Fundamental Cost Reduction - Manufacturship

®
Executive Briefings by
Fundamental
Cost Reduction
From Paradox to Profitable Growth

Executive Briefings is a series published by Manufacturship®
designed to share insights, provoke discussion, and explore
solutions to the critical areas of concern to the business leaders
of today. These leaders are continually working to inspire,
enable, and lead their teams to capitalise on the opportunities
of the post GFC economy whilst ensuring that risk is mitigated
and reduced.
Every issue tackles a major challenge facing corporations and
their executives, defines the problems encountered as they rise
to the challenge, and shares insights and practical applications
across industries and related research.
Few can doubt the speed and complexity of changes in the
business environment that organisations face if they are to
be successful through the “teen” years of the 21st century.
The emerging issues of the 90’s and 00’s are well and truly
established and matured in many areas. Industry convergence,
global sourcing, electronic commerce, worldwide alliances,
virtual organisations, corporate governance and citizenship are
no longer the new wave, but are developed and evolving into a
2.0 level of maturity and reinvention.
More importantly than ever are the fundamentals of business,
developing the capability and mastery of the skills of leadership,
management, financial success, strategy, and outstanding
implementation by executive conversant in change and culture
to better sustain their interventions in this ‘Asian Century’.
In this issue we consider the question “Fundamental Cost
Reduction – From Paradox to Profitable Growth”. Over the last 20
years corporations embarked and implemented re-engineering
to focus on removing 30% of “excess cost”. This was primarily
achieved through headcount reduction. Dr Michael Hammer
(author of “Reengineering the Corporation”), later acknowledged
he made a mistake and said he “inadvertently omitted human

nature and people from the process re-engineering movement”.
In the early 2000’s new competitors emerged. Headcount
reduction gains were overtaken by the increased productivity of
these new market entrants and their ability to produce the same
products at cheaper prices.
InapostGFCenvironmentthesefactorshaveaccelerated,forcing
cost reduction back to the top of the corporate agenda. But there
is a new layer of complexity that is making implementing cost
reduction more difficult than before. Heavy resistance is being
encountered from both inside and outside the corporation.
Internally, leaders responsible for implementing cost reduction
are reporting that too much has already been cut. The pressure
is applied externally from customers expecting service levels
and features to continuously improve. Trading reduced services
for lower prices is no longer an option.
In this briefing we explore this apparent paradox and set out
a series of proven approaches to not only resolve the tension
between these two forces but also set your business on the path
to sustainable and profitable growth.
Fundamental Cost Reduction is one of the 12 Core Projects of the
Manufacturship®
curriculum. You can obtain more information
about our work by downloading the whitepaper available at
www.manufacturship.com/FCR
We encourage you to write or call us with your questions,
observations, and suggestions.
Jason Furness
Chief Executive Officer - Manufacturship®

1
Index
Where to Next?....................................................2
The Impossible Request......................................4
Why The Business Imperative ............................8
Not If, But How?.................................................12
Cost Strategies - The Facts..............................12
What About Business Process Re-engineering?....20
The Spend Lever................................................24
The Role of People.............................................28
So What Now?....................................................32
The Executive Agenda For Total Cost Reductions...36

2
Where to Next?
When the first great wave of cost reduction activities which
tore through the business community for five years drew to
a close in the early 1990s, the business press declared that
growth, innovation, and new product development were the new
priorities for the leaner more focused Corporate arena.
Radical cost reduction is no longer an effective ‘step-change’
weapon in the Executive armoury – the 30% of ‘excess fat’ which
had existed for decades has now gone. Cost Reduction into the
future was going to be all about small, incremental continuous
improvement. Or so most of us thought.
What was missed in these pronouncements was the continued
impact of globalisation introducing new competitors into the
marketplace. Third world countries began to apply first world
technologies supported by a mix of liberalised markets in some
countries and highly protectionist actions in others. Advances in
communication technologies enabled global commerce to move
from a concept and ‘special’ project to a completely normal and
routine way of operating.
We are now beginning to see this come full circle. Growth in low
cost competition from suppliers in “CHINDIA” (Kotler, Kartajaya
& Hooi, 2007) has reversed for some countries. With the changes
resulting from the GFC the news from the USA is that GE has
‘re-shored’ back to the USA and making fridges cheaper and
better than their CHINDIA competitors.
30% of ‘excess
fat’ which had
existed for
decades has
now gone

3
Australia engineered and escaped the ‘recession’ still being
experienced by other nations. We fared better than the rest
of the world in most areas but some came under increasing
pressure:
• we have an annual growth of 3%;
• the official Interest Cash Rate is low and hence cost of
borrowings;
• the Australian $1.05 to the US $ and could be rising to $1.25;
• Australia is one of 7 nations in with a AAA credit rating (from
all three Ratings agencies);
• national debt levels to GDP are currently the lowest in the
Western world
• Australia has moved up from 15th to the 12th largest economy
in the world (IMF, 9 October 2012)
• cost of Goods Sold, compliance, governance and business
risks are rising comparatively to sales and growth
Unlike the re-engineering projects that were undertaken years
ago there are no ‘easy’ costs to go after. People are more multi-
skilled than ever before, and are utilising technology that two
decades ago was only available in ‘Star Trek’. The problem is
that so are many of your competitors. The imperative for step-
change cost reduction is just as strong as it was 20 years ago.
But what are the Cost Reduction 2.0 Strategies to match the now
mature 2.0 business world? Do any even exist? CEOs and Senior
Executives must seek out and embrace new and innovative
approaches. Using the strategies that worked in the past will
deliver incremental benefits where at least a step-change in
results is required.
People are
more multi-
skilled than ever
before... so are
many of your
competitors

4
The Impossible Request
In the Australian recession of 1991-92 there were numerous
Top-Down requirements for arbitrary budget cuts. Weekly
expenditure limits were imposed and no flexibility was allowed.
10% or 20% cuts to budgets were not unusual. The usual bans
on travel, training, and minute scrutiny on the most innocuous
of purchases was normal. Maintenance budgets were slashed,
IT (ICT) expenditure was cancelled and any form of investment in
staff development almost ceased to exist overnight. A mentality
of ‘bunker down for the storm to pass’ pervaded strategic
planning sessions and cultures. Over the past two decades this
approach has been seen in a number of localised industries as
their sector experienced slow growth or recessionary conditions.
As the GFC hit Australia, thankfully less severely than other
countries, this approach was applied again, and again.
Resistancefromstaff,supervisors,linemanagers,andexecutives
seems stronger than ever. These same people have delivered
cost reductions in the past and continuous improvement
currently. Do they genuinely believe there is no more to be had?
Or are they tired and have they lost their appetite for the hard
work with little prospect of reward for effort?
In an environment where unemployment remains low and a still
solidly performing mining sector exists corporations have seen
their high potential emerging employees leave to pursue more
lucrative opportunities in stronger industries and companies.
The impact of all of these forces raises a number of questions in
the minds of the leaders who remain.
A mentality of
‘bunker down
for the storm to
pass’ pervaded
strategic
planning
sessions and
cultures

