Cost Takeout has been heard at one time or another in every C-suite and boardroom. The primary objective of every leadership team is to improve profitability and while there are many ways to do that, every company should have cost takeout as a strategic imperative. Continuous Improvement concepts tell us that there are always ways to take out cost. With that in mind, how does a leadership team develop a cost takeout strategy? The first thing is to make sure everyone is clear on what a cost takeout strategy really is. Let’s start with what it isn’t.
It is not:
- A cost reduction project: That lends itself to a product, a process, a part or an activity focused on by a small number of people
- Continuous Improvement: CI is a methodology for improving everything you do which will reduce cost. This is evolutionary, not revolutionary
- A short-term project
Cost Takeout is multi-phased:
Phase 1: Near term
- Identify and eliminate resource redundancies
- Deep dive into leases, phone bills, surcharges, utility bills, travel expenses
- Market facing costs such as advertising, social media, marketing expenses – Calculate ROI’s
- Reduce software and hardware costs – excess licenses, technology applications
- Purchased materials study – Office supplies, MRO, service contracts
- Fix or exit non profitable products and/or customers
Phase II: Longer term
- Business transformation
- Redesign the fundamental elements of a business to the lowest cost structure that can support a company’s strategic objectives
- Redeploy resources to mission critical activities that can provide growth and differentiation – jettison non-mission critical business processes and activities
- Divest non-critical business products and services
- Leverage existing digital technology and lowering the “Total Cost” if IT infrastructure
- Rationalize the product and services portfolio to the most profitable mix
- Process re-engineering: In the office, in the field and in the shop
- Leverage technology, optimizing at the intersection of people, process, technology and cobotics
- Partner with vendors who can do non-mission critical activities at a lower cost
- Leverage vendor expertise in design and process
- Fix or exit higher cost vendors
- Negotiate lower “total cost” terms with vendors
- Revisit supply chain footprint and approaches to inventory management
Cost takeout is one form of Business Transformation. While the above is not a definitive list of cost takeout activities, it should give the reader a pretty good idea of the complexity of the process for doing it right. Each of these areas should be addressed with a proven approach. There are five requirements for doing it right:
- Management commitment to the project: start to finish
- A holistic approach which is often associated with “Wall to Wall”
- A clearly articulated business strategy from which all decisions are tested
- A clearly defined methodology for the cost takeout activities
- A well thought through change management plan, utilizing a framework such as Group50’s Business Hierarchy of Needs®.
Given recent events, management teams are faced with the need to significantly improve profitability and to change their business models. The urgency of the need for a cost takeout program will have a significant bearing on how the cost takeout program is structured and how to address both phases. It is advisable that leadership teams work with cost takeout experts who can help them structure a program that is appropriate for the business, the need, and the marketplace. At Group50, we have mastered both phases and routinely generate double digit cost reductions for our clients. We can help you make those decisions, design a program for your business that will minimize cost and optimize strategic performance and work hand in hand with the team during implementation.
You can read more about Group50’s cost takeout methodology, projects and results here. Call a Group50® cost takeout expert today at (909) 949-9083, request more information here, or drop us a line at email@example.com.
About the Author: Jim Gitney is the CEO and Founder of Group50® Consulting, founded in 2004, a consulting firm focused on working with middle market companies to significantly improve their productivity by leveraging people, process and technology as part of a company’s strategic plan. Restructuring and Cost Takeout in manufacturing are Group50® specialties. Group50® consists of consultants who have spent their careers in corporate America learning how to optimize businesses. We specialize in working with senior leaders to develop and implement programs that leverage people, process and technology to optimize business performance.
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