CFO Program Webinar - Deloitte United States · 2020-06-05 · CFO Program Webinar Cost...

CFO Program Webinar

Cost Optimization

May 2020

Date: 27th & 28th, May, 2020

Time: 6:00 pm - 7:00 pm

Agenda:

• Global perspective on Cost optimization strategiesJason Dess / Partner, Global Finance Performance practice lead based in Canada

• Japan perspective on Cost optimization strategiesPankaj Arjunwadkar / Partner, Finance and Performance based in Japan

• IT cost Optimization strategy - Global and Japan perspectivesErik Almadrones / Partner, Strategy, Analytics and Cognitive, Monitor Deloitte

CFO Program for Foreign Companies in Japan

CFO Webinar- May 2020 (6:00pm to 7:00pm)

Topic: Cost Optimization strategies

3

1. Global perspective on Cost optimization strategies

Jason DessPartner, Global Finance Performance practice lead based in Canada

Cost Optimization

G L O B A L I M P A C T O F C O V I D - 1 9

M A Y 2 0 2 0

©2020 For information, contact Deloitte Tohmatsu Consulting LLC, Deloitte Touche Tohmatsu LLC, Deloitte Tohmatsu Tax Co., Deloitte Tohmatsu Financial Advisory LLC

Global Business ImpactThe economic impact of COVID-19 is truly unprecedented in recent history, and the effect will have a permanent effect on how businesses operate

Early indicators suggest Covid-19 could be significantly worse than prior downturns

Economic activity is on a steady decline

Unemployment is rapidly increasing

Industries are facing major disruption

What can we learn from the past?

Following the 2008 recession, organizations that successfully reduced costs to improve operational efficiency and reinvested the savings into new opportunities, posted a 13% post recession growth rate.

13%Post-recessiongrowth


APPROACH

Cost Containment1Cash flow issues can emerge and prompt organizations to look for ways to reduce costs. To begin containing these, identify the areas that are non-essential and have minimal impact on business continuity.

Operating in the New Normal2

After implementing the necessary measures to contain costs, organizations can pay more attention to protecting key revenue streams and business continuity

Emerging from the Pandemic3

As the economy begins to rebound, organizations need to continue to ensure that as revenues grow, costs remain within the necessary threshold.

The Pathway Through the COVID-19 Downturn

Considerations

• Manage cash flow optimization

• Optimize project portfolio

• Reduce discretionary Spend

• Manage external spend

Considerations

• Maintain Customer Focus

• Unlock flexibility through workforce optimization

• Optimize the supply chain

Considerations

• Industrialize new products and services

• Realign the workforce

• Optimize external spend-management


How are Organizations Looking at Cost Optimization?

3 common approaches to cost-optimization in the current environment

LIQUIDITY CRUNCH

Rapid cost reduction in order to meet short term liquidity requirements

EARNINGS CRUNCH

Strategic cost reduction in order reduce the negative impact on short and medium term earnings

Cost Categories

• Headcount

• Real Estate

Cost Categories

• Headcount

• Real Estate

• IT

Reduction to IT costs in certain areas, re-purposing of IT investment to insights and Automation

OPPORTUNISITIC

“Don’t let a good crisis go to waste” approach. Use COVID-19 as a burning platform to drive transformational change

Cost Categories

• All structural areas

Focus Areas

• Speed

• Business Insights

8

2. Japan perspective on Cost optimization strategies

Pankaj ArjunwadkarPartner, Finance and Performance based in Japan

9


CFO alert: What are the key areas to target for Cost Reduction?

Transportation& Real Estate

Prof Services

Corp Services

HR/Benefits

General & AdminIT

Travel & Utilities

Telecom &

Print

/Marketing

• Business Consulting (5-15%)• Legal (2-5%)• Agency Contractor (5-26%)• R & D Services (9-19%)• Learning & Development (14-28%)

• Bank Fees (5-30%)• Waste Mgmt. (15-20%)• Janitorial (7-14%)• Landscaping (10-30%)• Security (5-10%)

• Insurance (5-10%)• Benefits & Compensation (3-14%)• Training (10-20%)• Recruiting (11-27%)• Outsourced Operations(12-22%)

• Office Equipment (10-30%)• Office Supplies and Furniture (2-40%)• Freight (5-30%)• Archiving (10-25%)

• Computers (4-36%)• Maintenance (10-17%)• Peripherals (9-12%)• Software (1-6%)• Servers (8-16%)

• Utilities (2-8%)• Agency (2-15%)• Hotel (5-20%)• Air (1-14%)• Car Rental (6-9%)• Expenses (10-25%)• Events (12-17%)

