Sustainable Cost Reduction - 7 Step Process

Sustainable Cost Reduction -  7 Step Process

By Ray Carter

DPSS Consultants

Recently dpss ran a breakfast briefing event in London, the theme was ”sustainable cost reduction”. Given the current economic situation and the focus on cost reduction, the event generate a lot of interested and a lot of debate. The key issue for me was the concept of cost reduction, without damaging the supply chain. By “sustainable” I mean reductions in cost (or increases in added value) that can be maintained over the longer term and not just simple short term price changes that are then re adjusted when the commercial climate improves. To effectively reduced costs we need to adopt not only a cross functional approach, but also engage with the supply chain community. Without effective stakeholder buy in any cost reduction project is going to be very difficult to make work.

So to facilitate the process, I have developed simple 7 step process, designed to enable costs to be identified and reduced or removed from the supply chain

Step 1 Spend Management and Compliance - we need to clearly understand what is being procured, buy whom and how. We often find that good framework agreements, set up to ensure value for money and not being used and that significant sums are still spent, without due process

Step 2 Identification of Key Cost Drivers, we need to clearly identify which element of the cost accounts for the largest proportion. In training for example venue costs are often higher than the tuition element, the part that is the real added value.

Step 3 Value Analysis - the systematic use of VA tools can reap excellent results. The focus on fit for purpose and real need (as opposed to wants) can dramatically reduce costs and yet maintain functionality

Step 4 Standardisation, Collaboration & Aggregation - these three speak for themselves. The value of reducing the variety of provision, combining group spend and working with sister organisations will all increase the organisations leverage and many organisations are heading toward a more centralised approach to procurement to achieve the changes

 Step 5 Supply Market Analysis - the need to fully understand the suppliers and the market place is critical to success. We need to increase competition and to understand the economics of the market place. It’s no use seeking cost reductions in markets that are already lean and mean, far better to target those that have benefited from years of complacency, restrictive practices and excessive profits. We need to explore non traditional markets and suppliers

 Step 6 Leverage the Spend and the Relationship, when going to the market, we need to not only leverage the spend, but also the relationship. Over the years many organisations we have invested time and money in building effective relationships, so now is the time to reap the reward in terms of supplier co operation and innovation

Step 7 Measure the value,- our advice  is based upon a “no win no fee” model, but whatever resource is used to secure the reductions, they must exceed the cost. We are holding another breakfast briefing on the 1 December at the Sheffield Hilton www.dpss.co.uk/events.phps

if you require more information please email info@dpss.co.uk

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