Typical Projects

This is a typical case study outlining a broad example of our work. Contact us for more Case Studies

Abstract

The Client was a manufacturer with a ten year history. Total revenue had grown significantly over that time but in the year of highest revenue, the business made its biggest loss. Cost Management Specialists brief was to assist in rebuilding the business to being profitable.

Background

Our client had built an impressive business. The Directors were opportunistic with an appetite for further growth who appreciated the value of technology. Employment conditions were good and the offices were beautifully presented and well located.

All focus had been on revenue but the business model was not working. As volume increased, margins were falling. As revenue grew, profit declined. The $ target was clear. The savings required were significant in dollar terms but only equated to 5% of total expenditure.

The 'Find the Hidden Profit' Project

1. Developing the Base Line

The savings target was based on the loss in the previous year plus the project consulting fees. Cost Management Specialists (CMS) undertook the project based on cost management and a 'pruning a rose bush analogy' to focus on profitability and sustainability. Simple cost reduction requires no such vision.

CMS conducted 'one on one' meetings with all major stakeholders. Staff were assured of confidentiality and encouraged to be frank in their views. At each meeting the savings target was reinforced as was the rose bush analogy - 'we are pruning the business so that it regrows in a shaped way'.

• What savings can be made in your area short term?
• Long term, what are the growth needs in your area?

Some staff focussed solely on their own issues reflecting a 'silo mentality'. There was significant goodwill amongst staff but, in some instances, the relationship took priority over results.

In conjunction with stakeholder meetings, capacity and utilisation were measured. Few bottle necks occurred due to utilisation as there was excess capacity. Process mapping highlighted duplication and inefficiency. It became clear that once the business model was working effectively, there was significant scope to grow the business.

2. Find the Hidden Profit Workshop

The workshop began with the rose bush analogy - reinforcing that the project was designed to identify short term savings to enable long term profitability. Participants were given a Find the Hidden Profit workbook and worked through the following issues:

• The agreed definition and profile of an ideal client and ideal job;
• Key issues in addressing the savings target;
• Support Managers would like in implementing the savings target;
• Assessment criteria when reviewing the labour structure;
• Management initiatives to develop staff trust and confidence in the future;
• Revenue Focus - Strategies to generate an additional revenue;
• Priority Revenue Generating Strategies;
• Identifying, Minimising and Eliminating Waste;
• Agreement on Waste Minimisation/Elimination Strategies
• Agreed savings to achieve the savings target in annual expenditure

Outcome

The savings target was exceeded with a high level of management 'buy in'. Beyond the workshop, Managers took ownership to achieve the savings.

Using a workshop approach changed the mindset of a number of managers and encouraged participants to see the bigger picture. It provided a positive discussion about the need for improved teamwork and the importance of accurate forecasting. A number of the 'unmentionables' were also discussed. While some egos were bruised, the workshop enriched relationships and developed teamwork.

A potentially negative focus on just cost reduction became a positive investment in future success. The management team came to appreciate the need for:

• a more flexible staffing model, given peaks and troughs in revenue,
• better, more accurate and timely forecasting and
• vigilance in identifying and removing waste.

Reflections

• Defining and focussing on 'the goal' and correct performance measure(s) delivers profitability;
• Cost management has long term value because of its visionary and strategic approach;
• Staff can easily fall into 'silo thinking' unless motivated to think more broadly;
• Strategic thinking isn't natural & is developed by engaging staff in strategic discussion;
• Change is easier when participants understand the need and rationale for the change;