Copp 4 Profit:How to reduce operating costs

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This presentation shows that insufficient resources are being used to reduce costs compared to sales. Cost reduction makes as much (if not more) NAV (Net Added Value) to the "bottom line" profits of an organisation

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  • The Net Added Value of Your Savings Dollar (try it with 3% net profit margin)$1 / 3 cents (3%) = 33.3 Sales DollarsABC Co. would have to sell $33.30 worth of product in order to have the same net effect as reducing cost by $1 !!
  • Explain SAM = Strategic Alliance ManagerCAP’s = Certified Alliance PartnerSME’s = Subject Matter Experts
  • Having an ‘eye’ for details = seeing things that other pass by.Going that extra mileBeing flexible, thinking “outside the box” not “we’ve always done it that way.Being open to change; new approaches; fresh input; be willing to try new ideas
  • We are living in extraordinary times...... We need to try extraordinary measures to survive and succeed ....If in Auto biz then new cars 2007 = 800,000 +. This year estimated to fall to 350,000 (=60% drop)If in house sales then people not buying – why? Fear of job losses. How can you sell & promote in this environment?So let’s focus on alternative strategies ...... Reducing our expenditure
  • But how to reduce costs without reducing productivity and capability?Redundancies? They reduce both productivity and capability.This also destroys all the effort already invested in previous PR; marketing and brand building.Just one lay off and it’s bad news press/media coverage.
  • Copp 4 Profit:How to reduce operating costs

    1. 1. COPP 4 PROFIT Cost of Poor Performance 4 Profit “Life isn't about waiting for the „perfect‟ storm to pass .... It's about learning to dance in the rain”. By: Nigel W. Dawes Vice President Copyright protected Areopa S. E. Asia No unauthorized copy without Authors permission
    2. 2. Introducing Areopa The firm of the future .... Today! A virtual global organisation Est‟d. Belgium 1987 SAM‟s; CAP‟s; 3,000 SME‟s globally 2
    3. 3. Why many organisations fail to focus on cost reductions! What makes good companies great? • Having „an eye‟ for detail • Doing the things ordinary co‟s neglect • Having the ability to adapt • Having the willpower to invite change and embrace the positive changes 3
    4. 4. What makes good companies great? People are not against change .... But against being changed! People have to want to be open to new ideas; new thinking; new strategies. They have to want to change .... But how? Only when they have reasons & understanding for change. Then they „see‟ the benefits of change .... 4
    5. 5. Extraordinary times Extraordinary measures needed ..... Many focus on sales ...... Even though customer/buyer numbers may have been depleted So an alternative focus is req‟d ..... To reduce operating costs 5
    6. 6. Reduce operating costs But where to start? Most people default into „department mode‟ But departments do not create the problems Departments do not create re-work Departments do not create wastage Departments do not make inefficiencies People do!! So it is the „people level‟ we should focus on (not the department level) 6
    7. 7. Level of detail of the business processes » Level 1 Conceptual level Process Owners » Level 2 Departmental level A B »Level 3 Hand off level C » Level 4 Task level D » Level 5 Programming level E This is where inefficiencies, re-work, down-time, & wastage occurs 5/16/2009 7 7
    8. 8. COPP ® & T.A.P.E. Grid ® Measurement Tools Cost Of Poor Performance Takes you right to the cause of the problem “Treat the cause not the symptom” Where you are losing MOST money •12% Lost thru’ non-timeliness & inaccuracy ! •25% Lost thru’ non-productivity ! •33% Lost thru’ non-efficiency / rework ! T.A.P.E. Grid Measures Timeliness; Accuracy, Productivity & Efficiency Takes you directly to the worst performing processes 8
    9. 9. Let‟s back-track a moment We mentioned sales previously: So let‟s compare ..... Ask yourself Do we pay a bous or commission for sales? Do we employ sales people? (or outsource & hire sales consultants?) Do we invest in advertising and marketing? Do we provide other sales incentives to key employees? (Entertainment, lunches etc.) 9
    10. 10. So it‟s reasonable to expect .... Then why not do the same for cost reduction? Pay a bonus or commission Employ cost reduction people Hire expert consultants (only those who teach you “how to fish”) Provide incentives to employees 10
    11. 11. Net Added Value (NAV) The answer is for financial reasons: Identify the monetary net added value of your Sales NAV and Cost Reduction NAV -If we sell $1 worth of product, how much does that sale impact our profit? -If we reduce our cost by $1, how much does that savings impact our profit? In € Euros or $ Dollars or B Thai Baht Or whatever currency you work with 11
    12. 12. The Calculation Example “A” ABC Co. there is a 5% net profit. Each sales $, profit is only 5 cents. (5% X $1 = $.05) If sales increased by $1, Then profit increased by 5 cents Net Added Value If ABC Co. reduces their cost by $1, Then their profit increases by $1 NAV Every $ saved moves directly to net profit. *Examples after all expenses deducted & exclude taxes 12
    13. 13. The Calculation (cont ...) 20 Sales $ ABC Co. would have to sell $20.00 worth of product in order to have the same net effect as reducing cost by $1 !! In other words a $1 reduction in costs Is equivalent to a $20.00 sale 13
    14. 14. So what next? • Collaborate: • The need to inform the whole workforce of your serious intent to make the company more efficient by reducing: Wastage Rework Inefficiencies Downtime Create an action plan .... an Improvement Plan 14
    15. 15. Create an 8 C‟s Improvement Plan 1. Create a position/department that has the specific task of cost reduction. “The Change Bureau” 2. Consultant: Hire a cost reduction consulting firm that can provide you with a fresh perspective. 15
    16. 16. The Improvement Plan 3. Cash: Provide employee‟s with cash incentives to reduce cost. 4. Cost reduction goals: Set and reward managers for their achievement. 5. Commission: Offer payments to cost reduction consultants/employees for implementing savings programs. 16
    17. 17. The Improvement Plan 6. Connect with your employees: Become a cost conscious Role Model. Eliminate irresponsible spending as a manager. 7. Communicate the fact that cost reduction is equally important to sales. 17
    18. 18. The Improvement Plan 8. Calculate your spend on sales promotions Sales commissions Sales Bonuses Sales discounts Marketing sales Promoting sales Sales incentive Sales lunches Customer incentives Wine, dine & entertainment Others Total???? Then match this amount into ..... The Change Bureau 18
    19. 19. The Result? The immediate result will demonstrate just how serious you are in your intent to bring about change in the organisation This sends a clear message to every employee in the organisation. Next you will start to see the actual results in financial improvements taking place (within second month of implementation) 19
    20. 20. So what are you waiting for? GET DANCING IN THE RAIN And then sing about the results And Areopa will provide your umbrella Areopa guarantees a 80% reduction of the negative customer perception – as measured by the TAPE ® grid and 50% reduction of the costs of poor performance as measured by the COPP ® calculation and reduce the 33% lost thru‟ rework 20
    21. 21. CONTACT COORDINATES Nigel W. Dawes Mobile: + 66 (0)81 0044116 nigel.dawes@areopa.com AREOPA Koningin Astridlaan 201 B5 B- 2800 MECHELEN BELGIUM Tel.: +32 (0)15 433.217 Fax.: +32 (0)15 411.170 www.areopa.com info@areopa.com 21 21

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