Case Studies
- KPM Delivers $11 Million in Annual Cost Savings; Strategic Initiative Identifies 111 Savings Opportunties Case Study # 1
- Cost structure overhaul using Zero-Based Budgeting methodology generates $12M in savings annually Case Study # 2
- Diagnosis of an Invoice Matching Problem that was about to cause serious supply disruptions. (Troubleshooting) Case Study # 3
- Small business owner needs to secure financing in order to bring an ineffective outsourced service in- house. Case Study # 4
- Entrepreneur looking to secure Canadian Franchise Rights to European based retail chain. Case Study # 5:
Case Study #1
KPM delivers $11 Million in annual cost savings
Strategic Cost Initiative identifies 111 savings opportunities
The Client:
A large drug retailer based in the U.S. with over 250 locations.
The Issues:
The company was experiencing the impact of the recession with shortfalls in sales and gross margin. With the likelihood of a decline in the bottom line and pressures from investors, there was a critical need for a reduction in costs. Yet the company was fearful that such a program would undermine the near-term growth of the business.
The Process:
KPM was engaged and we launched our innovative “Strategic Cost Initiative” program. The project was integrated with the company’s other ventures and was well supported by all stakeholders. The process involved four phases – scoping, analysis, execution, and monitoring.
Phase 1 – Scoping:
An initial diagnostic was done to assess the gap in cost management techniques and processes, identify savings opportunities, and define the scope of the project. We concluded that a minimum of $7 Million annually in savings opportunities was available, with the likelihood of more upon further analysis.
Phase 2 – Analysis:
This phase involved a more intensive, in-depth examination of operations. In order to widen the scope, structure and effectiveness of the analysis, we mobilized internal resources and conducted training sessions to equip them with the necessary tools. They learned what to look for and how.
With our leadership, an initial list of 100 savings opportunities in excess of $9 Million annually was identified. This included “quick wins” that would deliver close to $3 Million in savings in the current year.
Phase 3 – Execution:
Internal teams were established to fully detail each action plan. New policies and processes were developed and approved. With a clear framework in place, the work began.
Phase 4 – Monitoring:
We monitored the process and during the final stages of execution the results were evaluated and confirmed. The savings were then embedded into the budget.
In addition, we revamped the monthly expense reporting and variance analysis to increase the usefulness of the information, and detailed specific remedial actions to be taken for any area that becomes unfavourable.
The Result Were Exciting!
- Annualized savings of $11 Million
- “Quick win” savings of $3 Million (actionable within the first 4 weeks )
- No negative impact on growth initiatives.
The cost reductions were sustainable, not just one-time reductions.
More importantly, a new culture of effective cost management has been instilled in the organization that will have a substantial impact on future operations.
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Case Study #2
Cost structure overhaul using Zero-Based Budgeting methodology generates $12M in savings annually
The Client:
A large retailer and distributor with over 400 store locations.
The Issues:
The client was looking for a significant reduction to its cost structure and needed a large scale cost reduction program that would realize savings for the upcoming year as well as be sustainable for the long-term.
Senior management had mixed opinions as to whether or not there were enough savings opportunities within the company to meet the requirements.
The Process:
After an initial assessment we concluded that the zero-based budgeting methodology would provide the optimum savings and at the same time integrate the process into the budget, providing a permanent cost reduction process.
We first identified a team of key client employees that would work together with our consultants throughout the project. We then conducted a sweeping review and in-depth analysis of the expenses across the stores, distribution centres and head office.
We found issues in many areas that were causing excess costs and wasted resources such as inefficient operational processes, little or no control on certain major supplies, labour scheduling etc. From these findings we generated a total of 160 cost reduction opportunities, resulting in over $12,000,000 in savings annually.
The team proceeded to develop expense policies and objectives for the upcoming year targeting these areas. The budget process for the client was amended to incorporate the zero-based budgeting methodology. We created budget templates and set expected expense targets for each area.
Once budgets were submitted they were reviewed to identify any gaps to the targets and assess the impact to the overall budget. We then prepared a series of analysis reports for senior management.
As soon as the budget was approved, we designed a process that enabled the client to track progress and measure results in order to ensure targets were met and the expected savings were realized. We concluded the project by transitioning all the zero-based documentation and applications to the client.
The Result:
Several expense reduction opportunities were implemented immediately and served to cover the full cost of the consulting assignment. The final budget submissions reflected roughly 80% of the cost savings identified, with the balance to be included in subsequent years. Both senior management and the shareholders were pleased with the results.
