Strategic Cost Reduction

Refocus costs and operating assets

When business objectives call for 5% to 20% cost reduction, executive actions need to adopt strategic cost reduction and get beyond operational improvements. Strategic cost reduction realigns the organization’s cost structure and operating assets with the market so that you can pursue growth initiatives.

Operational cost improvements only get you so far, whether leaner operations, stricter cost controls, tighter supplier rates, and gradual staff reductions. At best, these actions will cut 2% to 4% of total costs.

In some cases, companies make many small cost cuts across the board, looking for minimal change and hoping that total savings will add to the desired performance level. This approach rarely works. In the best case, the initiatives provide Band-Aid fixes. At worst, they cut in the wrong areas and derail appropriate actions in times of continued profit deterioration and set the company further back.

Are you experiencing these issues?

Cost cutting is
not working.

All quick wins
have been exhausted.

No more cost initiatives
left to take.

Cost reduction lacks
traction, not sticking.

Profits continue to
erode.

The financial position
is weakening.

If your company is experiencing any of these issues, chances are strategic cost reduction is needed. These symptoms typically arise from the urgency to get beyond short-term solutions and attack the drivers of cost. We employ strategic cost reduction and assist in cutting high costs with structural changes that sustain cost savings and margin improvements in the long term without hurting the business.

Our Approach

Our strategic cost reduction approach re-focuses the company’s cost basis and operating assets to align with the market. We get to the firm’s cost drivers and underutilized assets and work on these without hurting the business.

The guiding principle that we follow is that not every dollar of cost and capital spend are equal. Some drive the creation of customer value; others don’t.

Ultimately, our objective is to build on the twin pillars of profitability and asset utilization and raise the firm’s Return on Capital Employed to secure a return well above the cost of capital.

The complication is that profitability and asset utilization are intertwined: asset utilization scales the benefit of increasing the profit margin and vice versa. Because one depends on the other, we work through the complexity.

How We Help

Focus on the cause of high costs and the actions to resolve it.

Product line
rationalization
Cost
sharing
Core effectiveness
improvement
Strategic
Sourcing
Capacity
rationalization
Value chain
restructuring
Organizational
complexity reduction
Business
restructuring
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Product Line Rationalization

Too many product lines eventually weigh down the organization. Product line rationalization is a robust method to eliminate unprofitable product lines. These carry excess production, labor, PPE, working capital, materials ... learn more

Product Line Rationalization

Too many product lines eventually weigh down the organization. Product line rationalization is a robust method to eliminate unprofitable product lines. These carry excess production, labor, PPE, working capital, materials, and energy costs. The objective is to stop selling high-overhead “loser” products, gain the maximum number of customers with the minimum number of products, and invest in products with the highest margin.

© 2022 Great Prairie Group
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Value Chain Restructuring

Companies with long value chains become weighed down by massive cost structure, tying up capital and infrastructure. They also become exposed to ... learn more

Value Chain Restructuring

Companies with long value chains become weighed down by massive cost structure, tying up capital and infrastructure. They also become exposed to competitors with new value delivery models. Value chain restructuring eliminates non-value added processes and activities in all functional areas of the value chain.

© 2022 Great Prairie Group
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Organizational Complexity Reduction

Growth initiatives place a burden on the organization and add significant complexity to the business administration ... learn more

Organizational Complexity Reduction

Growth initiatives place a burden on the organization and add significant complexity to the business administration. Organizational complexity can add substantial indirect costs to the company. Organizational complexity reduction takes streamlining the company’s organizational structure to reduce duplication and inefficiencies and possibly revising the primary structure according to the strategy.

© 2022 Great Prairie Group
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Capacity Rationalization

Falling demand can drive excess capacity. When this condition becomes permanent, companies need to reduce production capacity or make structural changes to the firm’s operations to align operating assets with demand. Capacity rationalization ... learn more

Capacity Rationalization

Falling demand can drive excess capacity. When this condition becomes permanent, companies need to reduce production capacity or make structural changes to the firm’s operations to align operating assets with demand. Capacity rationalization aims to achieve optimal cost and asset structures to meet ROCE targets through asset rationalization, consolidation of operations, acquisitions, or divestitures.

© 2022 Great Prairie Group
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Business Restructuring

Business restructuring is useful for companies that find themselves operating in mature or declining markets where they cannot be cost competitive. The approach is to restructure the business and its geographical portfolio by ... learn more

Business Restructuring

Business restructuring is useful for companies that find themselves operating in mature or declining markets where they cannot be cost competitive. The approach is to restructure the business and its geographical portfolio by shifting away from mature markets into profitable segments.

© 2022 Great Prairie Group
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Cost Sharing

As companies expand across various markets, they increase resources to be able to serve customers closely. Over time, these resources create duplicate costs and bloat the organization. Cost-sharing aims to reduce cost ... learn more

Cost Sharing

As companies expand across various markets, they increase resources to be able to serve customers closely. Over time, these resources create duplicate costs and bloat the organization. Cost-sharing aims to reduce cost duplication across geographies, product lines, divisions, channels, and lines of business.

© 2022 Great Prairie Group
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Strategic Sourcing

Over time, input costs may become overwhelming and difficult to pass on. Strategic sourcing helps managers acquire goods and services cost-effectively while improving ... learn more

Strategic Sourcing

Over time, input costs may become overwhelming and difficult to pass on. Strategic sourcing helps managers acquire goods and services cost-effectively while improving value creation. Strategic sourcing aims to maintain adequate supply chains while bringing bottom-line improvements to the organization by leveraging the firm’s buying power.

© 2022 Great Prairie Group
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Core Effectiveness Improvement

Improving core effectiveness aims to align the business with necessary customer requirements, including cycle time, cost, and quality. Core effectiveness improvement creates breakthrough performance through faster cycle time and process ... learn more

Core Effectiveness Improvement

Improving core effectiveness aims to align the business with necessary customer requirements, including cycle time, cost, and quality. Core effectiveness improvement creates breakthrough performance through faster cycle time and process simplification.

© 2022 Great Prairie Group

Client Results

5-20%

Average cost reduction identified per client project

1-3X

Average improvement in operating asset utilization

5-20%

Average ROCE increase per strategic cost reduction project

50%

Value achieved in the first year

25X

Average ROI of our strategic cost reduction projects for our clients

Select Cases

Reduced product lines and improved TAT for aircraft engine MRO provider

Aircraft Engine MROCo was challenged by erosion of market share and declining profit. The CEO realized that a sweeping change was necessary to improve the financial condition and stem further

Led active consolidation and cost restructuring of satellite manufacturing line of business

Commercial Satellite Manufacturing LoB was operating below its cost of capital, with revenue of $670 million and progressive deteriorating financial performance in a flat market. We helped leadership develop a

Rationalized plant capacity of injection molded car parts and SMC production

Injection MoldingCo had been operating seven plants and experiencing low profitability in a flat market. We worked with the leadership on structural changes: shut down the vertically-integrated production plant of