Map and understand your spending and cost structure, identify cost driver, and align the direction
l Align on “good and “bad” cost
Good cost=value added, bad cost=don’t directly contribute business value.
Then overlay different “cost lenses” to identify the key cost areas and target them for efficiency or effectiveness improvement.
² Organizational structure
² Function and cost category benchmarking to compare with your competitors or similar
² Identify the right levers in the right sequence
Armed with a high-level understanding of the “bad” cost areas, establish cross-functional teams to deep dive into priority opportunity areas, evaluate potential cost take-out levers, and validate the size of prize.
The right lever will depend on the cost driver, for example:
Demand Management: Can I reduce demand for activity by challenging the need and reducing customization — for instance, through zero-based budgeting?
Process Improvement: Can I drive greater efficiencies and value from standardization and optimization of effort and activity?
Automation: Can I industrialize or digitize certain processes to save time/cost?
l Centralization: Can non-automated processes be reconfigured to obtain efficiency improvements?
l Strategic Sourcing: Can I transfer some operations to onshore or offshore outsourcers to improve efficiency and flexibility?
l Assign senior leadership accountability
To ensure the longevity of your cost reduction initiative, embed cost ownership and accountability at the leadership and functional levels to baseline budgets and ensure buy-in to targets. Assign cost owners at each management level with senior management taking accountability for delivery.
l Extract “bad” cost with Rigor and Discipline
Accountability and direction are important, but you also need to arm cost owners with tools to examine, challenge, and take action.
Share This Novas QC's Article, Choose Your Platform!
NovasQC is your best choice for supply chain management services in China.