• Long Distance (7-31%)• Data (5-48%)• Mobile phones (10-22%)• Printed Material (8-30%)• Ad & Media (8-12%)• Direct Marketing (13-33%)

• Common Courier (7-18%)• Fleet (5-7%)• Rent & Lease (1-2%)• Real Estate & Construction (5-14%)• Property Management (5-7%)

Typical savings achieved across

eight spend categories

(average 12-15% potential)

COVID

focus

10


OSSIS Framework for Indirect Cost

Illustrative

Indirect cost initiatives can be categorized into 4 broad buckets for Cost optimization

Saving Potential

Intrinsic

Structural

Systemic

Operational

Strategic

8%-10%

6%-8%

4%-5%

2%-3%

1%-2%

Manpower Cost Infrastructure Cost IT Cost Other costs*

*Other costs include –Sales & Marketing, Customer Service & Support, Procurement, Travel Cost and Business Management

Deg

ree o

f Im

pact

• Operating Model and organisation structure

• Digital & Exponential technology usage

• Governance, ways of working

• Centralizing regional roles

• Opportunities for outsourcing

• Increasing SSC penetration

• Delayering and Span Optimization

• Standardized processes

• Job – Person Mismatch

• Activity based work loading

• Productivity Norms

• Work redundancies and role overlaps

Levers for Cost reduction

• Location Selection

• Location Consolidation

• IT Operating model changes - self service, cloud, support models

• Maintenance contracts

• Energy and Fuel

• Real estate optimization –hot-desking/shifts, etc.

• Occupancy

• Real estate management – rationalize technology, process etc.

• IT landscape rationalization (consolidate systems, data centers)

• Infrastructure Optimization – apps, data, network, storage etc.

• License cost optimization

• IT Process planning –project rationalization, process standardization

• IT governance

• IT contract cost renegotiation

• Terms with service providers

• Forecasting improvements and prioritization tools

• Organization and business model simplification

• Office supplies• Conveyance / Travel• Professional and Legal

Services• Media usage

• Business Planning and performance reporting improvements

• Standardize measurement processes

• Marketing budget and mix allocation planning and reduction

• Pricing and Profitability Management – discounts, royalties, commission etc.

Consolidation of activities and resources at Shared services

11


OSSIS Framework for Direct Cost

Levers used across the different lenses of the ‘OSSIS Framework’

Operating Model Redesign Digital & Exponential technology

Mode Mix change

Tax Efficient Supply Chain

Outsourcing

Utilizing shared resources

Third Party Agreements

Cost Benchmarking

Alternate Sourcing Role expansion analysis

Zero Based Costing

Contracting Method

Volume Discount

Consumption Variance

Time and Motion Study

Yield Improvement

TAT Improvement

Consumption Optimization

Enterprise wide buying

Payment term modification

Setting of Rate card

Service cost redesign

Supplier Co-location

Indigenization

Process Optimization

Alternate design

Long-term contracts

Value AnalysisComplexity Reduction

SI

SS

O

Direct negotiation with Tier 2 supplier

2%-3%

1%-2%

Forward/Backward integration Network redesign

Illustrative

Intrinsic

Structural

Systemic

Operational

Strategic

8%-10%

6%-8%

4%-5%

2%-3%

1%-2%

Saving Potential

Deg

ree o

f Im

pact

Are there opportunities to look beyond the

immediate supplier to reduce overall cost?

Are there opportunities to reduce complexity in

design for components/aggregates?

How are we leveraging innovation / changes in business model to reduce

cost?

What are the inefficiencies in the

procurement process?

How is the cost finalizedwith the suppliers?

Direct cost initiatives need to be discussed with Operations teams to identify impact on Production and quality of output

12


Cash Conversion Cycle goes beyond Finance; Working Capital improvement opportunities exist in all threeareas

Approach | Working Capital Optimization

Days Payables Outstanding (DPO) Days Sales Outstanding (DSO)Days Inventory Outstanding (DIO)

• Track and manage adherence to current terms, including early payment discounts

• Improve collection process & accountabilityof BU’s (e.g. pro-active management ofcollection process)

• Align and optimise payment terms acrossterritories and customers

• Focus on order management process to ensureno barriers to timely payment

• Optimise pricing structures• Identify factoring opportunities• Optimise timing to claim GST on

purchases• Optimise timing for recovery of VAT on bad

debts and employee expenses

• Set Inventory strategy - Review safety stock levels and re-order points acrossdifferent product and customer segments

• Improve Sales & operations planning (S&OP) process

• Review policies for slow moving inventory & spare parts. Set up disposalprogrammes for obsolete stock

• Review production strategy and planning policies

• Revise planning processes and responsibilities to improve demand visibility and forecast accuracy

• Reduce the fragmentation of holding inventory

• Optimise cash discounts against interestgains and ensure discounts /rebates etc. arefully exploited

• Establish and adhere to payment targets• Ensure payment and accountability by

business units• Improve terms for volume consolidation• Review payments database for possible

duplicate payments, invoice errors, GSTunder-claimed and liabilities etc.

