6Flat related expenses
01/06/2019 50Electricity 6Flat related expenses
01/06/2019 12Netflix 6Entertainment
01/06/2019 40Internet + HBO 6Entertainment
01/06/2019 30Phone 6Phone
03/06/2019 15Bachata 6Sport
04/06/2019 80Groceries 6Daily expenses
03/06/2019 25Lunch outside 6Dinning out

271
what
categories
every spending a
separate entry
Use data from your
bank account
Other specialized
tools for analyzing
your spending

272
Personal Finance using
Management Consulting Hacks
Practical Guide
presentation
For more details on how to spend less in private level check my
presentation

273
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