Case Studies
- KPM Delivers $11 Million in Annual Cost Savings; Strategic Initiative Identifies 111 Savings Opportunities. Case Study # 1
- Cost Structure Overhaul Creates $12 Million in Savings Annually. Case Study # 2
- Cash Flow Initiative Frees Up $20 Million in Working Capital.Case Study # 3
- Resolution to Invoice Processing Bottleneck Avoids Supply Disruptions and Potential Million Dollar IT Expense. Case Study # 4
- Eliminating Prescription Central Filling Facility Saves $3.2 Million Annually. Case Study # 5:
- Plastic Wrap Reverse Auction Saves $1.3M. Case Study # 6:
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 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.
Case Study #2
Cost Structure Overhaul Creates $12 Million 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 techniques along with the Strategic Cost Initiative (SCI) methodology would provide the optimum savings and at the same time integrate the process into the budget, providing a permanent cost reduction.
Forming a team of key client employees and consultants, we 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. 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 new procedures to capture the savings. The budget process for the client was amended to incorporate the zero-based budgeting techniques and ensure the savings were reflected.
Following that, 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.
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
Cash Flow Initiative Frees Up $20 Million in Working Capital
The Client:
A large drug retailer based in the U.S. with over 250 locations.
The Issues:
The company was looking to improve its cash flow position in order to reduce its dependence on owners and bankers for financing and at the same time, free up funds to reinvest in growth opportunities.
The Process:
As KPM had recently completed a successful “Strategic Cost Initiative” program for this company resulting in annual cost savings of $11 Million, they turned to us with confidence to deliver a targeted $5 Million improvement to their cash flow and working capital position.
The project consisted of a sweeping review of all cash flow processes – sales cycle, purchase cycle, third party agents, expense and capital flows, treasury operations, real estate, and payroll and benefits.
Knowing the intricacies of how cash tracks through a business, and a nose for where the weaknesses tend to be, we homed in on those processes and practices that can inadvertently affect cash flow, as well as those that leave a company vulnerable to manipulation to others advantage.
Identifying 18 key individuals in the organization with specific knowledge of these areas, we conducted in-depth interviews supplemented by a detailed examination of key data files and reports as well as company policies, agreements and contracts.
We uncovered and quantified significant opportunities in 8 areas of the business and developed remedial action plans for each. Some were immediate fixes, e.g. changing the date discount vendors were paid, and others required further investigation such as the discovery that inventory shrink appeared to be much higher in those departments that received the bulk of their product from DSD (Direct to Store Delivery) vendors.
The opportunities and associated action plans were presented and were heartily endorsed by the managers in each of the respective areas.
The Results Exceeded All Expectations!
- Working capital increased by $20 Million (exceeding management target of $5 Million by a whopping 400 %!).
- Significant “breathing room” created that can now be used to pursue growth opportunities and/or reduce pressures on credit line.
In addition, because key stakeholders were involved in the process, there is a sharpened awareness throughout the company of the impact of cash flow and the tools available to control it that will facilitate future inventory and A/R reductions as new circumstances arise.
Case Study #4
Resolution to Invoice Processing Bottleneck Avoids
Supply Disruptions and Potential Million Dollar IT Expense
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 accounting 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 at the same time using 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:
We introduced our Process Redesign Project (PRP) approach to guide the review. We began by visiting stores and warehouses, interviewing staff and analyzing relevant reports. We reviewed the processes and systems from beginning to end in all areas. In particular 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 invoices.
The source of the immediate problem was a mismatch of UPC’s (Uniform Price Code). Preliminary codes were used early in the process and were not changed throughout when they were finalized. No process had been put into place to ensure communication from the vendor was received and the new data entered into the system.
The Result:
Although the source of the invoice matching problem was pinpointed and corrected, 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 process flow and were able to recommend a comprehensive list of corrective action.
Since the immediate problem of mismatched invoices was not due to a system software issue as the client had expected, there was no additional software investment required.
Case Study #5
Eliminating Prescription Central Filling Facility Saves $3.2 Million Annually
The Client:
A large drug retailer based in the U.S. with over 250 locations.
The Issues:
The company operated a central processing facility that filled about 10% of its drug store prescriptions with an annual operating cost of $3 Million.
This facility had been in existence for 10 years and had been strongly supported by a previous CEO. New management was questioning the purported benefits and frustrated by the negative impact on customers and pharmacists.
The Process:
The work began with a thorough review of the financials, interviews with management and pharmacists, and site visits. It was quickly discovered that neither the pharmacists nor the customers were satisfied with the service of the central fill facility. In addition, reports were conveying an inaccurate impression as to the contribution of the central fill facility.
The financial reports reflected cost savings associated with the central fill facility but did not account for the work that each prescription required at the individual store level or the additional time that these pharmacists had available.
Our report concluded that the central fill facility was not contributing to reducing costs or was adding to customer satisfaction. As a result, we recommended an orderly wind-down of the facility.
Once approved, we lead the task force in closing down the central fill facility to deliver a negligible impact at store level and a minimum of severance and other closure costs.
The Result:
The wind-down of the facility was executed with a resounding success including a smooth transition of extra volume to the individual store pharmacists. The facility was closed within 3 months resulting in a $3 Million annual operating savings, improved control of prescriptions by pharmacists, and enhanced customer satisfaction.
Case Study #6
Plastic Wrap Reverse Auction Saves $1.3M
The Client:
A multi-billion dollar food distribution company in the U.S. with over 60 divisions coast to coast.
The Issues:
The company was spending $3.8 million for the purchase of plastic wrap, the product that covers and protects the contents on pallets during shipment to customers. We discovered that the company had limited knowledge of the prices being paid and the quality standards established within each division, so we took a look.
The Process:
We gathered the myriad of vendor and pricing data and what we discovered was eye-opening!
The company was not only using 29 different vendors for the purchase of plastic wrap, with varying prices among each vendor, but more surprisingly, in one case the same vendor was charging different prices for the same product! (exclusive of transportation costs).
Just obtaining consistent pricing across the country from one of the existing vendors would have generated a savings of 10% alone. Clearly this product was ripe for the reverse auction process.
Being a relatively new concept to the company, there were many that were sceptical of the process. However the go-ahead was given and we proceeded to develop specs tailored to their needs.
Based on the defined parameters, 8 qualified vendors accepted the terms and were invited to participate in the reverse auction.
The Result:
The live auction was completed in 23 minutes and resulted in a further 17% cost reduction, generating an overall expense savings of 32%! In addition, the business was awarded to one of the existing suppliers with the added benefit of a known quality and performance history.
The company was extremely pleased with the results. They have embraced the concept and have completed over 100 additional reverse auctions to date.