5
Are We Too Lean Already?
A recently updated survey of work intensity reported the
following findings:
• 36.8% of workers say that they are working at very high speed
for three quarters of their working time
• 40.6% say they work to tight deadlines three quarters of the
time or more
• 31.7% believe there that they have too much work for one
person to do
On average,
respondents
worked 11.8
hours a month
of unpaid work
from home
Believe they have too much
work for one person
Working at high speed three
quarters of the time or more
Work to tight deadlines three
quarters of the time or more
31.7%
36.8%
40.6%
% of Respondents
Source: AWALI 2012 - University of South Australia
Higher rates of work intensification on all of the above measures
are associated with worse work-life interactions for both men
and women. On average, respondents worked 11.8 hours a
month of unpaid work from home.
• This equates to an extra 17 days a year of unpaid work
• 57.6% say that they work from home to be more productive
• 70.5% say that unpaid work is done so as to catch up
• 63% are performing unpaid work because they have too
much to do
• 62.3% do so because they are motivated as they enjoy their job

6
More productive
Enjoy their job
Have too much to do
57.6%
62.3%
63%
% of Respondents
Source: AWALI 2012 - University of South Australia
Catching up 70.5%
One third of respondents believe their unpaid work will assist
their career development.
• 20.7% of men reported working long hours (48+ hours per week)
• 9.8%ofwomenreportedworkinglonghours(48+hoursperweek)
• 72% of the men who reported working long hours would
prefer to work at least 4 hours per week less
Those of us who smirked at the Japanese Corporate Man in
the eighties where they would donate 2 weeks of their 4 week
annual leave to their companies are no longer smiling. Even if
we still take 4 weeks of annual leave, we allow work to interrupt
our holidays to the point we give those two weeks back anyway.
The bigger the firm, the greater the interruption potential.
This survey has been conducted 5 times since 2007 and has
shown little change in the results.
Are Only Fixed Costs Left?
A General Manager of a corporate division may have a nominal
expense budget value of $50m and be instructed to find a 15%
saving, or $6 million. The challenge is far greater than it first
appears. Suppose this manager worked in the manufacturing
industry. Based upon the Australian Bureau of Statistics data
One third of
respondents
believe their
unpaid work
will assist
their career
development

7
for 2009-10 the typical split of the costs shows that the manager
has the ability to influence far less of the budget that they own.
Typical Cost Breakdown
2009 - 2010
Raw Materials
Overheads
Interest
Depreciation
Labour61.5%
18.3%
15.9%
3.1%1.4%
IT charges, sales overheads, marketing expenses, leasing
costs, insurances and head office ‘burden’ would all appear
in the monthly management accounts, even if the particular
cost centre does nothing or adds no productive support for the
business unit. Should Purchasing and Product Engineering be
centralised then the manager has even less control on their
budget. Depreciation is just the cost of spending sprees in the
past or ‘revaluations’ undertaken to boost the balance sheet.
Saving money in the stationery cupboard won’t go far. This is
why the guillotine always falls on the major controllable and
‘go-to compressible’ cost area of the business unit cost centre
accounting system - the headcount.
If all of the savings are to come from this area then we are
looking at a 75% headcount reduction in order to achieve a
15% total budget reduction. Clearly this is impossible. Add the
second requirement of providing customers greater levels of
service and product value and it becomes doubly so.
Source: ABS 8155 June 2011
Depreciation is
just the cost of
spending sprees
in the past or
‘revaluations’

8
Why The Business Imperative?
Perhaps the reason for cost racing back up the executive
priority list is that it is an area where change can occur quickly
and be measured simply. Companies in difficulty either have
a cost problem, a revenue problem, or both. If they have a
revenue problem they have to develop new products, pump
money into market development, or move into new channels or
partnerships.
All of these take time to change. The full impact of decisions
can take months, or sometimes up to three years before they
finally filter back down to operating cash flow. The uncertainty
of the success of these actions means we cannot rely purely on
the success of these programs, we need success and we need
it now. Price cuts and discounts are the exceptions to these
revenue-boosting strategies. Revenue may be boosted in this
way. But even if profitability increases it is extremely rare that
the results are sustainable.
Cost is easy because it can be tackled immediately. You just have
to stop spending!
Macro-Factors
A sustained increase in the $A versus the $US has dramatically
reshaped the export opportunities for many businesses in
Australia. The movement from $A0.70 to $A1.05 created in an
immediate 33% reduction in the competitiveness of exporters. In
the domestic market the rapid increase in the competitiveness
of imported products due to the exchange rate was just as
profound. This means that companies that have a significant $A
component of their cost base have to find this 33% reduction
from inside their existing operations.
Power, Carbon Tax, wages, and other compliance costs continue
to increase.
The full impact
of decisions can
take months
or years to
filter down to
operating cash
flow

9
Export revenue has dropped and domestic competition has
increased. The impact of this is most likely margin erosion.
Increasing costs then have to be funded out of dropping
revenues. You can easily see why some companies are in crisis
and see headcount reduction or lowering labour costs through
global relocation as the fastest way to achieve cost reduction
targets. But even this approach has limitations.
While labour costs across the world can be vastly different, the
gap is closing, and rapidly. The average income of an Australian
employee in manufacturing is $57,000 in 2010 [1]. Ms Gina
Reinhardt gave a 2012 YouTube presentation saying “South African
workers work for A$2 day” [2].
In China workers making athletic shoes are paid US$472 a
month, yet Adidas is closing its only directly owned factory in
China to move it to Cambodia where monthly wage costs are
US$13 [3]. French bank Natixis forecast that labour costs in
China would match the US in four years, the Eurozone within
five, and Japan within seven years. Boston Consulting Group
reported that by 2015 manufacturing in parts of the US would
be just as economical as manufacturing in China. Salary rises in
urban China in the first half of 2012 were 13% [4].
Shifting from China to another country may work in the short term,
but it is neither a long term nor guaranteed cost reduction strategy.
The example here is sobering because even with rapid labour
cost escalation and currency factors labour productivity has
also risen to offset these wages rises. They must have improved
their processes by the use of technology, management, or both.
They have reduced their cost!
All of these examples illustrate the need for dramatic and
often sudden reductions in major areas of cost. This is before
considering the impact of reductions in government and
consumer expenditure and commodity price fluctuations.
Shifting from
China to another
country may
work in the
short term, but
it is neither a
long term nor
guaranteed
cost reduction
strategy