• Review procedures for timing of tax & duty payments and understand opportunities to defer payment

• Measure and improve supplierperformance

Cash Out (€) Cash In (€)

Goods Received

raw materials inventory

Days of

WIPfinished goods

inventory

Days in transit

Compress the Cash Conversion Cycle

Days in Days in

Receive Invoice

Place Invoice

13


Cost optimization and efficiency improvement for a consumer goods company

Case study# Multinational Company Based in Japan

Background and Challenges

• The client is a trans-national consumer goods company with a portfolio of over 400 brands and overall annual spend of € 31 bn

• In order to move from an “operational heavy” to a “value focused” organization, the client embarked on a digital transformation program of its procurement function covering its markets and the centers of excellence in Europe, India and the USA

• The objectives of the program were to achieve savings of upto 5% of spend and improve manpower productivity thus driving 20-30% FTE reduction by leveraging digital technologies, drive standardization of processes globally and focus on predictive analytics to generate actionable insights

Our Approach covered end to end procurement process optimization across 4 areas:

Supplier lifecycle

management

Procure to Pay

Identify and eliminate exceptions in operations

Supplier lifecycle management

Provide common platform to meet all needs of suppliers

Source to Contract

Define “should cost” models to capture value.

Forecasting

Improve accuracy of P&L

forecast

Process map creation1

• Deep dived and created As-is

process maps at L1, L2 and L3

level and identified issues &

exceptions

Issue tree creation

• Prepared issue tree based on the

process understanding and

interviews conducted

Data analytics

• For key Issues identifies, analyzed

data to establish the materiality

Objective

Approach

• Data analytics conducted through:

a. Excel based analysis of transaction data

downloaded from SAP

b. Deploying implants (for O2D) to replace the

buyers to assess the time spent on each type

of exception

c. E-mail crawling of buyers to identify the types

of exceptions and time spent on each type of

exception (in progress)

Outcome

Identified big rocks… …Leading to Quick wins and MVP identificationQuick wins MVP

2 3

The diagnostic phase consisted of following activities

14


Source to contract

• Implemented spend analytics solution with AI/ML to classify unstructured datawith value analytics & predictive features to take business decisions

• Implemented cost modelling tool to be used during negotiation

• Implemented optimizer solution to identify formulation switching opportunityReduced value leakage to achieve 6% saving on procurement spend

Procure to pay

• Cleaned up MRP master data related to procurement for better planning output

• Defined contracting strategy, mechanistic pricing tools for auto price update

• Implemented supplier collaboration and track & trace tools for real time visibility

• Implemented RPA for reconciliation of forecast to actual costs and ML based solutionfor clearing blocked invoices

Forecasting

• Understood existing contract price forecast models across portfolios, networksand countries to finalize various types of forecasting methodologies possible

• Built an automated solution for portfolios which follow feedstock correlationmodel by defining standardized model structure

• Created multi-factor models where prices are linked to factors other thanfeedstock and tracked the accuracy level

Supplier lifecycle management

• Digitalized the As-is process by deploying cutting edge technology to enable self-service and improved vendor onboarding time by 80%

• Digitalized performance and operations management for suppliers by deployingtechnology solution to enable single view of suppliers performance

Cost optimization and efficiency improvement for a consumer goods company

Case study# Multinational Company Based in Japan

implemented global

price database for

benchmarking

between suppliers

and countries

Defined rules

for clan-up of

contracts data

in SAP

Achieved 75%

acceptance to

CPE output

Defined a “To-Be”

process for

automation roll-out

PoC for the

entire packaging

portfolio

Developed Prototype of

Supplier Console for

performance and

operations management

Implemented

supplier collab.

and Track & trace

15

3. IT cost Optimization strategy- Global and Japan perspectives

Erik AlmadronesPartner, Strategy, Analytics and Cognitive, Monitor Deloitte

The Future of Work and

Technology Cost Transformation

An Overview of Deloitte Offerings & Case Studies


“The coronavirus, and its economic and social fallout, is atime machine to the future.

