cost reduction
DESCRIPTION
This toolkit details cost reduction opportunities across the Value Chain (as defined by strategist Michael Porter). Cost reduction initiatives are categorized in the areas of Enterprise-wide Opportunities, Asset Management Opportunities, and Function-specific Opportunities. Over 45 cost reduction initiatives identified--for each initiative, specific examples are provided, along with projected potential savings. This is a partial preview of the document. View and download the full PowerPoint here: http://learnppt.com/powerpoint/25_Cost-Reduction-Toolkit.phpTRANSCRIPT
learnppt.com
PowerPoint Diagram Pack
Cost Reduction Toolkit
Check out our site for all your PowerPoint needs!
• http://learnppt.com – Find our ebook on creating effective and professional presentations. Covers basic to advanced concepts, including storyboarding, diagramming, and the Consulting Presentation Framework.
• http://learnppt.com/powerpoint -- Shop our catalog of Diagram Packs. We try to add more Packs monthly. All of our diagrams are professionally designed by ex-management consultants from top firms.
This toolkit details cost reduction opportunities across the Value Chain (as defined by strategist Michael Porter). Cost reduction initiatives are categorized in the areas of Enterprise-wide Opportunities, Asset Management Opportunities, and Function-specific Opportunities. Over 45 cost reduction initiatives identified—for each initiative, specific examples are provided, along with projected potential savings.
Capital and Assets
Procurement
Information Technology
Finance and Accounting
Human Resources
Operations Marketing / Sales
Logistics Service
SharedServiceCenters
Outsourcing
ProductInnovation
Product Development
Pri
mar
y a
cti
viti
esS
up
po
rt a
ctiv
itie
s
2Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Contents
• Overview 4
- Levers to Profitability
5
- Profitability Challenges
6
- Cost Reduction Opportunities
7
- Cost Reduction in the Face of Downturn
8
• Cost Reduction Opportunities 9
- Across the Value Chain
10
- Enterprise-wide Opportunities
11
- Asset Management Opportunities
15
- Function-specific Opportunities
17
3Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Contents
• Overview
- Levers to Profitability
- Profitability Challenges
- Cost Reduction Opportunities
- Cost Reduction in the Face of Downturn
• Cost Reduction Opportunities
- Across the Value Chain
- Enterprise-wide Opportunities
- Asset Management Opportunities
- Function-specific Opportunities
4Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Though there are multiple levers to maximizing a firm’s profitability, costs are the most directly controllable by any firm
Profits
Cost challenge Increasing material prices
Overhead costs
Capital challenge
High cost of capital Availability of capital
Revenue challenge
Declining orstagnatingrevenues
• Firms have direct control over their procurement and cost structure
• Efficiency and effectiveness improvements through new operating models provide sustainable mid-to-long term benefits
• Cost of debt and the availability of capital are defined by the markets – a firm has limited or no influence
• Strong balance sheet provides shelter, but changes to the capital structure are not carried out overnight
• In downturn economy, capturing of new revenue streams is challenging and has risky payoff
• Requires increased SG&A and/or R&D spending
The capital challenge during downturn is largely beyond
control of the firm
Possibility for strategic changes and significantly impact the bottom line
Limited and risky possibilities for bottom-line improvement
Overview – Levers to Profitability
Firm’s span of control: Firm’s span of control:
Firm’s span of control:
THIS IS A PARTIAL PREVIEW
You can preview the full PowerPoint document and download it at http://learnppt.com/powerpoint/
5Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Profitability is being challenged by increased costs, stagnated revenue growth, and increased capital costs in today’s economic climate
• Rising energy, commodity and material prices directly increase firms’ costs
• Increased SG&A / overhead costs across sectors. Special challenge as they do not decline as volumes go down.
