copp 4 profit:how to reduce operating costs

COPP 4 PROFITCost of Poor Performance 4 Profit

“Life isn't about waiting for the ‘perfect’ storm to pass ....

It's about learning to dance in the rain”.

By: Nigel W. DawesVice PresidentAreopa S. E. Asia

Copyright protectedNo unauthorized copy without Authors permission

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Introducing AreopaThe firm of the future .... Today!

A virtual global organisation

Est’d. Belgium 1987

SAM’s; CAP’s;

3,000 SME’s globally

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Why many organisations fail to focus on cost reductions!

What makes good companies great?• Having ‘an eye’ for detail• Doing the things ordinary co’s neglect• Having the ability to adapt• Having the willpower to invite change and

embrace the positive changes

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People are not against change ....But against being changed!

People have to want to be open to new ideas; new thinking; new strategies.

They have to want to change .... But how?Only when they have reasons &

understanding for change.Then they ‘see’ the benefits of change ....

What makes good companies great?

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Extraordinary times

Extraordinary measures needed .....Many focus on sales ......

Even though customer/buyer numbers may have been

depletedSo an alternative focus is req’d .....To reduce operating costs

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Reduce operating costsBut where to start?Most people default into ‘department mode’But departments do not create the problems

Departments do not create re-workDepartments do not create wastageDepartments do not make inefficiencies

People do!!So it is the ‘people level’ we should focus on (not the department level)

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Level of detail of the business processes

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» Level 1 Conceptual level

» Level 2 Departmental level

»Level 3 Hand off level

» Level 4 Task level

» Level 5 Programming level

ProcessOwners

A

B

C

D

E

This is where inefficiencies, re-work, down-time, & wastage occurs

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COPP ® & T.A.P.E. Grid ® Measurement Tools

Cost Of Poor PerformanceTakes you right to the cause of the problem

“Treat the cause not the symptom”Where you are losing MOST money

T.A.P.E. Grid Measures Timeliness; Accuracy, Productivity & Efficiency

Takes you directly to the worst performing processes

•12% Lost thru’ non-timeliness & inaccuracy ! •25% Lost thru’ non-productivity !•33% Lost thru’ non-efficiency / rework !

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Let’s back-track a moment

We mentioned sales previously:So let’s compare ..... Ask yourselfDo we pay a bous or commission for sales?

Do we employ sales people? (or outsource & hire sales consultants?)

Do we invest in advertising and marketing?

Do we provide other sales incentives to key employees? (Entertainment, lunches etc.)

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So it’s reasonable to expect ....

Then why not do the same for cost reduction?

Pay a bonus or commission Employ cost reduction people Hire expert consultants

(only those who teach you “how to fish”)

Provide incentives to employees

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Net Added Value (NAV)

The answer is for financial reasons:Identify the monetary net added value of your Sales NAV and Cost Reduction NAV-If we sell $1 worth of product, how much does that sale impact our profit?

-If we reduce our cost by $1, how much does that savings impact our profit?

In € Euros or $ Dollars or B Thai BahtOr whatever currency you work with

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The Calculation

Example “A”ABC Co. there is a 5% net profit.Each sales $, profit is only 5 cents. (5% X $1 = $.05)If sales increased by $1,

Then profit increased by 5 cents Net Added Value

*Examples after all expenses deducted & exclude taxes

If ABC Co. reduces their cost by $1, Then their profit increases by $1 NAV

Every $ saved moves directly to net profit.

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The Calculation (cont ...)

20 Sales $

ABC Co. would have to sell $20.00 worth of product in order to have the same net effect as reducing cost by $1 !!

In other words a $1 reduction in costs Is equivalent to a $20.00 sale

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So what next?

• Collaborate:• The need to inform the whole workforce

of your serious intent to make the company more efficient by reducing:Wastage ReworkInefficiencies Downtime

Create an action plan ....an Improvement Plan

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Create an 8 C’s Improvement Plan

2. Consultant: Hire a cost reduction consulting firm that can provide you with a fresh perspective.

1. Create a position/department that has the specific task of cost reduction.

“The Change Bureau”

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The Improvement Plan

3. Cash: Provide employee’s with cash incentives to reduce cost.

5. Commission: Offer payments to cost reduction consultants/employees for implementing savings programs.

4. Cost reduction goals: Set and reward managers for their achievement.

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The Improvement Plan

6. Connect with your employees: Become a cost conscious Role Model.

Eliminate irresponsible spending as a manager.

7. Communicate the fact that cost reduction is equally important to sales.

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The Improvement Plan

8. Calculate your spend on sales promotionsSales commissions Sales BonusesSales discounts Marketing salesPromoting sales Sales incentiveSales lunches Customer incentivesWine, dine & entertainment OthersTotal????

Then match this amount into .....The Change Bureau

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The Result?

The immediate result will demonstrate just how serious you are in your intent to bring about change in the organisation

This sends a clear message to every employee in the organisation.

Next you will start to see the actual results in financial improvements taking place (within second month of implementation)

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So what are you waiting for?

GET DANCING IN THE RAIN

And then sing about the resultsAnd Areopa will provide your umbrellaAreopa guarantees a 80% reduction of the negative customer perception – as measured by the TAPE ® grid

and 50% reduction of the costs of poor performance as measured by the COPP ® calculationand reduce the 33% lost thru’ rework

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Nigel W. DawesMobile: + 66 (0)81 0044116nigel.dawes@areopa.com

CONTACT COORDINATES

AREOPAKoningin Astridlaan 201 B5B- 2800 MECHELENBELGIUMTel.: +32 (0)15 433.217Fax.: +32 (0)15 411.170www.areopa.cominfo@areopa.com