Cost Reduction Process SIPOC

Cost Reduction and Recovery•SIPOC•Comments•Flow Diagram•Measure T and T LLC.

Preface• This Cost Reduction Process expressed here is a common type of auditing practice used by corporations every day. Examples of this can be found all over the web and have their roots in auditing methods utilized and recorded by the Greeks and Romans.• Unique here is expressing the practice in a SIPOC format with suggested measuring formats and information. The hope is to enable small to medium sized companies in their Cost Reduction and Recovery efforts.

Comments• The Cost Reduction and Recovery effort is one of the best Return On Investment (ROI) areas a company can foster. The returns varying from $3 to $250 for every dollar spent on Cost Reduction Efforts.• Conducting the exercise after Purchase Order issuance makes the effort a great deal more difficult. Your Cost Reduction Expert (CRE) should know what actions are needed to make this easier. A multidisciplinary action will sometimes need to be coordinated by your (CRE) to insure recovery is possible. Setting new Purchasing Policies in place may sometimes be necessary.• Cost Reduction efforts sometimes fail to yield monetary results. I have seen this when companies have either allowed their vendors to control the rules of engagement and/or when company personnel fail to support the Cost Reduction effort for political reasons. I see this as a good argument for occasionally outsourcing the Cost Reduction efforts.• Keep in mind, recovered funds can be used to balance budgets or fund those mid year projects that pop up so often unannounced and unfunded.• An extremely successful example of this of this was a prolonged engagement t where I was involved for four years and averaged 25M yearly in hard dollar recovery.• While reviewing costs it is also a good time to review products for quality, material reduction, going green opportunities……etc. This is typically outside the ability of most auditors but what I expect of any Cost Reduction Expert.

Measure Data Raw Volume Resolution Time504030 Recovered $ <1 Week <2 Week In Review20 < 3week Spending Other10 0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Return On Investment 60000000 50000000 40000000 Investment 30000000 Return 20000000 10000000 0 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

SIPOC - Cost ReductionSUPPLIER INPUT PROCESS OUTPUT CUSTOMER MONTHLY COMMUNICATE WITH PURCHASE ALL SPENDING COMPREHENSIVE LIST OF ALL COST REDUCTIONPURCHASING ORDER SPENDS ORGANIZATIONS SPENDING FOR THE COMPANY EXPERT PARETO EXPENDITURES FORCOST REDUCTION OJT ANALYSIS TOP LIKELY HIT LIST OF CANDIDATES FOR COST REDUCTIONEXPERT METHODOLOGY OVERSPENDS ANALYSIS EXPERT COMPARE EXPENDITURES TO "RULES OF THUMB"COST REDUCTION OJT ANALYSIS COSTS AND PAST REQUEST COST BREAKDOWN COST REDUCTIONEXPERT METHODOLOGY EXPENDITURES. FROM SUPPLIER EXPERT COST AND PROCESS AUDIT SUPPLIER COST DELTA OR VALIDATION OF COST REDUCTIONSUPPLIER BREAKDOWN RESPONSE. SPEND EXPERT NEGOTIATE RECOVERY AMOUNTCOST REDUCTION OJT ANALYSIS AND METHOD FOR DOLLAR VALUE AND PROCESSEXPERT METHODOLOGY COMPENSATION FOR RECOVERY PURCHASING

Work Flow Diagram Request Cost List POs Cost InformationPurchasing Reduction Cost Information Supplier Expert negotiation Report Recovered Money Suggested and/or validation of Ancillary quoting/spending projects for cost process reduction.

MEASURES NUMBER OF PURCHASE ORDERS THAT HAVE ENOUGH VOLUME OF RETURN ON INVESTMENT (ROI) DETAIL EXPENDITURE FOR HOURLY COST OF FOR ANALYSIS IN COST REDUCTION REVIEW PROCESS EXPERT/SAVINGS REPORTING OF RETURN ON INVESTMENT (ROI) SPENDS VALUE OF FOR HOURLY COST OF REPORTED EXPENDITURE COST REDUCTION ON TIME S IN PROCESS TEAM/SAVINGS SUPPLIER TURN AROUND TIME FOR BREAKDOW TIME FROM N OBTAINING INFORMATI LIST TO ON CLOSURE

Questions?You can contact me with any questions via my email at TomTurner@TomTurner.biz .

Cost Reduction Process SIPOC

by tmtrnr on Feb 19, 2013

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