• Imported goods and material are more expensive due to low value of US Dollar against other major currencies
• Challenging to acquire new capital due to declined institutional loan issuance activity and IPO activity
• Cost of capital increased due to declining credit ratings, increasing credit risk and lack of liquidity
• Revenues stagnating or declining as consumers reduce spending and change consumption patterns*
• Declining up-stream industry revenues as companies cut costs and spending
• Capacity reductions and layoffs across sectors result to lower volume and revenue
Evidence:
Evidence:
Evidence:
*Note: Changed consumption patterns may mean increased demand for low-end brands and some special products
Profits
Cost challenge Increasing material prices
Overhead costs
Capital challenge
High cost of capital Availability of capital
Revenue challenge
Declining orstagnatingrevenues
Overview – Profitability Challenges
THIS IS A PARTIAL PREVIEW
You can preview the full PowerPoint document and download it at http://learnppt.com/powerpoint/
6Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
At each level of the income statement, there exists opportunities for a firm to make cost reduction improvements
Overview – Cost Reduction Opportunities
EconomicValue Added
(EVA)
=
Net Sales COGS
–
Capital Employed
Cost of Capital
–
Va
lue
SG&A
–
How toimprove:
• Invest in Sales & Marketing
• New products and range extensions
• Reduce spending• Efficiency and effectiveness improvement
across primary and supporting functions
R&D
–
• Reduce working capital and fixed assets
• Improve capital structure
Results:
Challenge:
Increased SG&A and R&D costs
Short to mid to long term effect
Reduced spending provides immediate increase of value added
Efficiency and effectiveness improvements provide sustainable mid-to-long term effect
Mid to long term effects
• Declining or stagnating revenues
• Increasing material prices and costs• Overhead / SG&A costs across sectors
• High cost of capital• Availability of capital
THIS IS A PARTIAL PREVIEW
You can preview the full PowerPoint document and download it at http://learnppt.com/powerpoint/
7Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Overview – Cost Reduction in the Face of Downturn
It is imperative to focus on cost reduction and management during an economic downturn
• Necessity to maintain profitability and to stay in the game
• Companies in good shape have better changes to survive the downturn
Focus on costs to survive the downturn
Failure may have long-term consequences
Success or failure in cost reduction will determine tomorrow’s winners and losers.Success or failure in cost reduction will determine tomorrow’s winners and losers.
• Failure to meet investors’ expectations
• Limited funds for R&D, marketing, operational development puts at risk the company’s future
• Ultimately may lead to bankruptcy or take over
• Get into position where you can capture opportunities created by the downturn:
– Acquire assets and companies at discount prices during the downturn
– Strategic R&D and marketing investments to create growth platform for the next upturn
– Retain and acquire talents
Success enables you to capture opportunities created by the downturn
THIS IS A PARTIAL PREVIEW
You can preview the full PowerPoint document and download it at http://learnppt.com/powerpoint/
8Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Contents
• Overview
- Levers to Profitability
- Profitability Challenges
- Cost Reduction Opportunities
- Cost Reduction in the Face of Downturn
• Cost Reduction Opportunities
- Across the Value Chain
- Enterprise-wide Opportunities
- Asset Management Opportunities
- Function-specific Opportunities
9Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Capital and Assets
Opportunities at Cost Reduction exists across the entire Value Chain
Procurement
Information Technology
Finance and Accounting
Human Resources
Operations Marketing / SalesLogistics Service
Enterprise wide opportunities
Function specific opportunities*
• Cross-functional, can affect several functions
• Impact mainly Selling, General and Administrative costs (SG&A)
• Technical and strategic in nature
• Specific opportunities for the primary and support activities:
– Impact mainly Selling, General & Administrative costs (SG&A) and Cost of Goods Sold (COGS)
• Operational and transactional in nature
SharedServiceCenters
Outsourcing
ProductInnovation
Product Development
Asset management opportunities
2
1
3
2
1
• Improving fixed assets efficiency and decreasing net working capital
• Impact mainly capital efficiency
Pri
ma
ry a
cti
vit
ies
Su
pp
ort
ac
tiv
itie
s
Cost Reduction Opportunities across the Value Chain
3
THIS IS A PARTIAL PREVIEW
You can preview the full PowerPoint document and download it at http://learnppt.com/powerpoint/
10Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Contents
• Overview
- Levers to Profitability
- Profitability Challenges
- Cost Reduction Opportunities
- Cost Reduction in the Face of Downturn
• Cost Reduction Opportunities
- Across the Value Chain
- Enterprise-wide Opportunities
- Asset Management Opportunities
- Function-specific Opportunities
11Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Shared Services provide immediate cost and efficiency benefits and opportunities for further service delivery improvementEnterprise wide opportunity: Shared Service Centers
Benefits Example
• Labor arbitrage through lower cost locations– efficiency increase (up to 15% savings)
• Headcount reduction through increased performance and better controls– effectiveness increase (up to 15% savings)
• Leverage of economies of scale and scope / consolidation (up to 10% savings)– standardization (elimination of duplication, consistency,
standard service portfolio)– optimization (incl. continuous improvement, best practices)– globalization– specialization (mutual use, utilization)– full leverage of technology
Reduction of Costs
Setting up a SSC for the first time might reap up to 40% of savings
Optimizing existing SSC might still deliver up to 20% of savings
Increase in Quality and Performance
• Focus on select activities only– competencies, skills– service culture
• Implementation of strict performance management (SLAs, KPIs, etc.)– transparency– consistency
Potential
Shared Services as a often used
beneficial delivery alternative for
various support functions, esp.