Changes that many of us predicted would happen over decades are instead taking

place in the span of weeks.”1

1Anne-Marie Slaughter, “Forget the Trump administration. America will save America,” New York Times, March 21, 2020

COVID-19 has accelerated the Future of Work

https://www.nytimes.com/2020/03/21/opinion/sunday/coronavirus-governors-cities.html


Consider what has already changed…

4 out of 5 workers globally are affected by COVID-19.1

Increase in stock price of Zoom over past three

months3 (as of 5/12/2020). (WSJ)

83%

Increase in stock price of Upwork over past three

months (as of 5/12/2020)6

32%

of employees aged 18-34 reported confidence

in efficiently doing their work remotely if they must continue to4.

68%of employees aged 55-

64 reported confidence in efficiently doing

their work remotely if they must continue to4.

44%VS

Of organizations are passively tracking employees via methods like virtual clocking in and out, tracking work computer usage, and monitoring employee emails or internal communications/chat5.

increase in daily demand for Microsoft Teams over a weekly

period.2

38%

1. Bill Chappel, “4 of 5 Workers Are Affected by COVID-19 Worldwide, U.N. Agency Says” NPR, April 7,2020.2. Tom Warren, “Microsoft Thinks Coronavirus Will Forever Change The Way We Work And Learn,” The Verge, April 9, 2020.3. Zoom Video Communications, Inc. Overview, Wall Street Journal, Accessed May 12, 2020.

4. “New Survey: COVID-19 & Employee Sentiment on Changing Workforce”, Glassdoor, March 23, 2020.5. IW staff, “9 Trends Impacting the Future of Work”, Industry Week, May 7, 20206. Upwork, Inc. Overview, Wall Street Journal, Accessed May 12, 2020.

16%

The COVID-19 pandemic has necessitated a rapid shift to remote work. The workforce has responded, showing an ability to maintain and even improve productivity, while facing new challenges

https://www.wsj.com/market-data/quotes/ZM?mod=searchresults_companyquotes

https://www.npr.org/sections/coronavirus-live-updates/2020/04/07/828778490/4-of-5-workers-are-affected-by-covid-19-worldwide-u-n-agency-says

https://www.wsj.com/market-data/quotes/ZM?mod=searchresults_companyquotes

https://www.glassdoor.com/blog/new-survey-covid-19/

https://www.industryweek.com/covid19/article/21130761/9-trends-impacting-the-future-of-work

https://www.wsj.com/market-data/quotes/UPWK?mod=searchresults_companyquotes

19


AI-related Jobs

Online Brand Ambassador

Cloud Architect

SEO Analyst

Developer Evangelist

Social Media Manager

Data Scientist

Podcast Producer

Mobile Web Developer

Experience Designers

Content Curator

Virtual Assistant

Telemedicine Physician

Automated Driving Jobs

Content Marketer

For perspective, 15 jobs that did not exist 15 years ago


The Future of Work is about humans working more productively with technology. Is your IT organization ready?

Yesterday’s IT Tomorrow’s IT

Fragmented IT delivery model with IT organizations supporting each major geography or function

• Duplication of activities• Increased complexity and cost

Ever-increasing level of annual IT spend: (current avg. of ~3.7% of revenue) driven by:

• Increasing IT demands• Staff and contractor costs• Software and hardware maintenance• Fixed costs / limited flexibility

Operate IT delivery and data centers in:

• Multiple locations in a single country• Multiple locations in multiple countries

Optimize IT Costs and Effectiveness:

Design and implement new IT delivery model –move to a global Shared Services and CoE model

Significantly reduce IT spend while increasing flexibility and adaptability to support ABOs

Rationalize and right-size data center, infrastructure, and applications portfolio footprint to align with Shared Service / CoE model

Leverage Cloud, IT as a service, and new digital models to reduce costs and increase effectiveness

Eliminate duplication of resources, processes, and tools where it makes sense

Complex IT solution portfolio of applications globally requiring various levels of support and maintenance based on business demand

• Opportunity to drive greater ROI from digital platforms and best-of-breed technologies

21


It pays to work productively, the savings can fund investment in more efficient ways of working

22


Like your peers, many of you are already planning for significant changes in how your organization works

Takeaway:It is an opportune time for CFO’s to influence the technology agenda, and manage your

organizations to be more productive.

Don’t let this crisis go to waste!

