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PowerPoint Diagram Pack

Cost Reduction Toolkit


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 identifiedfor each initiative, specific examples are provided, along with projected potential savings.
Support activities

Shared Service Centers

Out sourcing Capital and Assets

Product Innovation

Finance and Accounting Human Resources Information Technology Procurement Product Development

Primary activities

Logistics

Operations

Marketing / Sales

Service

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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

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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

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Though there are multiple levers to maximizing a firms profitability, costs are the most directly controllable by any firm
Overview Levers to Profitability
Possibility for strategic changes and significantly impact the bottom line Firms span of control:
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 challenge
Increasing material prices Overhead costs

Firms span of control:


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

Capital challenge

Profits

Revenue challenge
Declining or stagnating revenues

Firms span of control:


In downturn economy, capturing of new revenue streams is challenging and has risky payoff Requires increased SG&A and/or R&D spending

THIS IS A PARTIAL PREVIEW Availability of capital

High cost of capital

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The capital challenge during downturn is largely beyond control of the firm

Limited and risky possibilities for bottom-line improvement


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Profitability is being challenged by increased costs, stagnated revenue growth, and increased capital costs in todays economic climate
Overview Profitability Challenges
Evidence:
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

Cost challenge
Increasing material prices Overhead costs

Evidence:
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

Capital challenge

Profits

Revenue challenge
Declining or stagnating revenues

Evidence:
Revenues stagnating or declining as consumers reduce spending and change consumption patterns* Declining up-stream industry revenues as companies cut costs and spending

High cost of capital Availability of capital

THIS IS A PARTIAL PREVIEW

You can preview the full PowerPoint document and Capacity reductions and layoffs download it at http://learnppt.com/powerpoint/ sectors result to lower across
volume and revenue

*Note: Changed consumption patterns may mean increased demand for low-end brands and some special products

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At each level of the income statement, there exists opportunities for a firm to make cost reduction improvements
Overview Cost Reduction Opportunities
= Capital Employed Net Sales Challenge: How to improve: Declining or stagnating revenues Invest in Sales & Marketing New products and range extensions COGS SG&A R&D Cost of Capital Increasing material prices and costs Overhead / SG&A costs across sectors High cost of capital Availability of capital Economic Value Added (EVA)

Value

Reduce spending Reduce working capital Efficiency and effectiveness improvement and THIS IS A PARTIAL PREVIEW fixed assets Improve capital structure across primary and supporting functions

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Results:

Increased SG&A Mid to long term Reduced spending provides download it at of value added immediate http://learnppt.com/powerpoint/ effects and R&D costs increase Short to mid to long Efficiency and effectiveness term effect improvements provide sustainable midto-long term effect
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It is imperative to focus on cost reduction and management during an economic downturn


Overview Cost Reduction in the Face of 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


Success enables you to capture opportunities created by the downturn

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

Failure may have long-term consequences

Failure to meet investors expectations Limited funds for R&D, marketing, operational development puts at risk the companys future Ultimately may lead to bankruptcy or take over

THIS IS A PARTIAL PREVIEW You can preview the full PowerPoint document and download it at http://learnppt.com/powerpoint/
Success or failure in cost reduction will determine tomorrows winners and losers.

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Questions & feedback? Email me dave@learnppt.com The diagrams in this pack are to be used by the original buyer only.

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

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Opportunities at Cost Reduction exists across the entire Value Chain


Cost Reduction Opportunities across the Value Chain 1
Shared Service Centers Out sourcing Capital and Assets Product Innovation

Enterprise wide opportunities


Cross-functional, can affect several functions Impact mainly Selling, General and Administrative costs (SG&A) Technical and strategic in nature

Support activities

Finance and Accounting Human Resources Information Technology Procurement Product Development

Asset management opportunities Improving fixed assets efficiency and decreasing net working capital Impact mainly capital efficiency

3
Primary activities

Logistics

Operations

Marketing / Sales

THIS IS A PARTIAL PREVIEW opportunities for the primary and support activities: Specific
Impact mainly Selling, General & Administrative costs

Service

Function specific opportunities*

You can preview the full PowerPoint documentofandSold (COGS) (SG&A) and Cost Goods Operational and transactional download it at http://learnppt.com/powerpoint/ in nature

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Questions & feedback? Email me dave@learnppt.com The diagrams in this pack are to be used by the original buyer only.

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

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Questions & feedback? Email me dave@learnppt.com The diagrams in this pack are to be used by the original buyer only.

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Shared Services provide immediate cost and efficiency benefits and opportunities for further service delivery improvement
Enterprise wide opportunity: Shared Service Centers
Benefits Reduction of Costs 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

Potential

Shared Services as a often used beneficial delivery alternative for various support functions, esp. Finance and Accounting, HR, IT and Customer Care/Services

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

THIS IS A PARTIAL PREVIEW You can preview theCross-business leverage of resources document and full PowerPoint Increase in (no fiefdoms or pockets of staff) Flexibility and it at More direct staffing process download Value- http://learnppt.com/powerpoint/ (incl. temporary hiring)
Add
Legacy staff to work on value-adding activities Variabilization of costs

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Outsourcing provides operational cost savings, improves strategic flexibility & provides a foundation for industry best practices
Enterprise wide opportunity: Outsourcing
Outsourcing Example
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

Potential

Cost savings and improved flexibility

Reduce total IT Costs by 15% - 25%

Reduce F&A Spend by 20% - 50%

Commonly used with routine and non-strategic processes

THIS IS A PARTIAL PREVIEW

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.)

Reduce Application Management costs by 15% - 25%

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Reduce Infrastructure Management costs by 10% - 15%

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Innovation in product re-design may yield considerable cost savings in manufacturing, transportation and procurement
Enterprise 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 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 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

Potential

Design for lower BOM

Design for improved manufacturability

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 supply chain management

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You can preview theimprovements require improvements in IT architecture: full PowerPoint document and Product design PLM - ERP - SCM system integrations for information exchanges download it at http://learnppt.com/powerpoint/ Point to point models or a SOA based Master Data Management Integrated IT architecture
(MDM)

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END OF PARTIAL PREVIEW You can preview the full PowerPoint document and download it at http://learnppt.com/powerpoint/

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