10
Which is before we even consider pressures of customer
demand. The only certainty about the environment is that
these macroeconomic factors will continue to put dramatic
cost reduction on the Executive agenda and demand improved
structural and strategic methods of achieving them.
There IS 30% Left
While external factors dictate that companies have no choice
but to dramatically reduce cost, the positive news is that there
is still 30% of cost reduction to be had. To achieve this we must
look beyond the traditional places and move our focus across
the entire enterprise.
Traditional cost reduction projects were often based on a theory
that later proved to be false: “If you take people out, then the
activities will reduce.”
In practice what happens when you take out the people without
re-engineering the process is that service levels fall, error
and rework increases, activities grow, and the pressure on the
remaining staff becomes enormous. The negative impact of this
is magnified if the knowledge of the company’s systems leaves
along with the employees. Unless you have an active, easy to
use system to capture corporate knowledge whilst people are
in the business your ‘cost reduction’ project will have some big
unintended negative consequences. Some costs can increase.
What will inevitably happen is that ad-hoc processes develop instead
of planned and effectively lean systems. But is there a better way?
Focus on Value Creation
Beforeyoueventhinkoftakingoutpeople,doyouknowwhichofthese
activities actually increase the value that the organisation produces?
Activity Value Analysis (AVA) can be one of the most enlightening
reviews a firm can do. Quite simply, it looks at all of the activities
conducted by staff and categorises them into those that a customer
“If you take
people out, then
the activities
will reduce”

11
would be willing to pay for (add value) and those that a customer is
not interested in paying for (non-value add). Checking, reviewing,
reworking and downtime all fall into the latter category.
The conclusion from AVA is “don’t improve activities”. If you
understand which activities are non-value add, stop doing them
altogether. The Bywater UK consultancy surveyed 160 European
and UK firms and found such process and activity understanding
by executives is low, as expected.
Executives
Managers
Staff
15%
40%
82%
% of activities correctly described
Decisions made by the executives do not often reflect accurate
knowledge of the business processes (based on Baywater UK research
of 160 Companies).
Actual Activities 100%
In an activity analysis conducted with a group of mangers and
operators, the whole team was initially unbelieving and even
hostile to the idea that they were doing anything but working hard
on essential activities. There was no waste to be found! When
the AVA activity was carried out the results were astounding to
the entire group. What was thought to be a simple process in the
eyes of the group turned out to be a complex series of actions,
most of which were worthless in the eyes of the customer. 72
separate actions occurred to a single product as part of its
‘simple’ processing.

12
Over 85% of the activity undertaken was found to be non-value
added. Overnight changes were made, to redefine the process.
Cost was reduced whilst customer service was enhanced.
Not only was cost reduced, as overtime and labour was
eliminated, but quality improved as defects could be more easily
detected and safety improved. Lead time was also reduced by
80%. Zero investment was required.
Not If, But How?
It is a hard case to argue that fundamental cost reduction will
not return time after time to the top of the corporate priority list.
Competitiveness and often survival is the prize of succeeding, or
the cost of failure. The key challenge therefore must be how to
approach it this time around. What are the most effective Cost
Reduction 2.0 approaches?
Cost Strategies - The Facts
Probably the greatest single barrier to effective cost reduction is
the fact that most organisations don’t know what things really
cost them nor where their costs are really incurring. Cross
charging between departments and overhead allocations along
with the dreaded efficiencies and variances are the curse of
clearly understanding the drivers of cost.
Competitiveness
and often
survival is the
prize of
succeeding
or the cost of
failure
Source: Manufacturship®
NumberofProcessActivities
80
70
60
50
40
30
20
10
0
Transport
Handling
Inspection
Value
Before After
Workplace AVA Results

13
Nothing is Fixed
There is one maxim that must be borne in mind before starting
any cost review. “Everything is a variable cost – it’s just a matter
of time and willingness to change”. The companies’ corporate
headquarters in or near the CBD are not fixed. They could be
sold, leased back, relocated and a cheaper option found. The
transport fleet could be sold and leased back, as could the
compressors and computers. No matter how big the perceived
change, it’s only a question of time and willingness.
Understand your Constraint
Think of your business as a chain of functions that all link
together. These functions all exist to generate revenue for the
business and they consume cost in order to do so, some directly
and some indirectly.
A chain is only as strong as its weakest link.
If you think of the cash flow of the business as equivalent to
the strength of the chain then we can see that in the business
there is one weakest link that controls the amount of cash the
business can generate. Our goal as a business leader is to
increase the strength of the overall chain (cash flow), not to
increase the strength of each individual link (efficiency) and
deliver customer value (effectiveness).
Now each link in the chain consumes cash as it fulfils its function
or purpose of supporting the business and producing and output
that will satisfy the customer (an outcome).
What is critical here is that we understand that spending money
on a part of the chain that is not the weakest link is like spending
money to strengthen an individual (efficiency) link in the chain.
The link itself will be stronger, however the strength of the
overall chain (cash flow) will not be improved. Therefore we have
not made any more money as a result of our spend. Why then
did we do it?
Think of your
business as
a chain of
functions that all
link together

14
Reducing the spend on sections of the chain that are not the
weakest link is an excellent and rapid way for fundamental
cost reductions that can occur quickly with no loss to customer
service.
Conversely, reducing the spend on the function that is the
weakest link may actually compound the problem by slowing the
delivery of products or services and actually reducing the cash
flow of the enterprise, even if the cost accounting measures say
that cost per unit has improved or the ‘labour recovery rate’ or
EBITDA are ‘positive’.
We need to understand how cost impacts cash flow.
Understand the Nature of Each Cost
Some costs such as traditional variable costs of raw materials
will increase or decrease in a linear fashion to sales. For example
a 1% increase in volume relates to a 1% increase in the raw
material spend. Others will grow in a stepped fashion such as
ICT infrastructure where costs remain unchanged until capacity
is exhausted and then a step-change in costs are required to
allow capacity to increase further. Other costs are unaltered
in respect to changes in volumes, facilities and building rates
charges for example. They are not fixed by our definition, but
they do not vary with volume.
One of the most common errors in cost analysis is allocating
costs across each product and then believing that if the product
goes (discontinued or outsourced) that the costs automatically
follow. We outsource the product, fail to eliminate the overhead
costs that have been erroneously allocated to it and believe that
we have saved money.
The result of this is that the remaining products have an
increased allocation of costs making their profitability
increasingly reduced and then repeat the cycle.
We need to
understand how
cost impacts
cash flow

15
Related to this defect in analysis is the second problem of
cost analysis whereby the cost allocation and behaviour of the
product costing does not match the cash flow behaviour that
occurs when a product is sold.
Make versus Buy decisions need to be analysed for the integrated
cash flow impact of the scenarios and not by the standard cost
accounting analysis.
Create a Simulator to Test Decisions
If you understand the actual costs and the nature of those costs
then you can simulate the impact of any decision you want to
make. What if I did outsource that process, operation, part,
or function? The impact on direct costs is usually quite easy
to quantify. The impact on other areas must also be analysed
or you could actually increase the cash consumption of the
business without realising it.
Likewise, sensitivity analysis can be performed quite easily. What
are the financial impacts of increasing or decreasing lead time
and inventory? What if our assumption about the new suppliers
performance is overstated or re-sourcing to ‘cheaper’ supplied
input is really cheaper in the total cost of client ownership or
our warranty cost impacts? We can then not only make more
informed decisions, but can build stronger implementation
plans to manage and mitigate the risks to achieving the financial
performance improvements that are our goal.
Target Costing – Not Just for Cars
Toyota is credited with inventing the target costing approach in 1959.
Toyota calculates the lifetime target profit for a product, such as
the Camry, by multiplying the target sales volume by the model’s
return on sales. Toyota then sets the return on sales target with
reference to the corporation’s long term profit goal.

