Is there an alternative to classic cost reduction?

Once again optimising working capital, cost and pricing are back on the agenda. These are core drivers of shareholder value, especially when revenues and margins may be under pressure….

For many, cash has always been a priority. However, with access to debt and equity markets increasingly tough, cash is receiving additional attention.? Irrespective of the financial health or trading outlook of the company, the benefits of prudent cash management and cost reduction are obvious. Many CFOs and corporate treasurers know how to manage their cash.? Most will consider squeezing working capital, optimising tax policies or liaising with lenders to increase the flexibility of their financing arrangements, but a focus on pricing and the total value chain can get overlooked. In-house experience is often limited and not able to put pressure on all of these levers at once. Unstable markets make traditional methodologies harder to apply. The knock-on consequences can be significant if not recognised at the beginning.? This means that money is literally left on the table.

Some pointers, that from experience are key to preventing this from happening:

• Total Value Chain - Is the true business "Cost to Serve" understood?
• Are Fixed, Variable and Semi-Variable costs analysed as to how they will behave when faced with a decreasing revenue scenario?
• Does a 13 week cashflow forecast exist and is it linked to the S&OP process and revenue changes.
• Is the budgeting and forecasting process robust and frequently updated.
• If inventory or even WIP is held, is it managed as part of the improvement plan. Remember, demand variability drives inventory!
• Can digital twining or an IT refresh help with the analytics. Many companies have defined their apps to manage a steady state and not map their API stack to give maximum flexibility.

An Initiative that underdelivers should be identified ASAP and course corrected.