Cost Reduction - Structure

approaching a case Cost reduction cost structure cost-benefit analysis MBB Cost Structure profitability cost reduction Structure
New answer on Jan 15, 2021
3 Answers
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I recently came across a case on cost reduction through vendor management. How will you go about structuring this case? Here is the excerpt of the case:

Your client is a wealth management firm. Various departments of your client organization require some data service and hence, each department signed individual contracts with the data vendor. The client doesn’t have a central vendor management function and hence, each department signed individual contracts. Recently, the client got to know that the vendor is the same for many departments, and the vendor is charging each department a different fee for potentially similar service (to be investigated). The client has hired you to investigate this issue with the objective to save cost. How will you go about structuring this problem? What specific questions will you ask the department representatives while investigating?

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Best answer

Hi Ish,

In general, for determining cost issues, you need to break down the problem into a tree/root-cause analysis and ask the highest level (but specific) questions first! In this way, you essentially move down the tree.

How do you identify where to look? Well, you need to look into whichever of the following 5 make the most sense based on where you are:

  1. What's the biggest? (i.e. largest piece of the pie...most likely to change the end result)
  2. What's changing the most? (I.e. could be driving the most and most likely to be fixable)
  3. What's the easiest to answer/eliminate? (i.e. quick win. Yes/No type of question that eliminates a lot of other things)
  4. What's the most different? (differences between companies, business units, products, geographies etc....difference = oopportunity)
  5. What's the most likely? (self-explanatory)

For more background on analyzing costs, look here:

https://www.preplounge.com/en/consulting-forum/structure-breakdown-for-costs-7963

https://www.preplounge.com/en/consulting-forum/inventory-costs-how-to-segment-6861

https://www.preplounge.com/en/consulting-forum/direct-and-indirect-instead-of-fixed-and-variable-6272

https://www.preplounge.com/en/consulting-forum/when-should-i-break-down-costs-as-fixed-and-variable-as-opposed-to-over-the-value-chain-5990

Was this answer helpful? 19

Hi,

It's all about the options, and how much each option could save. The options here that could be are:

1. Current vendor costs savings (Either consolidation of the contract into one, or Setting the same price standards for all departments)
2. New vendor costs savings
3. Own data system cost savings

Please see the proposed structure attached in a picture.

Hope this helps. Let me know if you have any questions!

Best,

Oleksii

Was this answer helpful? 17

Hello!

It´s a pretty simple thing, you don´t even need an issue tree for this.

You owuld just line a few questions to fully understand the picture, such as:

  • Breakdown of costs
  • Short description of the services provided
  • Scope of work
  • etc

Hope it helps!

Cheers,

Clara

Was this answer helpful? 8
Ian gave the best answer

Ian

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