16
Estimated costs are determined from the historic cost tables,
giving an estimated profit figure. The target profit will be higher
than the estimated profit, because the target cost includes
estimated savings due to value analysis and engineering and
other cost reduction activities.
Can a 50 year old approach still have a use in this more volatile
and faster changing world post the GFC? Yes!
The difference is the target cost reduction. As cost reduction
activities are implemented, the products estimated cost
decreases, and the target cost and expected cost becomes
equal, as does the expected and target profit.
In Australia the current price of a Holden Commodore is less
as a multiple of average weekly wages than the original 1948
Holden, yet look at the undeniably superior product performance
and technology.
Recent Toyota and other car makes and models have more
value and features than ever before. They are also cheaper in
real terms as the ‘sticker price’ is the same as it was launched
15 years ago (the 2013 Nissan Pulsar and Toyota Camry are
but two examples). That said, Toyota ex-President’s decreed
it will be ‘simple, slim, and speedy’ and embarked upon Cost
Competitiveness for the 21st Century (CC21C) for two goals
of 50% market share increase and 50% cost downs. These
were both achieved almost at the same time their infamous
recalls occurred. What this highlights is the importance of
not compromising on quality or safety in the process of a
Fundamental Cost Reduction initiative.
What’s most surprising is that even today target costing is
rarely used outside of the automotive sector. The reason why
target costing is a powerful approach for linking corporate cost
reduction targets to all business functions because it is Top-
Down rather than Bottom-Up driven. It aligns cost targets
Can a 50 year old
approach still
have a use in this
more volatile and
faster changing
world post
the GFC?

17
to the products and services the company delivers into the
marketplace. Top-Down targets then move away from being
‘10% of everyone’s budget’ to being ‘10% increase in the gross
margin of product X’. This approach cuts right across the entire
business process and supply chain. It simultaneously gives an
organisation competitive advantage from cost reduction and a
clearer strategy to ‘sell’ to the organisation and its suppliers as
a whole.
Strategies for Speed
Whilst depth and understanding are desirable, so often firms
find themselves in a situation where cost reductions must be
fast. What are the quick wins that can be taken?
While there are numerous areas for Quick Win identification the
following three examples are common to all companies and in
many instances have yet to be fully pursued:
Activities: From Analysis to Eradication
We have already discussed the insight that activity value analysis
can provide in identifying tasks, which consume vast amounts of
time, yet do not add value. Once you’ve identified them, why not
stop them straight away? Materials double handling is a good
example. How many forklifts could you de-hire if you only moved
the product once between each stage?
Multiple points of checking, manager ‘approval’ and verification
are another activity whose true value needs to be assessed.
Cash, Not Just Cost
Ask the MD or owner of any small firm what number is closest
to his or her heart and they will tell you the amount of cash in the
bank. Ask a business unit head at a major corporation and they
will tell you the year-to-date profit versus forecast figures from
the management accounts. What corporations have forgotten
is that cash is King, not cost. Most companies are making an
How many
forklifts could
you de-hire if
you only moved
the product
once between
each stage?

18
accounting profit when the receivers come through the door. They
have however run out of cash to keep going. This can be addressed
quickly. Inventory reduction improves cash management and
can be done whilst simultaneously improving customer service.
A ‘rule of thumb’ here is that if you are NOT doing at least 25
inventory turns from your work in work in progress (WIP) to
finished goods you probably have some opportunities.
Stop producing to achieve an ‘efficiency’ number, or to generate
‘recoveries’. Only produce when you can turn the stock back into
cash by delivering and invoicing a customer. This one change in
philosophy has massive positive impacts on both cost and income.
Volume and Volatility
One of the simplest strategies is to identify the drivers of
volume and volatility in each process and then reduce both.
Take a scheduling and operations planning team. A key driver
of cost is the amount of queries and schedule changes that they
must make to compensate for poor delivery performance and
poor forecast accuracy. Do the analysis of what drives volume
and volatility. Reduce the variations that drive poor cash flow.
Implement a strategy of replenishment instead of make to stock
where sensible.
Addressing the cash tied up in stock is often most effective in
overhead cost areas. Simply list all of the ‘services’ provided
and say ‘What could be stopped, deferred, reduced in quality
(subject to value analysis), quantity (simplification), amount
(standardisation), frequency, or substituted altogether?”
Option for Cost Reduction in an Overhead Function
Addressing the
volume lever
is often most
effective in
overhead cost
areas
End products
or Services
Eliminate Defer Reduce
Quality
Reduce
Amount
Reduce
Frequency
Substitute
Reports
Forms
Analysis
Advice
Decisions

19
You may be surprised how quickly 20%-30% of total time can be
reduced. Just as startling can be the savings made by reducing
the volatility of work.
Why not just say“We all have to feel the pain - a 15% cut for all”?
Thankfully this cost reduction edict doesn’t happen nowadays
and is a relic of course from previous decades - or is it?
In a recent case, a new executive and team was brought into
a finance firm. They brought in their preferred and different
consultants from the out-going team. As would be expected,
after interviewing, measuring and benchmarking the new
consultants recommended 15% staffing cuts to improve
productivity. Something missed was that the Productivity, Lean,
Process Excellence and later Six Sigma™ teams had already
undertaken great analysis and changes. When presented with
this recommendation these teams quite rightly wondered
where 15% was to be harvested without damaging new
product development, sectoral growth, differentiation, people
capability and capacities to expand the business nationally and
internationally. The consultant’s report was parked, it provided
no ‘implementation plan’ as that was not in their ‘remit’ and it
was left up to the organisation to implement.
Or take the ever difficult relationship between the ‘Sales’
function and the ‘Delivery’ function. Sales managers working to
monthly targets are notorious for sending in 80% of the months’
Target - 15% Cost Downs
Distribution
ICT
Sales
Manufacturing
Finance
Sales managers
working to
monthly targets
are notorious for
sending in 80%
of the months’
orders in the last
two days of the
month

