Market conditions become more unpredictable, so how do you ensure bottom-line resilience?
Many of the seasoned COOs we’ve worked with continually highlight the necessity of proactive planning.
They don’t just speak of intentions; they emphasize the value of a concrete strategy that can be visualized, followed, and executed.
But how?
What is a cost reduction map?
When supporting companies in an unstable market situation, we often create a cost reduction map, to provide a clear and structured approach to cost management.
It outlines specific strategies and targets, offering a roadmap for the organization to follow.
This data-driven approach leads to faster and more effective decision-making.
Why use a cost reduction map?
COOs often highlight challenges like:
- Lack of strategic direction for cost management, inefficiencies and missed opportunities for cost savings.
- Ineffective decision-making, being based more on intuition than on data-driven insights.
Resulting in operational inefficiencies thriving, driving cost and productivity reductions.
By using a cost reduction map, COOs can avoid these pitfalls, and turn the tides.
Outlining a cost reduction map, align the organization on the upcoming activities and ease the communication and understanding.
Now let’s take a look at it.
How to create your cost reduction map
In this example, we broke down the cost structure, using a DuPont model (See figure below), to three main categories.
Each category has specific action items listed under it:
Improved Operation:
In this example, the category aims to increase productivity.
We did a fast potential map, quickly zooming in on key elements, here flexible manning system and product footprint, among others.
Purchasing:
This category focuses on material costs, key elements was a series of reversed auctions.
Fixed Expenses:
This category targets reducing the fixed cost. A number of classical cost-reduction exercises, topped with an AI implementation to increase office productivity.
We worked with stretched targets, reducing costs up to 25% or more, can easily be in scope. This of course vary, based on the organization’s current performance, industry standards, and strategic objectives.
The aim is to provide a clear strategic story showing the road ahead, with quantifiable goals that the organization can strive to achieve through the implementation.
Conclusion
Drawing from experiences collaborating with industry-leading COOs, we’ve learned that a cost reduction map isn’t just a nice-to-have, it’s a business imperative.
This map acts as a guiding light, simplifying complex decisions, creating clarity in ambiguity, and bringing teams together under a shared vision.
Notably, COOs found it useful to use the roadmap to engage in active dialogues with board members and their teams.
This strategic move promotes transparency, secures backing, and ensures a unified approach.
So, if you find yourself struggling with uncertain market conditions, having a well-defined cost reduction map will be your compass to success.
Thank you for reading.
If you want a fully customized cost reduction map for your organization, feel free to contact me.