Enthusiastic endorsement of Zero-Based Budgeting reported by a large, multi-national:
InBev is the world’s leading brewer and operates in 20 key markets in over 130 countries around the world. The following is an excerpt from their 2006 annual report:
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Case Study #3
Diagnosis of an Invoice Matching Problem that was about to cause serious supply disruptions. (Troubleshooting)
The Client:
A multi-national, multi-billion dollar electronics retailer with roughly 1000 locations.
The Issues:
The client was having serious difficulties with invoice matching in the merchandise purchasing and payables area. Invoices were being rejected by the payments system as unmatched to goods received. The client believed that the customized design of the system software was causing the mismatch, yet could not find the source of the problem. In the meantime they had to hire an ever increasing number of temporary staff to manually match the invoices. As a result, payments were being delayed which put a strain on supplier relations and created the potential for serious disruptions in supply to the stores.
We were hired to find the source of the mismatch errors quickly and accurately and to provide recommendations for resolving the problem.
The Process:
The first step was to visit stores and warehouses, interview staff and analyze relevant reports. We reviewed the purchasing and payments process from beginning to end through all areas of the organization including finance, stores, merchandising, warehouse and distribution.
We looked at the work done within each area as well as the flow of information to and from each department. We examined the effectiveness of the manual data gathering and input processes and how they worked in conjunction with the system processes. We identified key performance measures and error rates at each stage. A blueprint was created for the efficient processing of purchases and payables within the context of the organization and was compared to the existing process.
We identified the source of the immediate problem as being a mismatch of UPC’s (Uniform Price Code). A preliminary code had been established in anticipation of the release of a particular product category but was changed at the time the product was actually available for order and never reflected in the system.
Though this was a common occurrence for this product category, no process had been put into place to ensure communication from the vendor was received and the new data entered into the system. Confirmation of purchase orders provided electronically could also have identified the problem but little was being done with errors that were occurring in this area.
The Result:
The source of the invoice matching problem was pinpointed and corrected.
More importantly, this was identified as being only a symptom of a larger issue involving manual processes and the flow of information. We identified a combination of flaws, errors, roadblocks and bottlenecks at each level within the flow of the entire purchasing and payments process and were able to recommend a comprehensive list of corrective actions.
In addition, since the immediate problem of mismatched invoices was not due to a system software issue as the client had anticipated, there was no additional software investment required.
As a result of correcting the immediate problem, saving the client unnecessary systems expense and designing a re-engineered purchasing and payments process that was effective and efficient, the client was extremely pleased with our work.
Case Study #4
Small business owner needs to secure financing in order to bring an ineffective outsourced service in- house.
The client:
A small chain of franchise and corporate dry cleaning depots.
The issues:
The business had outsourced its dry cleaning process and was beginning to suffer with poor quality cleaning services from its third party provider. The company needed a significant amount of financing in order to purchase dry cleaning equipment and establish its own plant.
The process:
The first step was to speak with the banks and identify their requirements for lending in these circumstances. We developed a tailored approach to ensure we met those requirements in a cost efficient manner. We conducted interviews and sourced industry relevant information.
We then created a business plan and reviewed it with the owner. The business plan contained the current state of the company, its history, and its vision. It demonstrated the need for the dry cleaning plant, the financing requirements, and financial projections supporting the viability of the plan.
The result:
After the business plan was submitted and reviewed by the lender, the client obtained the necessary financing for the plant and is now proceeding to secure the plant location and purchase the equipment.
Case Study #5
Entrepreneur looking to secure Canadian Franchise Rights to European based retail chain.
The client:
A partnership of two energetic and enthusiastic entrepreneurs.
The issues:
The team is experienced in the jewellery business and had identified a franchise opportunity. A jewellery maker, distributor and retailer based in Europe was expanding its retail business and was accepting applications for territory franchises. The partners wanted to secure the franchise rights for the retail stores in Canada.
The process:
Our work began with reviewing the franchisor’s requirements for granting the franchise. We also assessed the various financial components to ensure that the program would be profitable. A tailored approach was developed to ensure we met the franchisor requirements for the proposal in a cost efficient manner. We conducted interviews and sourced industry relevant information.
We then created a business plan and reviewed it with the partners. The business plan contained the organizational structure of the company, the Canadian marketplace, the competitive landscape, the store strategy and a biography of the partners and advisors. A financial analysis of the store’s economics was also included.
The result:
The business plan was completed and submitted to the European franchisor who, after reviewing the plan, provided approval to the partners.