20
orders in the last two days of the month. This is often because
they have been hanging onto customer orders to see if they can
get higher prices elsewhere. Suddenly the delivery function that
has been sitting idle for the last 20 days is in absolute chaos for
two days to meet all the commitments. What could the staffing
levels have been if the daily demand patter or beat time (TAKT
for Lean folk) had been the same? How much overtime could
have been avoided? How much could stress and overwork
feelings amongst staff have been reduced?
What About Business Process
Re-engineering?
For some they are still ruing the day ‘BPR’ was born. While there
are almost as many methodologies, definitions and experiences
of re-engineering as there have been projects, one common
criticism does seem to pervade. Typical BPR exercises did not
push up into the strategy and market development activities.
This is where significant disconnects can most often be found
which if repaired could drive real fundamental change and
alignment across the enterprise. Did your last cost reduction
team get into the ‘nitty gritty’, real world, day to day thousands of
tasks that are performed and eliminate or plug the duplication,
rework, and errors that were repeated every single day. These
issues were what truly drained the productivity of the business.
It is these two areas that Cost Reduction 2.0 activities are
focused.
Business Re-engineering
The typical BPR project starts by saying “Here’s the supply
chain, lets re-engineer it.” Out comes the classical Lean
Manufacturing tools, cycle time analysis, activity value analysis,
‘8 waste analysis’, error and rework studies. These are all useful
and if done correctly will result in a slicker, faster, and less

21
costly process. But did they achieve sustainable and measurable
results? And was this even what was required in the first place?
We have to begin with what is the effect we are trying to create
and get the strategy right for the organisation structure. We
can then design the process to deliver the strategy to get the
outcome we want.
Henry Ford was asked why he didn’t ask customers what they
wanted. His answer was along the lines of “If I asked them what
they wanted they all would have told me ‘faster horses’”.
Early in the 20th century the Lean approach would have produced
a faster and more efficient system of horse drawn stagecoaches.
But was what was really required was the automobile – a Blue
Ocean strategy!
SONY did not ask its customer if they wanted a Walkman; Apple
similarly didn’t ask its zealot customer if they wanted an iPad;
the CSIRO didn’t ask Microsoft or others if they wanted their Wi-
Fi invention; the Swedes didn’t ask us if we wanted Bluetooth.
Business re-engineering always starts from the strategy (Peter
Drucker of course), rather than a Bottom-Up analysis of what
is broken. It also tends to require a much greater emphasis on
external analysis and learning. What are the truly innovative
approaches to the functions all companies must perform?
Don’t re-engineer your current Sales and Operations Planning
process to be more efficient, start it from scratch with the
customer in mind. One white goods manufacturer in Australia
did exactly this and reduced their finished goods stock by 65%,
cut their lead time by over 80%, and eliminated their customer
back orders simultaneously with freeing up over $20m in cash.
All without investing in software or equipment.
The results and actions of Business Re-engineering tend to be
structural, strategically driven and almost always far reaching.
What are the
truly innovative
approaches to
the functions all
companies must
perform?

22
They therefore tend to be higher risk. But that is what companies
must be able to manage if they are to find the fundamental
savings this time around. Higher risk does not mean that you
have a higher chance of failure. It means that you must have a
more rigorous implementation plan that engages people deeply
in the change process.
Micro Engineering
Possibly the hardest thing for companies to come to terms with
is the reality of where the savings actually come from. In most
organisations the next level of cost savings exist at the heart
of the day-to-day operations. The power of leveraging small
changes at this level is the multiplying effect across and up the
organisation in terms of efficiency, productivity, and ultimately
cost. The philosophy of “Build the Basics Brilliantly” is key to
ensuring that we find 100 things we can do 1% better and we
execute them in the new manner every time, all of the time.
The basis for the whole micro-engineering approach is an
absolute understanding of how front line staff actually spend
their time. This means quantifying their “Day in the Life Of”
(DILO). However analysing a series of typical working days to
assess and quantify these issues is only the first step towards
making costs savings. The study will indicate many causes
of lost time, which need to be prioritised. The use of a Pareto
chart by frequency, duration or cost impact provides a focus for
establishing root cause and irreversible corrective action plans.
In an insurance firm, they completed many DILO studies and
found that they were some 65% effective. Once discussed, the
management and staff realised they really did need the staff
to move across to the new divisions and product and services
offerings, without retrenchments.
The philosophy
of “Build
the Basics
Brilliantly” is
key to ensuring
that we find 100
things we can
do 1% better

23
The key to unlocking root causes and solutions, as well as
ensuring the sustainability of implementation is the active
involvement of the people who experience the problems on
a daily basis as they can assist in truly defining the problem.
This is called ‘go to GEMBA’ for lean folk. For example, a major
manufacturer needed to increase the productivity of a large
production facility that required 40 people to staff the system.
Applying this technique to the system highlighted unknown
causes of “micro-downtime” that caused 30% of the downtime
of the system. The fix was very low cost to implement and the
resultant improvement in productivity occurred overnight as line
speed increased by 17%.
Continued repetition of the improvement process resulted in the
area moving from a 6 day operating week to a 9 day operating
fortnight with reductions in overtime and maintenance staffing
required. Production rates exceeded all previous records by
large amounts and exceeded the rated capacity of the original
machine manufacturers specifications. Quality Right 1st Time
and Safety also improved, which along with other Metrics can be
displayed on Visual Management System Boards and Electronic
Dashboards.
The micro-engineering methodology concept is in one sense so
simple it is almost not worth mentioning. Yet so few organisations
seem to do it, and perhaps the fact it seems almost too simple
to do is the reason why. This is because micro-engineering
relies on the one capability which almost all businesses have
struggled with: Implementation.
So much time and energy is spent on reviews, focus groups, and
design workshops. Yet 70% of these recommendations do not
turn into reality because quite simply, they are not implemented.
Jack Welch ex-GE President said “Success depends on
excellence in execution, not on articulation”. The “What Really
Works” authors from Harvard on the then most successful

24
companies, confirmed implementation as one of the four ‘must
have strategies’.
The ‘4+2’ must have Management Strategies that really
produce the results for the top 40 Companies over the last
10 years are:
4 - Strategy, Execution, Culture and Structure
2 - of either Talent, Leadership, Innovation
and/or Mergers and Partnerships
“What Really Works” - Nohira, Joyce and Roberson,
July 2003
Too often
companies
become caught-
up in price as
the determining
criteria
The Spend Lever
Getting the Strategy Clear
Many organisations suffer from having a philosophy for
Purchasing rather than philosophies within Purchasing. Too
often companies become caught-up in the 3P’s of Purchasing
being Price, Price and Price, as the determining criteria for their
decisions. This has caused many examples where the total cost
to the company exceeds the savings that were initially hoped for
by the immediate price reduction. But at least the Purchasing
manager achieved the Board’s assigned KPIs!
Likewise some companies are caught up in the ‘partnership’
bandwagon with key suppliers but do not extract the true value
for both parties within that relationship. When the pressure to
reduce cost steps up, years of partnership development and
alliancing are re-evaluated and the ‘trusted partnership’ is
found to only have existed in name only as there has been no
agreed measurement system in place to evaluate the benefit to
both of the partners.
Purchasing strategy is another area where there needs to be

