What is Cost Reduction all about?
Cost reduction management isn't about spending freezes and layoffs, or finding the cheapest supplier or vendor – and it's not about crunching numbers either. Rather it about understanding the dynamic nature of markets, customers, competitors, operations and costs – a skill very few business leaders possess. Cost reduction management is geared towards creating stability in an organisation to withstand any economic condition. In reality, cost reduction is a form of cost optimisation, concerned with directing spending towards areas that produce the most results, whilst reducing spending in areas that drain resources.
What mistake do most companies make when it comes to reducing costs?
There is a marked difference between cost reduction and cost reduction management, and many companies fail with the critical ‘management’ element. When revenue slides costs are often blindly reduced, rather than effectively managed. Reducing the wrong costs can have a dramatic effect on an entire business, often non-recoverable and in the process ''customers' are also reduced. Knowing which costs to reduce, and at which time, is our strength. Very few companies we come across have effective cost management strategies in place, and it only takes a short time for us to identify ineffective purchases, practices and personnel. Cost reduction is critical to any business strategy, however we estimate less than a third of companies have a sustainable plan.
Isn’t revenue generation strategy more critical than cost reduction in this economy?
We believe cost reduction management is one of the most effective methods of boosting profitability. Creating a more cost effective structure is equally as important as creating revenue streams, unfortunately this area of management is often neglected, as it is often viewed with much unfounded skepticism. A company with a well managed cost program have the capacity to withstand difficult economic times, which are inevitable in any business cycle.
We already have financial controllers and management and cost accountants - how can Lift help?
There is a marked difference between financial management and cost reduction management. Most finance professionals lack the experience in understanding cost issues across various cost categories. As a result companies spend in the wrong areas or end up paying exorbitantly high fees for products and services very few people in any organisation understand – especially in the areas of people, information technology and supply chain management.
There are alsothose unseen and intangible people costs associated with managing teams that are often neglected because they are difficult to gauge such as morale, well-being and engagement. Most financial managers simply don’t have an exact understanding of these issues, nor have the time to carefully explore cost options, obtain multiple quotes, understand the exact requirements of a business and negotiate strongly. This time constraints often makes decision makers act in haste and find themselves with a less than cost effective deals. Many companies are shocked when we tell them what competitors in the same industry are paying for the same products and services – our expertise could have saved them hundreds of thousands of dollars by speaking with us first.
In which areas do you focus most of your cost reductions?
Broadly, we focus on the cost of people (and their associated management costs), technology and service costs. We help companies determined whether their spending in these key areas are justified and indeed necessary. We also make determinations as to whether enough being spent in these areas, and if more investment could produce profitable results.
We look at sales, general and administrative costs (SG&A) as well as cost of goods sold (COGS) and analyse the entire supply chain, as well as review and provide strategy for your procurement practices.
We don’t wish to lose staff or change suppliers that we've long-standing relationships with - what can you do?
Our aim is to see you reduce costs with minimal disruptions and redirect those costs towards areas that create the greatest revenue generation. We never advocate any staff termination measures unless absolutely necessary, nor do we recommend new suppliers and vendors unless we feel they are integral to the cost reduction process. As part of our commitment toward education and training, we will help your teams develop the skills and knowledge to negotiate tactfully with multiple vendors and suppliers, reducing costs in the process. Our priority is to help your company reduce costs in a sustained manner. Our business has been built on trust and grow on trust, thus we would never advocate any strategy that will cause our clients any stress in the future.
What are your areas of expertise?
Many consulting firms the purport to do everything, which is an unrealistic task to deliver. We specialise in the area of cost reduction and feel that our experience in this domain is unparalleled. Our team has a wide variety of experience in consulting roles (in many ‘big’ firms) and with some of the world’s leading brands, where they have gained exposure across multiple industries implementing a broad range of strategies –specifically in the area of cost reduction. Our aim is to first reduce business costs and then maintain and then create a system where these costs are manage well into the future, by helping you implement strategies that sees cost reduction occurring on a daily basis.
Who are your clients?
We work with all size businesses from a local team of a few, to national and international companies of many thousand employees. We also work with start-ups and new ventures looking to create viable cost base before inception, as well as companies looking to expand. The costs associated with expansion are significant and time constraints often place tremendous pressure on business to make purchases without due diligence. We can certainly help in this process. Our experience across all industries, including franchisees, non-profit groups, government and educational institutions places us in good stead.
Why should we use your services?
At Lift, our team has perfected (over many years) a methodology we use exclusively with all our clients for analysing and optimising people, technology, service and management costs. We don’t run a ‘cost reduction’ software program and produce a generic result – rather we use our years of experience to find the cause of cost issues, and create viable strategies that we assist our clients in implementing. We are very focused on transferring our knowledge of cost reduction management with everyone we work with.
We feel that if an organisation lacks a formal cost reduction management program, then they are setting themselves up for future havoc. Cost reduction management is a far more difficult process than many businesses believe. Our strategies are certainly not generic; they are well researched and documented and have taken years of experience to formulate.
Why should we use consultants, after all we know our business better than anyone?
Lift Group offers a fresh perspective and approach to your organisation, one that is totally independent. Since we are not involved with the internal politics of an organisation, our role is neutral and serves to create a solution that benefits all stakeholders. Even the most strictly and cautiously managed operations we have come across reveal oversights that management have not been able to discover. We have the specialised knowledge, skills and experience that give us the greatest probability of providing a solution. Further, by working closely with key management we can impart a great deal of knowledge and insight that can be used well into the future.
How long will it take to reduce cost and see real savings?
As most organisation's will appreciate any management process should never be viewed as a quick fix. Of course there are some costs than can be reduced in the short-term cycle such as, third-party relationships and others over the long-term such as an IT implementation or training programs. Since policy and process changes take time to implement it is difficult to give a timeframe until we have submitted a formal proposal to your team.
Will we be required to invest money in some areas order to save money?
Our analysis will reveal in which areas cost reductions can be made with minimal disruption and without cost. Cost reduction management must be viewed as an investment, and some investment funds maybe required (such as an outlay for technology, new personnel or training) in order to reduce future costs and yield greater future revenues. You can rest assured that we would never advocate any spending without complete review and analysis.
Will the process take up the time of my staff?
Most of our assessment, including all research and analysis is completed off-site; however it is important for us to spend some time on-site speaking with, and observing your teams in action. We will need access to certain key management / staff to gather more information, to help us make the best possible recommendations. Generally we find that most people feel comfortable dealing with an independent third party, especially when they know we are there to improve work practices.
What if you don’t find any savings opportunities?
As a matter of professional practice we will only work with clients whom we believe we can offer a significant cost reduction. This is usually determined during our initial interview and information gathering stage - before we have been formally engaged. As experts in this domain we will be able to discover very quickly whether reduction opportunities cost, and whether we can form a business relationship. Before we engage any client we provide a comprehensive breakdown of benefits we are confident we can deliver and schedule of fees - so there are never any surprises.
What if many cost savings areas are found, where do we start?
Our assessment will reveal the full implementation cost, with time estimates and benefits. All actions can thus be timed and controlled according to business priorities, which we will discuss with management.
Is it necessary to run the full cost reduction management program, in every area of our business?
Not at all. You have the freedom to choose in which areas you would like us to focus upon, for example, if you sole area of concern is technology then our audit, strategy and training can be specific to that area only. And you just want training; we can cater for that also. Lift Group is not a ‘sales driven’ company, we aren’t out to sell anything our clients will not derive full benefit from, as it will ultimate reflect poorly on our credibility as professionals.