Cost Takeout

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In a cost takeout, the goal is simple – do more with less.

While reducing costs seems like a straight-forward exercise, it is rarely executed well. This is because executives and consultants will look at the P&L statement or some suite of financially focused metrics like "Labor as a % of Sales" and draw a number of wrong conclusions. 

Indiscriminately cutting labor is a common mistake executives make. Not because labor should not be managed, but because it is simple to execute and executives rarely invest the time to sustainably address the root causes of high labor. How are you measuring labor performance? How much waste can you remove from your processes? Has your portfolio increased in complexity? What investments have you made to improve productivity? Are they working? Why not?

Our approach towards Cost Takeout is comprehensive and creative. We utilize tools like Zero-based budgeting (ZBB) to drive resourcefulness, and we leverage tools like Activity-based costing (ABC) and OEE to identify the true drivers of costs and opportunities to improve. While we believe cost takeout requires careful analysis, we also believe it presents an opportunity to be bold and challenge everything.

Cost Takeout Assessments

Zero-Based Budget (ZBB). Zero-based budgeting is a repeatable process that rigorously reviews every dollar in the budget and builds a culture of cost management among all employees. In this method of budgeting, all expenses must be justified for each new period. The process of ZBB starts from a “zero base,” and every function is reviewed for its needs and costs. Rather than implementing across-the-board cuts without fully understanding the potential impact, ZBB provides a strategic approach to controlling overheads, SG&A, and capital spend while providing visibility into cost takeout opportunities.

Lean (Waste Reduction). The idea of lean manufacturing is quite simple – relentlessly eliminate waste. It comes in many forms, but the goal is to eliminate anything and everything that does not add value from the perspective of the customer. There are seven types of waste in Lean: Transportation, Inventory, Motion, Waiting, Overproduction, Overprocessing, and Defects.

OEE and Productivity. Overall Equipment Effectiveness (OEE) is the gold standard for manufacturing productivity. It identifies the percentage of manufacturing time that is truly productive. By measuring OEE and underlying losses, you gain important insights on how to systematically improve the manufacturing process, improve productivity, and reduce production costs.

Activity Based Costing (ABC). Activity-based costing reveals hidden costs and allows companies to know which products are making money. ABC increases the visibility of costs and proportionately assigns them to the products and services that consume them. Using the ABC method, costly and non-value-added activities in the supply chain are highlighted, allowing business leaders to reduce or eliminate them.

Complexity Reduction. Complexity adds cost. So simpler the better, right? Right! Just as Lean relentlessly pursues the elimination of waste in manufacturing to maximize process efficiency, complexity reduction looks to eliminate non-value-added components of the business’ operating model, products, processes and technology. We ensure the business is aligned with the customer as the ‘north star’ by strengthening your core capabilities and trimming the products and services that the customer does not value. 

Want to learn more? Contact us to set up a discovery call. 

• Operation Transformation
• Supply Chain Restructuring
• Operating Model Redesign
• M&A Value Creation
• Business Intelligence