25
a horses for courses approach. The approach you take with
suppliers will be different depending on where they fit on the
supplier positioning matrix, shown below. The intersection
between the value of your spend and how critical what they
supply is to your business tells you where best to situate them.
What is clear is that while different companies will have different
configurations, not everything purchased should be lowest
price, and not every business should be a partner.
Supplier Positioning Matrix
BusinessCriticality
Partnership
Crucial Raw Materials
Major Capital Items
Technological Sources
Specialist Expertise
High
Low
Low High
Reliability
Spare Parts
Software
Standardise
and Ignore
Stationery
Operating Supplies
Couriers
Lowest Price
Car Hire
PCs
Phones
Value of Spend
Supplier Innovation and Involvement
Keeping close to innovation in supply markets will almost always
pay dividends. New entrants to the supply markets tend to
succeed by bringing innovations that can leave existing players
standing. Take two examples as illustration:
Core or Support Services
In order to comply with a company ISO Quality System
certification, calibrations checks and records had to be
established, maintained, and monitored for literally hundreds of
individual devices. In one Australian company, a maintenance
group that was already faced with budget cutbacks and

26
headcount reductions had this as an additional new role. The
new task was proving impossible to add to the existing workload.
A new service provider who specialised in this field was able to
establish the system, manage the record keeping and notify of
any issues for a fee. A number of issues were found with the
devices that were the root cause of perennial quality issues the
plant experienced so there was an immediate win. The removal
of this workload from the maintenance group allowed them to
focus on their core role and utilise their core expertise to lift
uptime to record levels and reduce their budgets to more than
pay for the specialist service provider. The factory operator’s
title was changed to “Operator Maintainers” and they performed
basic housekeeping, 5S and problem identification duties along
with their operational tasks.
Maintenance were given more specific improvement,
breakdown, and repair tasks. They were able to undertake
additional upgrades and develop new technical skills that they
did not have time for previously. This displaced expensive and
unreliable contractors and resulted in improved performance
and further reductions in the maintenance spend.
Major Capital Projects
A multi-national company was looking to make a once in twenty-
year investment in a new product line. The internal expertise
remaining in the business was very good at the maintenance
and incremental improvement of the existing processes but
was not across the latest world-class developments. There was
a desire to use the new product line to upgrade the expertise
across the whole of the manufacturing business process.
Rather than maintain development in-house the project was
outsourced to a consortium of experts in their fields who had
turnkey responsibility for the business system that was being
purchased rather than just individual parts. The customer had a
project management team to interface with the consortium. This
This approach
resulted in
project delivery
of a A$250m
world class
facility

27
approach resulted in an on time, on budget, on quality project
delivery of a more than A$250m world class facility which now
is the in-built sourced component for a family of larger systems
and modules worldwide.
Outsourcing or Insourcing?
Outsourcing in this context is primarily driven by the imperative
to reduce operating costs. A recent survey by a global accounting
firm found that 62% of respondents cited the need to reduce
operating costs as very important in their decision to outsource
and an additional 25% referred to it as important.
Savings not meeting expectations was the result in 22% of the
respondents. So with that kind of failure rate, is there another way?
GE’s President Immelt recently made a startling assertion.
Writing in Harvard Business Review in March 2012, he declared
that outsourcing is“quickly becoming mostly outdated as a
business model for GE Appliances.” Just four years after he
tried to sell Appliance Park, believing it to be a relic of an era GE
had transcended, he is now spending some $800 million to bring
the place back to life. “I don’t do that because I run a charity,”
he said at a public event in September. “I do that because I think
we can do it here and make more money.” The December 2012
The Article USA magazine story summarised as this “In fact,
insourcing solves a whole bundle of problems—it simplifies
transportation; it gives people confidence in the competitive
security of their ideas; it lets companies manage costs with real
transparency and close to home; it means a company can be as
nimble as it wants to be, because the Pacific Ocean isn’t standing
in the way of getting the right product to the right customer”.
Source: Atlantic Magazine (December 2012)

28
The Role of People
It is a generally accepted view despite the corporate mission
statements and value that enshrine a variation of ‘People Are
Our Most Important Asset’ a lot of people did not fare well
during the GFC and the following cost reduction crisis. Many lost
jobs and the ones that remained were left to muddle their way
through the tasks and duplication of the unimproved process
but with less hands and brains to try and sort it all out.
Superficially we removed the cost. What we failed to do was
remove what were the process defects that caused the cost to
be there in the first place.
Oh No, Not Again!
Overcoming the cynicism is one of the greatest challenges in
launching cost focused change programs. Why should people
engage with a challenge when they suspect that the price of
success will be that they, or their peers, will lose their job?
Asking people for their improvement ideas in CI, BPR, Lean,
Six Sigma and/or Business Process-Agility programs without
guaranteeing continued employment for at least 12 months at
a minimum, will be received ‘not with a bang, but a whimper’
(Adapted from J Alfred Prufock).
The key to this is three fold.
1. We need to run the cost reduction project exceptionally well.
Poorly defined, poorly executed, and poorly communicated
projects fail. It’s that simple. If past projects were not
executed well, why is this one expected to be ‘different’?
2. We have to link the cost reduction project in people’s minds
to becoming more competitive in the market place and
Overcoming the
cynicism is one
of the greatest
challenges in
launching cost
focused change
programs

29
that this links to their job security in a positive way. The
overdone “improve rapidly or we sack all of you” message
that people hear (no matter how you express it, they will
hear this message) does not inspire effort, collaboration or
cooperation, quite the reverse. Yet it is still being used in the
executive armoury.
3. We need to link the cost reduction project to definite wins
for employees in their day-to-day working life. Eliminating
causes of rework not only will reduce cost but make the
employee’s life easier. Oddly enough they hate rework more
than we as executives do! Hopefully, like those automotive
companies and as their Tiered Suppliers know, cost
reduction projects are embedded and are programs which
are continually measured.
All of the above must be logical to the employees. The logic
forms a basis to the communication, which leads to acceptance,
and commitment.
Let the People Decide
A common and over-worked phrase is ‘people don’t resist
change, they resist being changed’ and that the ‘Change Agenda’
corporate speak is what management does to people not with
people. But who best can assist organisations in seeking where
they can make their processes and activities more agile other
than the people where the work actually happens. Yet as Charles
Handy found of all the change issues that cause the greatest
impact and stress for the individual, ‘Restructuring’ is at the top
of people’s minds.
People don’t
resist change,
they resist
being changed

30
Organisation re-structuring
New core technology
Job role change
98%
64%
58%
% of Respondents
Process change 42%
Cultural Change 35%
Other 23%
Implementation is for Everyone
With all methodologies, approaches, strategies, and tactics
discussed in this Briefing, there is still one immovable fact
that remains. All that really matters is implementation as we
showed, and implementation is all about people. Changing the
way they conduct their daily operations is what results in cost
reductions. Strategy documents and PowerPoint slides do not.
Even today, we hear of Human Resource departments well
intentioned in commissioning external survey companies to
design and conduct Cultural Surveys. Amazingly, the timing is
that they are usually after a recent re-structuring, retrenchment
or re-engineering cost down intervention. Dilbert cartoons
abound with pointed commentary about this concept but still
managers default to such interventions in isolation from the
employees instead of working with their people about how to
achieve the improvements that are required.
Current political and industrial landscape discussions are about
the Industrial Relations Legislation and the level of perceived
All that really
matters is
implementation