Finance and Accounting, HR, IT
and Customer Care/Services
Increase in Flexibility and Value-Add
• “Variabilization” of costs• Cross-business leverage of resources
(no fiefdoms or pockets of staff)• More direct staffing process
(incl. temporary hiring)• Legacy staff to work on value-adding activities
THIS IS A PARTIAL PREVIEW
You can preview the full PowerPoint document and download it at http://learnppt.com/powerpoint/
12Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Outsourcing provides operational cost savings, improves strategic flexibility & provides a foundation for industry best practicesEnterprise wide opportunity: Outsourcing
Outsourcing Example
Commonly used with routine and non-strategic processes
Cost savings and improved flexibility
• Benefit from lower cost structure:– Labor cost arbitrage in low cost locations– Continuous process improvement – Economies of scale
• Improve your strategic flexibility:– Reduce capital employed by transferring fixed
costs to variable costs– Improve business scalability
• Advanced outsourcing partners can provide other value adding services:– Business insight to drive top-line growth– E.g. Use customer contact data to improve service
experience and reduce churn
• Consider outsourcing for processes that share the following characteristics:– Routine, standard activity– Does not require critical or strategic business knowledge– Significant gap against best practice– Requires IT systems implementation/upgrade– High variability in load– Rapid improvement needed
• Number of functions benefit from outsourcing:– IT, Finance & Accounting, Customer Care, Assurance management,
Knowledge processes (master data mgmt etc.)
Potential
Reduce total IT Costs by 15% - 25%
Reduce F&A Spend by 20% - 50%
Reduce Application Management costs by 15% - 25%
Reduce Infrastructure Management costs by 10% - 15%
THIS IS A PARTIAL PREVIEW
You can preview the full PowerPoint document and download it at http://learnppt.com/powerpoint/
13Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Innovation in product re-design may yield considerable cost savings in manufacturing, transportation and procurementEnterprise wide opportunity: Product Innovation
Product Re-design Example
• Reuse of preferred components:– Approved Supplier and Approved Vendor Lists
(ASL/AVL) for components and materials– Reuse decision supported by ratings around
material cost, quality, availability and reliability• Standardization of Designs:
– Modularization, using common parts and assemblies across many product lines
Design for lower BOM
Design for supply chain management
• Re-design package to be lighter, smaller, more durable and easier to handle:– E.g. Nokia has gained ~80 million dollars yearly
savings from its smaller packages
80% of the product cost is determined during R&D and Engineering design cycles
Cost reduction opportunities in direct material costs, manufacturing operations, logistics and transportation.
Design for improved manufacturability
• Bill of Processes:– Tying Mfg processes, assets and plant location
to BOM to assist with minimizing engineering change requests
– Manufacturing capabilities are built into R&D/Engineering processes
Integrated IT architecture
• Product design improvements require improvements in IT architecture: – PLM - ERP - SCM system integrations for information exchanges– Point to point models or a SOA based Master Data Management
(MDM)
Potential
THIS IS A PARTIAL PREVIEW
You can preview the full PowerPoint document and download it at http://learnppt.com/powerpoint/
14Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
END OF PARTIAL PREVIEW
You can preview the full PowerPoint document and download it at http://learnppt.com/powerpoint/
15Questions & feedback? Email me – [email protected] diagrams in this pack are to be used by the original buyer only.
learnppt.com
Browse our catalog of PowerPoint Diagram Packshttp://learnppt.com/powerpoint
Join our mailing list and receive the Basic Toolkit for free!http://learnppt.com/mailinglist
Read our eBook – How to Become a PowerPoint Guruhttp://learnppt.com/