Design a cost-cutting program

CONSULTING METHODOLOGIES

Ideally companies keep costs under control continuously. The organisation is lean, negotiations with suppliers are tight, headcount only rises when there is long term growth to support it.

Unfortunately, sometimes this discipline s lost, or the market changes faster than can be handled by continuous improvement. Then a program to create a step-change in the cost base is needed fast.

I Executive Summary

[Summarise your cost-cutting recommendation and your key rationale for it]

• What is the size of the cost cut?
• Where will it come from?
• How will you achieve it?

II What is our cost base?

• What drives costs? (Activity Based Costing)
• What are the historic trends on cost?
• How can we break down our cost base (Profit tree)

III How can we simplify our business?

• What is the 80/20 of our customer base, channels and product line (SKU level)? Can we cut the tail? What costs would go away (fixed vs variable costs)? What opportunities would result from the improved focus?
• What activities are we doing that we can eliminate? [Tool: Activity Based Costing]
• What projects are we currently doing, that we would not start today? [Tool: Portfolio prioritisation]
• What reports/information are we generating that we do not need to produce?
• What meetings do we have that we do not need?

IV How can we become more cost efficient?

• How can we buy cheaper from our suppliers?
  • Can we change what we buy?
    • Reduce specifications?
    • Are there opportunities to re-engineer our product? [Tool: Design for manufacture)
    • Can we reengineer processes to reduce inventories and waste? [Tool: Business Process Reengineering]
  • What major purchases should we put out to competitive quotes?
  • How can we aggregate volumes and buy in bulk? (Purchasing strategy)
• What are we currently doing, that could be cheaper if we outsourced?
• Can we benchmark our activities/costs against competitors, or best practices? Where are the gaps?
• Are there opportunities to reduce cost in partnership with our customers? (e.g. outbound logistics)

V Engaging the organisation

• How are you going to engage the organisation in cutting costs? (Communication plan)
• How are you going to capture and implement their cost-cutting ideas?
• How can we create a cost-focused culture?

VI Measuring and monitoring

• How are we going to track achievement of the cost reduction target?
  • Have we cascaded SMART targets, with someone clearly responsible and empowered to achieve each one?
  • What is our structure for this program? Steering committee, program champion/manager, regular review dates?
• What will be the overall financial impact?