Cost savings - a 20% reduction is achievable

What does work, and when?
In an organisation with excess fat the 'ax wielding' method ("terminate all temporary contracts") and the 'salami-slicing' method ("all department budget will be cut with 10%") can result in good and structural cost savings. Needless overhead costs will be tackled effectively. Throughout the last few years many companies have applied these methods. When excessive fat has been burned, 'ax wielding' and 'salami-slicing' turn out to be no longer effective and, even worse, are leading to large, unwelcome side effects. An example: a further reduction of 10% in labour cost within the sales department can result in a reduction of revenue with 25%, leading to further pressure on margins. This is the right moment to shift focus to operational efficiency: more results at lower costs.

Operational efficiency
During the exercise of improving operational efficiency the focus is on integration of business processes and on elimination on non-added value activities. See also the V I S MOCS operational management page. Below you will find two examples of improvement of operational efficiency, to get a feel for the results achieved at other companies. If you'd to meet us to discuss potential improvements for your company, please contact us by e-mail.

Example 1: Shared Service Center.
Companies expect to reduce the operational costs for their admin organisation by centralisation of backoffice activities like order processing and billing into a Shared Services Centre. However, by moving all admin staff into one central location costs (e.g. travel & telephone expenses) will increase, whereas performance most likely will deteriorate due to the larger distances betwwen operational and admin staff. The solution is to improve integration of business processes and to improve structure of information management & communication. For example: By improvement of the percentage of purchase orders with correct information like e.g. article numbers, quantities, delivery dates, et ceteras the cost of processing supplier invoices can be reduced significantly. No longer endless investigations into products that have been purchased (or not...?), no more supplier that refuse to continue deliveries because of the large percentage returned goods or because of not being paid in time. Other very positive effects of an accurate and efficient purchase process are reduced purchase coast & stocks, and a higher level of customer satisfaction due to improved product availability.

Example 2: Never ending projects.
Usually project are started with full energy and excellent intentions. During the starting phase results are normally very good and are achieved very easily, and consumption of money & time is in line with budgets. Further down the road the efficiency of the project starts to deteriorate. The focus is distracted as core project team members are pulled back by the operational organisation.'Project fatique' starts to develop, resulting in a dramatic reduction of momentum. Project activities are no longer followed up and/or completed. These riscs can be minimised by implementation of project controls and by focussing on quality, timely delivery & closure of project activities. This will reduce the possibilities to spent time and energy on useless or superseded activities. Adequate project controls can reduce the total cost and duration of project with over 20%, and ensure that a higher percentage of project objectives is met.