What Happens in a Cost Reduction Session?
Most companies want to reduce costs in their operations. There are many ways to do this. Some companies choose to reduce their workforce, others decide to sell off under performing businesses. Companies that use this approach are just avoiding the problems and inefficiencies of their business practices and are not targeting the root cause of their problems.
At Process Improvement Partners LLC, we believe that the best way to reduce cost is to optimize your business to the benefit of your customers. Using that premise, we have developed an approach to leverage your team’s creativity to drive waste and inefficiencies out of your process, thereby reducing cost. In a 2 to 4-day session, teams will identify and build plans to take millions of dollars out of their operating costs, often greatly exceeding their cost reduction targets. The following summarizes how this can be accomplished.
Create Leadership Alignment
The first step in the process is to meet with Operations Leadership to gain their alignment and support for the approach that is being recommended. They have to stand by it, show their support for it, and supply dedicated resources that will participate fully in the cost reduction session(s). They should communicate with all potential participants and their managers well in advance, showing their support for the effort.
Once Leadership is aligned, the event is scoped out, with a clear problem statement and objectives. When the scope of the event is known, we then plan the amount of time necessary for the team to achieve their cost reduction goal. Critical team members are identified who can help meet the goal, and then the event can be scheduled. All facilities should be reserved well in advance of the event, as meeting rooms come at a premium in most companies. There should be adequate space to move around and enough wall space to display information and ideas on. Typical supplies include flip chart easels, flip chart paper, sticky notes, pens, and a way to project presentations and information.
On the first morning of the session, an executive sponsor or key member of the leadership team kicks off the session, reinforcing the importance of the session and the targeted cost reduction that is to be realized. The sponsor should encourage team members to be as creative as possible and not limited by what has or has not worked in the past. It is not unusual for team members to be skeptical that their efforts will not be implemented, so the sponsor should meet that skepticism head on.
Voice of the Customer
Those who will be impacted by any cost reduction efforts must share what is most important to them and their customers. Often, Marketing will represent the customer’s interests, but other areas can do this as well, such as Operations, Research and Development, Sales, and Distribution. Some companies will bring in direct customers and this can be quite powerful. In the end, the team cannot and should not implement any cost reduction ideas that will negatively impact the customer. But, in some sessions that Process Improvement Partners has facilitated, cost reduction ideas created a positive customer experience.
This is a free-wheeling exercise. In the early stages of ideation, it is more important to get as many ideas out as possible, regardless of their likelihood of success. Many team members will come to the session with ideas to share, so let’s get them all out on the table. When the team starts running out of ideas to share, facilitators will suggest topics and ask questions to encourage more ideas from the group.
Now that all of the ideas have been shared, the team needs to prioritize the ones that will make the most positive impact on cost, without negatively impacting the customer. There are many ways to do this, but we have used these in most sessions: Group rotation and review of all ideas, grouping of similar ideas, multi-voting with criteria, and a 9-block Impact/Difficulty matrix. The goal is to take literally hundreds of potential cost reduction opportunities and narrow them down to 20 to 30 of the best ones for the team to work on.
The team is divided into small groups of 3 or 4 people and asked to build more detail on the top priority cost reduction ideas. A focused, one-page concept sheet template is given to all team members, and they are required to answer all of the questions to the best of their ability. There isn’t a lot of time available, so team members are told that they should take one hour per concept. If they need additional information, they may phone a friend, or make their best educated guess. In all cases, they are encouraged to list their assumptions, so that others will understand their thought process. All concepts are audited for completeness and listing of assumptions, with the view that others who may not have been in the room may be assigned the project later on and must understand the initial thinking behind the cost reduction idea.
Managing System Development
Some teams work on the way that they will manage the cost reduction efforts after the session is over. This can include project communication, resource assignment, project visualization and management, and regular meetings to review status. Other teams just hand off their efforts to the session leader to take the work forward. In all cases, the results of the session should be communicated back to the sponsor and other stakeholders.
Reducing costs in your operation doesn’t have to be difficult or painful. When using people’s creativity and engagement and focusing on ideas that will benefit the customer, opportunities become apparent and a path to realize those opportunities can be identified. Then, everybody wins.