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Ian

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6

Structure/Framework for Cost Cutting Cases

Hi, let's say the prompt is about a manufacturing company seeing rising cost. How would you answer "what factors would you anayze in order to reduce cost?". I could only think of segmenting my framework to typical cost drivers to see which one is the root cause. Would I need to mention revenue/customer/competition etc.?

Hi, let's say the prompt is about a manufacturing company seeing rising cost. How would you answer "what factors would you anayze in order to reduce cost?". I could only think of segmenting my framework to typical cost drivers to see which one is the root cause. Would I need to mention revenue/customer/competition etc.?

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Book a coaching with Ian

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Hi there,

Great question.

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

Hi there,

Great question.

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

Book a coaching with Henning

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I'd look at it through top-down and bottom-up analyses:

  • Top-down: Benchmark of costs against competitors and other comparable companies across general cost buckets (e.g. SG&A - Finance, IT, Marketing, legal, etc...) - that gives you an idea of the potential for cost reductions
  • Bottom-up: Mapping of all activities that are performed by people in in each function and allocating time and ultimately costs. Then sort them by costs and look at the top 80% and pressure test each activity to understand if you really need this activity being performed.

I'd look at it through top-down and bottom-up analyses:

  • Top-down: Benchmark of costs against competitors and other comparable companies across general cost buckets (e.g. SG&A - Finance, IT, Marketing, legal, etc...) - that gives you an idea of the potential for cost reductions
  • Bottom-up: Mapping of all activities that are performed by people in in each function and allocating time and ultimately costs. Then sort them by costs and look at the top 80% and pressure test each activity to understand if you really need this activity being performed.
Book a coaching with Clara

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Hello!

With such little context, I would deep dive by starting to add branches from each node.

For instance, here, i would separate in Fixed and Variable and see where the issue is (e.g., changes vs. other periods, changes in the % distribution, etc.)

Then you will have a thread and pull and pull to arrive to the solution

Hope it helps!

Cheers,

Clara

Hello!

With such little context, I would deep dive by starting to add branches from each node.

For instance, here, i would separate in Fixed and Variable and see where the issue is (e.g., changes vs. other periods, changes in the % distribution, etc.)

Then you will have a thread and pull and pull to arrive to the solution

Hope it helps!

Cheers,

Clara

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Hey there,

You are going in the right direction. You could take one of the following aproaches:

  • Fixed & Variable cost route
  • Total manufacturing cost (raw material, labour & overhead)
  • Operating Model route (cost removal from customer channels, products, process, technology, FTEs, physical assets)

Depending on which option you choose, keep double clicking to come up with lets say top 3-5 factors you would analyse.

Feel free to send me a direct message if you wish discuss more and understand the cost/revenue tree diagram.

Hey there,

You are going in the right direction. You could take one of the following aproaches:

  • Fixed & Variable cost route
  • Total manufacturing cost (raw material, labour & overhead)
  • Operating Model route (cost removal from customer channels, products, process, technology, FTEs, physical assets)

Depending on which option you choose, keep double clicking to come up with lets say top 3-5 factors you would analyse.

Feel free to send me a direct message if you wish discuss more and understand the cost/revenue tree diagram.

Book a coaching with Vlad

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Hi,

Overall I would look at the following:

  • Cost composition and the biggest costs
  • Benchmarking of the biggest costs to find the improvement potential
  • Process improvements to meet the benchmarks
  • Costs and benefits of the proposed initiatives

Feel free to book a session with me. I had a dedicated session on cost-cutting / ops cases where we can go further into details

Best!

Hi,

Overall I would look at the following:

  • Cost composition and the biggest costs
  • Benchmarking of the biggest costs to find the improvement potential
  • Process improvements to meet the benchmarks
  • Costs and benefits of the proposed initiatives

Feel free to book a session with me. I had a dedicated session on cost-cutting / ops cases where we can go further into details

Best!

Book a coaching with Antonello

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Hi, I have a specific framework to approach in an Ops consulting way a cost-cutting problem. Feel free to text me for a quick sharing

Best

ANtonello

Hi, I have a specific framework to approach in an Ops consulting way a cost-cutting problem. Feel free to text me for a quick sharing

Best

ANtonello

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