Improve Profits by 5-7% Annually*

June 07, 2010  |   Posted by :  

Continuous Cost Improvement (CCI) means setting annual targets for cost savings, and then implementing activities to achieve these savings under the umbrella of a well structured and managed project based initiative within the company or organization.

Continuous Cost Improvement is practiced in the automotive industry, where suppliers are typically expected to provide annual “productivity” (or price reductions) of ca. 5% annually.  Were companies in other industries to practice CCI, they could be expected to improve their cost base by perhaps as much as 7-10% (of sales) annually, thereby significantly improving profitability.

This means that a company with sales of €200 million could realize savings of € 10-14 million per annum, with a direct impact to the bottom line.  This is the most attractive reason for implementing Continuous Cost Improvement.

We must be honest and say that there is clearly a limit to what can be achieved.  The best savings are to be achieved with a properly structured program in the first 2-3 years, thereafter, it becomes more difficult, and the ingenuity and support of the staff becomes critical, as more and more creative ideas are found.

A 2007 study by KPMG found that most companies have the goal of reducing costs by only 2% per annum.  Interestingly, they also found that most companies did not achieve this goal.

At Cost Improvement Consultants, our view is simple.  We will help you to implement a continuous improvement program in your company.  We will show you how to do it and guide you through the implementation.

Together with our clients, we establish a company-wide program, usually managed by a small team, which is responsible for coordinating all cost improvement activities within the company (or region or division).  This team can be one person (Measure Coordinator) or more depending on the size and complexity of the organization.  This Measure Coordinator reports to the top management and is responsible for a process.  The process is the step-by-step approach to finding, implementing & tracking cost savings.  Accompanying the process are the rules and guidelines, which define what a valid cost saving is and how its progress is measured, as well as the roles and responsibilities, which indicate – who does what, at each stage in the process.

Quite simply, management sets a target. The Measure Coordinator (with our team) organizes and moderates workshops with key staff to find sufficient cost savings activities (or MEASURES) to achieve or exceed the target.  Once the measures are identified, they are evaluated and weighed to establish the Net Impact (net savings).

The measures are agreed with management, who assign various team members to implement the activities.  Once the implementation begins and the measures are tracked weekly or monthly to completion, based on a set of criteria provided as part of the program.  This ensures a high level of quality, and highlights any early problems, allowing for timely corrective action.

When the measures are completed they are usually validated to ensure that they are both correctly implemented and that the financial impact has been achieved.

The program typically runs for one business year.  Once completed, it is formally concluded, and new targets are defined for the following year.  The program starts again with a new measure identification phase, based on the same program already in place.

Our role is to implement the program; including adjusting our standard QuantumLeap continuous cost improvement program to the client companies needs, by defining the program organization, employee awareness program and ground rules.   We moderate the workshops and help identify measures using best practices.  We also assist in the definition and assignment of the measures, sharing our broad experience and expertise in this area, particularly with regard to the likelihood of achieving the savings targets.

We also have the ability to undertake the project management (tracking & coaching) and we can operate the Program Office as an out-sourced service for those customers who wish to focus on the measure implementation.

*based on ability to influence costs worth 70% of sales revenue, and achieving 7-10 percent cost improvement.
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