31
‘flexibility’ it frames. But how is this flexibility viewed and by
whom? A review of Job Descriptions in your organisations HR
Systems usually describe most of the duties in bullet point form
and the generic ‘perform additional duties as required’ is where
the real daily job functions end up residing.
For cost reduction process analysis and improvement duties,
these Job Descriptions should state them clearly and provide
links to documented Procedures and references that the
employee can access. HR can then source appropriate training
and skill development and management provide the facilities to
support the people perform. Subsequent performance reviews
can be more mutual in Enterprise Agreement discussions (not
Enterprise Bargaining Agreements) as Drs Juran and Deming
showed, >80% of an organisations issues are derived by the
Systems management implemented and at best, 20% in the
hands of the people. The ‘Doctors’ thought it was more like 95:5
and not Juran’s Pareto Rule.
Leverage
Discomfort
Organisational
Performance
Performance Measures
Organisation Design
Job Design
Process Design
Hard to do
(invisible)
Easy to do
(visible)
Change
Culture
Change
Behaviour
Change Structure
Change Roles
Change Tasks
Most organisations in business today have very little apparent
opportunity in the ‘easy to do’ areas. This is where Cost Reduction
1.0 focused. The reality is that the next level of sustainable
cost reduction will come from actually making the things that

32
people routinely do happen differently. In other words, changing
behaviour. The hard truth is that unless behaviour changes
nothing changes.
The good news however is that when sustainable behavioural
change is made in an organisation the company finds itself
achieving cultural change also. Peter Drucker reminds us
‘Culture eats Strategy for Breakfast’. Perhaps the most
important message from the change pyramid is that cultural
change is actually the consequence, not the goal, of all well-
executed improvement projects.
So What Now?
If fundamental cost reduction is a business imperative for your
company there are two over-riding principles which should
guide your path forward. In some ways these are different for
those leading and others managing.
The first is that cost optimisation should be a routine process
within the firm, not a one-off event. And to achieve this costs
must be understood if they are to be effectively removed. This
requires a mix of Top-Down and Bottom-Up approaches.
Cost
Reduction
Opportunity
Cost
Reduction
Opportunity
40%
15%
Top-Down Approach
“...take 15% out of the inventory...”
Bottom-Up Approach
“...40% non value added in the process...”
Top-Down and Bottom-Up approaches complement each other.
The hard truth
is that unless
behaviour
changes nothing
changes

33
A Cost Review and a Strategy is the foundation stone. You need
to determine three things. First, what you can Keep doing, about
80% of that is what has made you successful to date. Second,
Change processes and activities as we described for 15%. Finally
if a step-change is feasible and the business case stacks-up,
Create new products, services, systems, supply chains, markets
etc. for about 5% opportunity for cost leadership.
About 5%
Innovative step-change
In performance required
Usually 80%
Because you
survived till now
Keep Change
Create
About 15%
Innovative
step-change in
performance
required
Then once the strategy and deployment plans are clear focus
all efforts, energies, and resources on implementation. For it
is only by implementation that the savings will be realised. But
fully utilise quick and hopefully visible wins in order to create
the confidence to implement. A Visual Management System or
Dashboard of metrics and continual improvement gains each
by each executive with people engagement is crucial.
T Knoster (Enterprise Group, Ltd.) produced a now infamous
schematic in 1991. This is useful in seeing the ‘chain’ we
referred to from another perspective.
Any missing link in any aspect for your change or cost
reduction strategy, has a specific and negative downstream
outcome.
Focus all efforts,
energies, and
resources on
implementation

34
Action PlanResourcesIncentivesSkillsConsensusVision
Change
Confusion
Sabotage
Anxiety
Resistance
Frustration
Treadmill
As Gleicher, Becker and Harris developed a formula, “D x V x
F > R” where if there is Dissatisfaction, Vision, or First Steps
are low then the combined impact will not be large enough to
overcome Resistance to the change.
We hope the following pointers in “The Executive Agenda” –
which sets out the key lessons learnt from many companies
in these two areas – will help you achieve step-change and
sustainable cost savings.
See following pages >

36
Do you have an existing, documented, and communicated
strategic plan?
Do you collect data regarding your Strengths, Weaknesses,
Opportunities and Threats (SWOT) before the strategic
planning process?
Does that SWOT analysis include an assessment of past
strategy success?
Do you have a Financial Driven culture or is the firm’s
strategy driving the business?
Do you have an existing, documented, and on-going
strategy for improving the cost base?
Is there a well-defined and consistently understood process
for optimising cost?
Is this process routinely used across the whole
organisation?
Is the relationship between individual costs and service
delivery understood and used to focus cost reduction
activities?
Can Corporate cost objectives be broken down to focus on
key drivers of cash flow and cash bleed?
Is it transparent to the company where all costs are
incurred and how these costs contribute to the provision of
services to customers?
Is any external cost evaluation conducted?
Have key activities conducted by the organisation ever been
The Executive Agenda for
Total Cost Reductions
Cost Review and Strategy (Check )

37
challenged to see if they are actually needed?
Does cost targeting include a robust ‘Bottom-Up’ element
to routinely make multiple small cost improvements?
Have you a supply chain engagement strategy that
encourages suppliers’ participation and contribution to your
costs down?
Is your Supply Quality Assurance systems focused on
Prices then Delivery then Quality; or is it Quality, then Cost,
then Delivery priority?
Is your firm’s differentiation strategy balanced between
Best Products, Lowest Cost and Customer Intimacy?
Is your industrial relations and employee agreement
framework based upon mutual recognition of each parties
responsibilities to affect performance?
Are your organisation metrics consistent and standardised
from the Strategic Plan, Department or Business Unit
Operational Plan, Team Action and Project Action Plans?
Do such planning hierarchy documents have common
metrics and clarity of meaning within the Performance
Management and Management Systems?
For HR, are those plans and metrics aligned to the
Performance Appraisal Systems and Recognition and
Rewards?

38
Is it a common occurrence in your organisation to analyse,
conclude, make decisions, and action within a 4-week period?
Do you have clarity of all your value-adding and support
processes and assigned managers or process owners?
Do you know the actual activities performed by any
department?
Does the firm have a clear grasp on how many people
duplicate each other’s work, like scheduling, reporting,
checking, and so on?
Has your firm ever formally stopped an activity, which used
to be performed from being conducted into the future?
Have you conducted a basic new product development costs
and administrative support cost analysis?
Have you conducted and throughput based analysis for
current products and services for the impact they have on
product profitability?
Do you know how much unallocated cash is sitting on the
balance sheet?
Does a report on cash levers exist within the organisation?
Does it cover stock, WIP, late payments, unprofitable early
settlement discounts, unnecessary loan usage, credit notes
claimed back late, debit balances on supplier accounts and
duplicate payments?
Do monthly reports look at volume drivers as well as cost
and service measures?
Is smoothing demand an objective of any function that
generates the workload for another?
Quick Wins (Check )

39
Have you revisited your Outsourcing Strategy and is it time
to Insource given exchange and interest rates?
Have you set-up a mutually profitable technology
partnership?
Have you conducted a review of new technologies, products,
services and other inputs that such new developments can
complement your products and services range?
Do you have each Department clear about what their
Outputs are and that they are meeting the requirements for
their downstream customers (internally and externally)?
Have you reviewed your products and determined the
proliferation level?
Have you a standardisation of parts, components, modules
and systems?
Are your internal process performance metrics directly
linked to what you key customers’ metrics or KPIs are or
expect compliance against?
Have you conducted a post Business Case Review to
ascertain the benefits realised or not form a major Capital
Expense or ICT implementation?
Is there a CAPEX review, have you documented the lessons
learned to embed such within your CAPEX and then OPEX
Review Policies, Processes and Procedures?