Source: Deloitte CFO Signals, Q2 2020

23


Key levers for driving IT efficiency and effectiveness

IT Cost Optimization

• New roles and responsibilities• New technologies and skills• Automation/Cognitive/AI• Innovation and continuous service

improvement

• Centralization (Shared Services and CoE)• Sourcing/Procurement (Make or Buy)• Right shoring• Industrialization

• Infrastructure and modernization

• Application simplification• Cloud computing• Digital / Mobility • Big data and analytics• IoT / Dev Ops / RPA /

Machine learning• Monetization

Value Creation for Business

OperatingModel

Transformation

TechnologyTransformation

(Infrastructure, Applications)

Capabilities & Work Force

Transformation

24


• Multiple silo-based activities leading to operational inefficiencies and complexities

• Various delivery centers leading to governance challenges

• Top-heavy organization pyramid with unclear role definitions

• Inconsistent processes for ticket management and application change control

• Value leakage in outsourced operations

• Inferior service experience for end users and support teams

Issue Solution Impact

CENTRALIZATION AND STANDARDIZATION

RIGHT SHORING

ORGANIZATION AND PROCESS RE-DESIGN

OUTSOURCING OPTIMIZATION

LEADING METHODOLOGIES, TOOLS, AND FRAMEWORKS

• Centralization of common processes like testing, release management, change management, and data center operations

• Standardization of decentralized processes like Requirement Analysis, Functional Design, etc.

• . • Transition operations to an offshore Shared Services capability

center (Pune-based GIC)

• Detailed transition planning and management through a centralized transition office

• Re-design a leaner organization with industry standard span of controls

• Standardize and re-design the ticket management process across application support lifecycle – incidents, SRs etc.

• Move from staff augmentation and silo-based teams to outcomes-driven managed services model

• Institution of demand management process for effective spend and contract management

• Leverage DevOps principles in designing the delivery organization

• Design robust frameworks for knowledge management and continuous improvement

Overall savings of $42 million over a 5 year

period (~20% of total operating cost)

DevOps-driven new ways of working leading to better quality and faster TAT

Operationally efficient leaner organization with standardized processes

Established a matured global technology

center: 240+ applications

transitioned, 200+employees relocated, 150+ recruited

Optimization of Shared Services to improve service delivery effectiveness and service costs

Case study #1: IT operating model transformation

25


IT transformation and Cloud allowed the client to react to market trends quickly and effectively.

Spend shift towards innovation Reduced operating costs

Improved return on tech investment Speed to market

Flexibility, agility and scalability to meet business needs

Increased digital capabilities

IT Operating Model

Request driven and manually intensive

Siloed IT functions Focused on SLAs

Self-service/automated Teaming and collaboration Focused on agility and

business impact

Applications

Legacy architectures App proliferation Legacy apps constrains

innovation

Cloud native app dev Rationalized app portfolio Enabling innovation and

speed to market

Infrastructure Capital intensive Fixed capacity Long lead-times

Consumption-driven spend

Scalable capacity Rapid provisioning

Traditional Cloud First

A retailer is migrating from a legacy to Cloud-based delivery organization…

• Labor Efficiencies – automation of

infrastructure operations and app dev and

maintenance efficiencies

• Software and Hardware Reductions– HW

/ SW utilization efficiencies through Cloud

native application development and

migration of applications to Cloud platform

• Elimination of Physical Infrastructure –

retirement and decommissioning of

multiple platforms, data centers, and IT

operations tools

• Scalability and Agility – flex IT costs and

investments based on business demand

…and is on target to realize ~33% operating

cost reduction due to the following levers:

Case study #2: cloud and IT cost transformation

The Future of Work and

Technology Cost Transformation

If you have any questions on the CFO Webinar

or wish follow-up discussion;

Please contact CxO Program Office at [email protected]

For follow-up inquiries related to IT Cost Transformation,

Please contact at Erik Almadrones:

Email: [email protected]

TEL: +81 70 4512 8466 | +1 727 249 9839

Deloitte Tohmatsu Group (Deloitte Japan) is a collective term that refers to Deloitte Tohmatsu LLC, which is the Japan member firm of Deloitte Touche Tohmatsu Limited (DTTL), a UK private company limited by guarantee, and firms affiliated with Deloitte Tohmatsu LLC that include Deloitte Touche Tohmatsu LLC, Deloitte Tohmatsu Consulting LLC, Deloitte Tohmatsu Financial Advisory LLC, Deloitte Tohmatsu Tax Co., DT Legal Japan, and Deloitte Tohmatsu Corporate Solutions LLC. Deloitte Tohmatsu Group is known as one of the largest professional services groups in Japan. Through the firms in the Group, Deloitte Tohmatsu Group provides audit & assurance, risk advisory, consulting, financial advisory, tax, legal and related services in accordance with applicable laws and regulations. With about 11,000 professionals in nearly 40 cities throughout Japan, Deloitte Tohmatsu Group serves a number of clients including multinational enterprises and major Japanese businesses. For more information, please visit the Group’s website at www.deloitte.com/jp/en.

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