Who Holds The Key To Successful Cost Savings?
Anders Liu-Lindberg
Leading advisor to senior Finance and FP&A leaders on creating impact through business partnering | Interim | VP Finance | Business Finance
All companies keep their eyes on the cost development and in general try to minimize their cost base. Some do it via projects looking into specific areas whereas others who have to cut down on costs every year need to have it as an ingrained mindset. Typically it’s the Operations department that is responsible for maximizing the savings as they manage the capacity available and optimize the operational setup in general. However, the key to doing successful continuous cost savings is not Operations, but rather Sales as they hold the responsibility for filling up the capacity Operations put at their disposal.
Your Operations team will do whatever you ask of them
As a Sales person out selling the company’s products, you are selling the company’s ability to deliver the product on time and at the agreed quality. You are dependent on the backbone and infrastructure of the company typically provided by Operations. In order to sell the product, you might even over-promise what your company can do for a certain customer knowing that surely Operations can find a solution post mortem. Most often that is also the case as your Operations team can do whatever you ask of them however it comes at a price. If you have sold the customer something that requires excess capacity or a different form of delivery such as transporting by truck instead of rail it all costs money. As a Salesperson, you might operate with a standard cost in mind when selling the products however it’s very important to remember that standard costs are only valid for standard products. Every time you sell something more than standard the price also needs to be premium.
Only at full capacity can beggars be choosers
At least this would seem logical, however, to begin with it’s even more important to fill up the capacity Operations is providing based on the company’s planning process. In industries where capacity is not overly flexible, this becomes very crucial due to the high fixed cost base. Therefore in many cases it might make sense to do whatever it takes to sell the product even though you are given away premium features at a standard price. This will ensure that you utilize the fixed cost base better and at a highly utilized capacity it’s also easier to optimize operational flows. Once you are fully utilized however it becomes more important to make sure to charge for all the features you are selling. So if the sales person doesn’t know the cost implications of what they are selling the costs will quickly run out of hand.
Sales and Operations must team up to go for the win
In fact there is a significant potential in letting Sales and Operations team up to ensure that Sales are aware of all implications on costs when selling the product as well as fully understanding all the benefits of the product. Moreover, this will also make the discussion around what capacity is needed much more dynamic and give Operations lead time to ensure that the needed capacity is available. All too often however Operations don’t go the extra mile to get this cooperation going. They need to force their way into the conversation by being a pro-active business partner coming up with constructive suggestions on how the product can be sold even better. Once these two teams are in constant collaboration you will see that not only is your company selling smarter, but it will also continuously lower its cost base. So if you work in Operations go out there and be a business partner while helping yourself to deliver the cost savings that you are always asked to deliver.
Who do you think is responsible for saving costs? Naturally everyone in the company can affect the cost picture, but some much more than others and a dynamic relationship between your Sales and Operations team is surely one of the most effective ways of lowering your costs.
Like what you read? Then why not click the “like” button or leave a comment if you have a different view? I encourage you to follow me for future content and for my 50th anniversary post next week where I share all the tips and learnings I have had from my first full year of writing on LinkedIn. You can also see some of my previous articles below on strategy and business partnering.
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Anders Liu-Lindberg is the Regional Finance Business Partner for Maersk Line North Europe and is working with the transformation of Finance and business on a daily basis. Anders has participated in several transformation processes amongst others helping Maersk Drilling to go Beyond Budgeting and transformed a finance team from Bean-counters to Business Partners. He would love the chance to collaborate with you on your own transformation processes to help you stay out of disruption.
Consultant Chief Finance Officer at Rockson Engineering Company Limited(In Receivership) for (AMCON)
6 年Hi Anders, For effective cost control, an organisation requires good synergies between all the departments and Units. From experience especially in large organisations, you find out each unit wants to outdo the other in meeting targets set for their respective units. Some times this drives up cost for the other units. At consolidation, you find out the organisation is worst off on profitability. While Operations folks are working very hard to ensure their production targets are met, they all concentrate on delivering production numbers not minding there may exist cost over runs. in the oil service sub sector, you hear of 'Rig is on fire' which means no cost is too much to salvage the situation. The Sales guys also are working to ensure every thing is in the market and that sales target are met both in volumes and and $ value. Discounts, faster delivery methods with attendant higher cost may be utilized to ensure target is achieved. At the end of the day it is the responsibility of the CFO to ensure that all these targets are married together for the overall interest of the organisation. Recall every body looks at the Company's financial statement not the management reports.
Founder & CEO of Locus Software Ltd; a technology services provider to the Shipping Industry
9 年Hi Anders, I agree with your article and would like to expand on it. We have received feedback from top level sales managers that they spend up to 80% of their time dealing with customer issues. Naturally this affects the sales pipeline, makes it harder for sales to reach their targets, increases costs and impacts the customers experience and relationship with the Shipping Line. Not a good scenario. Operational departments tend to focus on fuel savings and often don't have the customers best interest at heart when dealing with operational issues. By getting more involved in the sales process, operations get a better understanding of the impact their decisions have on customers and the business. The issue is bigger than sales and operations though. Shipping Lines should be more pro-active in all areas of their business to ensure that efficient business process are in place and that all departments work together as a unit with the aim of avoiding customer issues, reducing costs, improving quality of service, support the sales process and to free up sales to focus on growing the business.
Senior Director, Global Castello brand, @Arla Foods
9 年Interesting read Anders. I completely agree that a (truly) cross-functional effort is needed, when you try to do savings on the product cost base. There is also an educational/cultural aspect - the more people involved in the discussion of costs, cost structures and potential improvements, the better equipped the organisation is to make (cost-)wise decisions in the day-to-day work. My challenge will be: How do you get sales interested in doing cost savings??! - my experience is, that when they have no KPIs regarding this, their worry about losing revenue - because of product cost savings - far overshadows the potential for boost of profit, better competitiveness etc.