The uncertainty of the economic climate combined with the complexity of business today leaves organizations facing a range of issues and challenges. To help them navigate in this changing business landscape, the KPMG network has set up the ‘Succeeding in a Changing World’ program, structured around short term client concerns (Fit for today), future opportunities (Poised for Growth) and longer term planning (Focus on the Future). In this first article we focus on ‘Measuring and improving the cost effectiveness of operations’, as part of the ‘Fit for Today’ theme.
In difficult economic times, companies are traditionally looking for cost reductions. However, reducing your cost base can only work effectively on long-term basis if your overall operation is not cut off from its bloodline. The KPMG Advisory Operations Team has developed a number of pragmatic and effective approaches to measure and improve the cost effectiveness of operations. An overview:
Whether looking at stock turns, IT costs, HR, back office functions, finance or engineering, the ultimate test is not the internal ability to change, but the ability to beat your competitors. By using both internal and external databases of cost comparators, you can better determine your real position.
The aim should not only to be cost focused; but also to improve the overall customer focus of your organization. Sustainability should be the watchword for your activities.
KPMG Advisory’s approach in this respect is based on private equity valuations of businesses. This approach probes whether there is unrealized value in the business and focuses on critical areas where specific costs can be reduced. By tracing the money in a disciplined and realistic way, organizations can reduce the likelihood that valuable resources are being devoted to poor opportunities.
The Standard accounts are designed to show costs in ways that make reporting easy rather than making cost drivers more transparent. Considering costs from a process viewpoint (cost to serve), a full lifecycle viewpoint (total cost of acquisition), and P&L/balance sheet viewpoints (cost of stock) can often reveal areas for new improvement. For example duty and tax are often seen as a given, although this is a potential area of cost optimization through strategies such as tax efficient supply chain management.
The KPMG Advisory Financial Management team can help organizations in all sectors review their cost bases.