40
Is there an agreed implementation model for the business?
Is this a step-change or continual improvement that needs
implementing within and overall continuous improvement
plan?
Should line management lead and manage implementation
or just lead it?
Have you conducted a review of past implementation
successes and failures to point to what will be changed for
this cost reduction strategy to be successful?
Is there a cost down sharing scheme with your tiered
suppliers?
Is the Cost Reduction strategy an organisational change or
a systems change?
Have I made contingency for people leaving during
implementation?
For mitigating such risks, have you embarked upon a
Knowledge Capturing and Management program to capture
the implicit and explicit knowledge?
Does the line organisation have enough resources to
implement without support teams?
Do I have a review and measurement process to assess the
degree and effectiveness of implementation?
Implementation Success (Check )

41
Do I have an agreed, owned, and understood
implementation process?
Is there executive congruence about the drivers and
restrainers to achieving the cost down and growth goals
along with ranked actions and responsibilities assigned for
ownership?
Has the Strategic Plan been revisited for clarity of
communication and involvement of people and the costs
downs and process improvements they made to the
strategy?
Has the Implementation been visual for all to see and
review - daily if possible but at least monthly?
Have you audited the implementation of your costs down
and assessed the real risks downstream to your customers
and other stakeholders?
Finally, given the corporate governance issues and
stock exchange ‘forward-looking statements’ reporting
requirements, will the cost reductions adversely affect
shareholders now and in the future?

42
About Manufacturship®
Manufacturship®
is a highly experienced and diverse team with
over 60 years of experience in helping companies achieve their
ambitions worldwide.
At the heart of the Manufacturship®
curriculum is a focus on
delivering long-term sustainable breakthrough improvements to
an organisation’s key stakeholders with a rapid implementation
of the system changes required to generate improvement
speedily.
Manufacturship®
team members work alongside their clients
senior teams as mentors, trainers, and implementers to help
them set directions, analyse their current performance, identify
the gaps, and then align the group to design their own solution
to the unique situation they are in to achieve rapid gap closure.
Client Contextualisation is core to what we do and is critical
to acceptance and a legacy for our client driven organisation
development interventions.
Designing new strategies, processes or organisations is not
where it stops. At Manufacturship®
we see that as the beginning.
Implementing those interventions and designs so that they
generate cash flow rapidly and become embedded as the new
ways of doing ‘business as usual’ is what really matters. Helping
companies do that is what we see as our greatest strength.
Fundamental cost reduction can be one of the most challenging
periods in a company’s evolution and the lessons learned must
be recognised as sure as corporate life is, it will be continually
revisited. This is why it must be directed by the firm’s own
leaders. That is why our vision is to support, train, and enable
companies through their own self-managed change efforts.

43
Jason Furness
CEO & Founder
Jason’s career spans over 20 years in manufacturing enterprises where he has
overseen the turnaround, transition or transformation of many projects from
single production lines through to entire business units of over 600 people as a
General Manager.
As CEO, Jason oversees the development and delivery of the core Manufacturship®
curriculum, leads the mentoring of business owners and managers through the
core Manufacturship®
process, and sponsors all Manufacturship®
client projects.
Several of these have been part of the implementation of Actions Plans from
Enterprise Connect Business Reviews.
Michael McLean
Chief Performance Officer
Mike is a thought leader in transformance – the alignment of strategic, tactical
and operational plans to unlock transformational performance at every level of
an organisation. His passion is to help organisations achieve the holy grail of both
stakeholder satisfaction and the highest possible levels of return on investment.
As Chief Performance Officer, Mike solves business problems that constrain
achievement of organisation strategy, team goals and objectives to lay the
foundation for transformational leadership, productive workplaces and systems
to embed strategic change.
Nathanael Small
Chief Revenue Officer
Nathanael is a market development architect – a thought leader in the art of and
science of integrating marketing communications and business development for
individuals and organisations.
As Chief Revenue Officer, Nathanael oversees all marketing sustainability projects
to create a platform for sustainable, high profit sales & marketing performance.
Who We Are

44
Phone:
Fax:
Email:
Address:
®
1300 226 121 (toll free within Australia)
or +61 4 8833 7666 (Outside Australia)
+61 2 5301 6170
jason@manufacturship.com
PO Box 2137, Green Hills NSW 2323
Acknowledgements
We wish to acknowledge Michael McLean for the basis of this document which
comes from some excellent work performed by Bywater McLean in the early
90s. We were inspired when reviewing the material how the fundamental issues
had changed little over the last 20 years, despite the environment we work in
undergoing massive change. We produced this series of briefings to update,
enhance and localise the ideas to a uniquely Australian context in the 21st century.
References
[1] ABS 8155 June 2011
[2] Gina Rhinehart recorded speech for the Sydney Mining Council October 2012
[3] Once the Worlds Factory, China’s Textile Industry Increasingly Out of Favour.
Epoch Times September 1, 2012 by Gao Zitan
[4] China labour costs like US ‘within years’ News.com.au July 29, 2012
Copyright Copy this the right way
You have permission to post this, email this, print this and pass it along for free to
anyone you like, as long as you make no changes or edits the contents or digital
format. Please pass it along and make as many copies as you like. We reserve the
right to bind it and sell it as a real book.
Disclaimer We care but you are responsible
Please be sure to take specialist advice before taking on any of the ideas. This book
is general in nature and not meant to replace any specific advice. Manufacturship®
and employees of said company disclaim all and any liability to any persons
whatsoever in respect of anything done by any person in reliance, whether in whole
or in part, on this e-book.
For more information on Manufacturship®
services contact:
Jason Furness, Michael McLean or Nathanael Small.

46
The challenges of manufacturing continue to change
dramatically and seemingly faster and faster. Food, mining,
metals, automotive, defence or construction, each sector faces
critical challenges to survive, grow and thrive into the future.
As a manufacturing leader, you need to be able to align people to
rapidly serve customers in a truly commercially profitable way.
Positively impacting customers and creating a lasting system
requires that you and the team can clearly identify and act upon
the key issues amongst all of the noise and distraction.
®
Transforming Manufacturing
www.manufacturship.com

Fundamental Cost Reduction - Manufacturship

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