Cost reduction through business process improvement and procurement for the Service Industry

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Optimise-GB's presentation takes you through the value for money initiative. Costs can be avoided and reduced through process re-engineering (change what and how you work) and through procurement to negotiate costs of all categories of spend. The best method of cost reduction is to follow the pareto rule to focus on the 80% of total costs which will be derived from 20% of the activities. This allows you to reduce costs in a very quick and efficient manner rather than looking at the costs as a whole. Many thanks Simon Misiewicz

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  • Congratulations !!!!!! Thank you for all presentations very interesting presentations that I reference in some of our groups
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Cost reduction through business process improvement and procurement for the Service Industry

  1. 1. Cost reduction through business process improvement and procurement for the Service Industry I don’t want to do business with those that don’t make profit, because they can’t give the best service – Lee Bristol Optimise- GB
  2. 2. Value for Money (VFM) & Cost Reduction Value for Money (VFM) … is the term used to assess the quality and benefit received for goods and services paid. VFM considers the economical, efficiency and effectiveness of the goods and services utilised within the organisation Cost Reduction … may be achieved through process improvement, being the things that you do, and through procurement strategies, the things that you buy. Optimise- GB
  3. 3. Phases in creating value for money and cost reduction <ul><li>Phase 1: Cost Identification </li></ul><ul><li>Phase 2: Cost elimination through process improvement </li></ul><ul><li>(Typically 10-80%) </li></ul><ul><li>Phase 3: Cost reduction through procurement strategies </li></ul><ul><li>(Typically 10-20% on remaining spend) </li></ul>Optimise- GB
  4. 4. <ul><li>Phase 1: Cost Identification </li></ul>Identify costs from the Profit & Loss account and rank Them (highest first). This will give you the data for the Pareto chart Optimise- GB
  5. 5. Phase 1: Cost Identification Optimise- GB
  6. 6. <ul><li>Phase 1: Cost Identification </li></ul>From this analysis we know that the focus on costs should be on 1) labour / agency costs, 2) Materials and 3) Motor expenses Optimise- GB
  7. 7. <ul><li>Phase 1: Cost Identification </li></ul><ul><li>Transactional Costs are process led driven to meet customer needs </li></ul><ul><ul><li>Use Lean / Six Sigma process improvement to eradicate wasteful and unnecessary costs </li></ul></ul><ul><ul><li>Then Formulate a procurement strategy to reduce supplier costs </li></ul></ul><ul><li>Ad Hoc costs are not process led driven to meet customer needs </li></ul><ul><ul><li>Formulate a procurement strategy to reduce supplier </li></ul></ul><ul><ul><li>costs </li></ul></ul>Optimise- GB
  8. 8. Phase 2: Cost elimination through process improvement People never improve unless they look to some standard or example higher and better than themselves – Tryon Edwards Optimise- GB
  9. 9. <ul><li>Phase 2: Cost elimination through process improvement </li></ul>100% 85% 75% <ul><li>Every Business process has inputs, which are processed to deliver outputs (example) </li></ul><ul><ul><li>Inputs: Application forms, Quotes </li></ul></ul><ul><ul><li>Process: Data input, completing forms </li></ul></ul><ul><ul><li>Outputs: Completed applications </li></ul></ul>The level of outputs are less than the input due to errors (re-work), poor quality and wastage Optimise- GB
  10. 10. <ul><li>Phase 2: Cost elimination through process improvement - Identify inefficiencies </li></ul>Over Production: doing more than required Inventory: buying more than required Waiting on other people, bottle necks Extra processing, duplication of work Errors: input errors, incomplete forms Motion: walking to filing cabinets, printers Transport: postage to departments Under utilisation: staff not working Optimise- GB
  11. 11. <ul><li>Phase 2: Cost elimination through process improvement - Remove inefficiencies </li></ul>Remove paper systems and postage of info Remove paper forms Ensure people are adequately trained Schedule peoples work each day Develop measuring systems to monitor quality Ensure process related people are close to each other Ensure training manuals and policies are clear Use technology to validate input data Process Improvement solutions Optimise- GB
  12. 12. <ul><li>Phase 2: Cost elimination through process improvement </li></ul>100% 85% 75% By improving business process improvement quality and output is increased and costs are reduced by 20% to 80% 95% 1,600 600 97% Optimise- GB
  13. 13. Phase 3: Cost reduction through procurement strategies Optimise- GB
  14. 14. <ul><li>Too many suppliers </li></ul><ul><ul><li>No Influence and hard to manage </li></ul></ul><ul><ul><li>No economies of scale </li></ul></ul><ul><ul><li>Unable to assess supplier performance </li></ul></ul><ul><ul><li>Relationship with supplier minimal </li></ul></ul><ul><li>Transactional costs </li></ul><ul><ul><li>Each invoice has a transactional cost of £5-£150 </li></ul></ul><ul><ul><li>Invoices of paid twice if there is no effective PO system </li></ul></ul><ul><ul><li>Invoices paid twice: submitted through purchase ledger and expenses </li></ul></ul><ul><li>Phase 3: Cost reduction through procurement strategies </li></ul><ul><li>Issues / problems </li></ul>Optimise- GB
  15. 15. <ul><li>Forecast purchasing requirements </li></ul><ul><li>Phase 3: Cost reduction through procurement strategies </li></ul><ul><li>Solutions </li></ul><ul><li>Identify all suppliers for each type of cost and identify top 10 suppliers </li></ul><ul><li>Negotiate with 10 suppliers and rationalise supplier base </li></ul><ul><li>Introduce e-auction tendering process </li></ul><ul><li>Initiate performance reviews / contracts </li></ul><ul><li>Build in controls to avoid maverick buying </li></ul><ul><li>Introduce Purchase Ordering (PO) systems / Cards </li></ul><ul><li>Obtain feedback from the business to review costs </li></ul>Customer Requirements Analysis Selection and approval Tender process, negotiation Supplier identification & Rationalisation Optimise- GB
  16. 16. Process Improvement Savings End Result Procurement Savings Revised Cost £’000 400 150 210 60 60 3,850 550 330 1,890 540 540 2,970 This demonstrates how £880k (23%) can be saved off the bottom line. This is equivalent to an additional turnover of £9m, if 10% net profit was achieved Original cost £’000 Optimise- GB
  17. 17. <ul><ul><li>For other solutions </li></ul></ul><ul><ul><li>Contact </li></ul></ul><ul><ul><li>Simon Misiewicz through </li></ul></ul><ul><ul><li>Web: www.optimise-gb.com </li></ul></ul><ul><ul><li>Email: [email_address] or </li></ul></ul>Optimise- GB

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