Cost Reduction

Understanding cost reduction as a multidimensional issue

Many cost reduction efforts focus on functional benchmarks, cost line items, or across the board 'belt-tightening' decrees. These can be valid approaches and can suggest opportunity areas. But they also tend to quickly run out of steam, risk undermining value-creating areas, or sink morale with their lack of precision.

A better approach is one that diagnoses how complexity costs (non-value-add costs in a business) creep in, and then removes that cost in chunks. As we discussed in Waging War on Complexity Costs, these costs grow geometrically with an increase in complexity.

As companies introduce new SKUs, they add new processes and organizational overhead until, at some point, the costs outweigh the benefits. To unwind this cost, therefore, you need to deploy an approach that reflects these dynamics, making adjustments to portfolio, processes, and the organization to unlock cost benefits. This breaks through the self-imposed ceilings on cost reduction. Companies that focus on function or line-item targets miss the cause-and-effect or web of dependencies that 'trap' costs in a business, and ultimately yield shallow results.

The WP&C difference

Wilson Perumal & Company is the leading authority on how to assess and unwind complexity costs in your business. We have written widely on the topic, including the best-selling book Waging War on Complexity Costs. And we have worked with companies around the world on significant cost-reduction initiatives to:

Identify products, customers, and segments that are currently destroying profitability through our Square Root Costing methodology, highlighting rich targets for cost-reduction or exit
Take an end-to-end view of the business, codified through Complexity Value Stream Mapping methodology, to identify how upstream decisions and actions drive down-stream costs
Redesign the operating model to drive out step-change cost reductions and be more fit-for-purpose, anchoring it in a top-down integrated view of the business
Drive execution on transformative cost reduction agenda—we are experts in accelerating the execution on cost reduction initiatives, through fit-for-purpose deployment models and continual benefit-effort assessments

CASE STUDY

Guiding a consumer durables company to enter new channels while reducing costs

A consumer durables company was looking to simultaneously enter new channels and reestablish previous levels of profitability. Wilson Perumal & Company strategically guided expansion while drastically reducing supply chain costs and inventory, resulting in:

Quick win opportunities to realize over $2M in savings
Design of a new logistics network projected to reduce cost by $3M+
Creation of inventory targets and policies to improve availability and reduce inventory by >$20M
Reduction of supply chain expenses as a percent of revenue to a benchmarked target of a 13–14%

Read the Case Study

GUIDE TO COST REDUCTION

Emerge stronger and leaner in the post-pandemic world

Most companies have implemented cost reductions in response to the pandemic and are looking deeper at structural and organizational costs. WP&C accelerates capturing cost reductions by leveraging three complementary lenses to identify next-level cost reduction opportunities.

Download the Guide

BOOKS

Complexity costs are the biggest determinant of a company's cost competitiveness

In Waging War on Complexity Costs (McGraw-Hill), Stephen Wilson and Andrei Perumal deliver a potent and practical approach to reclaiming cost advantage. This executive-level resource presents definitive answers to key questions:

How can I quantify the cost of complexity?
Where are the biggest opportunities for reducing product, process, and organizational complexity?
How can I take targeted actions against key levers to yield quick results?

Read chapter 1

Learn how we helped a global provider of drilling services and equipment double EBIT in two years

View Case Study

“WP&C is helping us transform our business. Their insights are phenomenal!”

Dave Hoogmoed, President Land O’Lakes Purina Feed

“Wilson Perumal & Company's approach treats complexity as the enemy. Declaring war is the most direct route to an efficient, profitable enterprise. We declared war on the complexity in our portfolio, resulting in streamlined customer offerings and a more nimble business.”

Ed Lonergan, President and CEO Diversey, Inc.

“This was a quick and painless way to understand our true product profitability, and it challenges how we think about our business. I am extremely pleased with the results.”

Fernando Palacios, EVP and Chief Integrated Supply Chain Officer MillerCoors LLC

“WP&C’s insights into our portfolio, cost structure and growth drivers have changed the way we think about our business. The brand management playbooks they developed for the business will be critical to how we make decisions going forward.”

Hilliard Lombard, Managing Director Valeo Foods Group Ltd.

“I have been more than pleased with what you have been able to accomplish in this time. Beyond my expectations...Spectacular!”

Peter Benton, COO Worldwide Clinical Trials, Inc.

“Fantastic piece of work! You’ve really shed a lot of light on our business. Inmarsat will benefit enormously from your contribution and we will be using your structured thinking to guide us through the decision-making to come.”

Rupert Pearce, CEO Inmarsat plc

“If you take all six times [past projects] where we looked at this, over the past ten years, and rolled them all up together, and multiplied by ten, it would still not be as good as this work.”

Bill McNabb, CEO Vanguard Group, Inc

“Army personnel credit the collaboration between Joint Munitions Command, CAAA's higher headquarters, and consulting firm Wilson Perumal & Company for identifying areas to improve the munitions distribution process.”