Managing disruption through strategic cost transformation

Transcription

1 CII TCM Cost Congress 2017 Managing disruption through strategic cost transformation Conference Presentation 20-Nov-2017 Kaushika Madhavan, Partner A.T. Kearney

2 Indian organizations face multiple disruptions today Disruption themes Technology and Digital 1000x increase in # of internet users in last 15 years 10x drop in cost of data storage in last 10 years Regulatory framework GoI s proposal for electric vehicles by 2030 New insolvency and bankruptcy code, GST, push for digitization etc. Not exhaustive Political & economic environment New upcoming trade initiatives (RCEP, FTA with EU, OBOR etc.) Increasing global protectionism (inward US policies, Brexit) New-age business models Asset light business models Increased investor activism Lean and Mean approach Platform oriented and tech-driven Source: Market reports, News articles, Interviews, A.T. Kearney Corporate overhauls, increased board representation A.T. Kearney/ CII/ TCM Cost Congress 2

3 Example of potential disruption Soylent Staple meal alternatives Source: Soylent Official Website, Secondary Research, A.T. Kearney/ CII/ TCM Cost Congress 3

4 Readiness of sector While the threat of disruption varies across industries, most are not well prepared High Banking and Financial Services Retail (B&M/ E-com) Telecom FMCG Pharmaceuticals IT & ITES Automotive and Auto Components Low Chemicals Power Oil and Gas Low Metals and mining Threat of disruption High Source: Industry interviews; A.T. Kearney Industry experts A.T. Kearney/ CII/ TCM Cost Congress 4

5 Strategic cost transformation will enable organizations to take on disruptions Strategic cost transformation EMBRACE new business and asset models RESET cost base LEVERAGE and digital ENABLER Cost conscious culture & Investment pool for experimentation Source: A.T. Kearney A.T. Kearney/ CII/ TCM Cost Congress 5

6 1 Embrace new business model for a different cost position Evolving business models: Fast Fashion Traditional Retailer Pricing index Operating margins 8-10% 18-20% 11-12% Time to market # of styles (eg. men s formal shirt) 3-6 months 3-6 weeks 6-8 weeks Approach Manufacturing in low cost hubs Advance style and volume lock-in Mix of in and near-sourcing Customer feedback driven ordering High volume, off-season sourcing from low cost Asian hubs Source: Market reports, News articles, Interviews, A.T. Kearney Analysis A.T. Kearney/ CII/ TCM Cost Congress 6

7 1 Collaborate to create a win-win Sharing resources for mutual advantage Select Examples Sharing patents/ technology Samsung and Google to share patents Apple and HTC signed wideranging patent deal in 2012 Sharing physical assets Med-immune sharing manufacturing facilities with Merck Telcom companies sharing towers in India FLOOW 2 : Dutch start-up facilitates sharing equipment, manufacturing assets etc. Sharing business models BMW launched carsharing program called DriveNow with Sixt Patagonia tied with ebay to create online marketplace for preowned goods Source: A.T. Kearney A.T. Kearney/ CII/ TCM Cost Congress 7

8 1 Outsource strategically R&D Activities Contract manufacturing API 1 manufacturing IT & network services Website development 1. Active Pharmaceutical Ingredient Source: Market reports, News articles, Interviews, A.T. Kearney A.T. Kearney/ CII/ TCM Cost Congress 8

9 2 RESET your cost base RESET vs. BAU cost efficiency BAU RESET 01 Trigger External pressure / functional benchmarks Strategic imperative and foresight 02 Scope Patchwork of efficiency programs End to end value chain 03 Timing Standalone projects with no end point Concurrent efforts with clear end point 04 Guiding Principle Functional improvement Value Chain optimization 05 Scorecard Project-based savings, fragmented reporting Full margin target & no-excuses reporting 1 5 % 10 15% Source: A. T. Kearney A.T. Kearney/ CII/ TCM Cost Congress 9

10 2 RESET takes a comprehensive view of the enterprise The RESET Way Commerical Sales & Marketing Product Development Customer Service Operations Manufacturing Materials & Logistics Direct & capital spend G&A Finance, IT & HR Facilities & Real estate Overhead & support spend Source: A.T. Kearney A.T. Kearney/ CII/ TCM Cost Congress 10

11 2 RESET drives larger shareholder gains % change in stock price over 2 years RESET 45 BAU programs 40 S&P x RESET programs offer magnified share-holder value 4x Note: Stock price based on adjusted close price of each week Source: Yahoo! Finance, A.T. Kearney A.T. Kearney/ CII/ TCM Cost Congress 11

12 3 Leverage for a step change in efficiency & productivity Analytics across FMCG value chain Maturity level in Analytics Low Medium Typical savings % on addressed spend High R&D 5-10 % Product attribute Alternate design Predictive - NPD Connected product innovation Source: A.T. Kearney Sales & Support Sourcing Manufacturing Logistics Marketing functions % 5-10 % % % 5-10 % Spend Procurement dashboard Vendor negotiation and selection Parametric modeling Price forecasting Commodity risk management Machine learningbased forecasting Plant uptime Production rate dashboards Real-time production planning Production efficiency / Yield mgmt. Predictive quality control Production forecasting Predictive diagnostic maintenance Environmental intelligence (CO 2 reporting) Fleet uptime Fulfilment intelligence Resource & route optimization Network optimization CRM dashboards Digital and social media Sales force automation Marketing mix ROI optimization Pricing optimization AI based programmatic buying Workforce planning Finance planning Scenario planning Credit risk Fraud detection A.T. Kearney/ CII/ TCM Cost Congress 12

13 3 Leverage digital first approach Digital and use-cases across industries Finance IT Telecom Steel major in India FMCG major in India Digital first approach for all processes 1/5 th headcount as compared to Ola Automation of routine support work in payments processing - # of employees reduced by 95% Aadhar card based registrations replacing paper work and manpower requirement 60% lower cost of registration and verification Machine learning based prediction algorithm to predict arc furnace firing time 50 Cr. + reduction in power cost Analytics driven truck mix and backhaul optimization 10%+ reduction in logistics cost Source: Market reports, News articles, Interviews, A.T. Kearney A.T. Kearney/ CII/ TCM Cost Congress 13

14 Enable a cost conscious culture and create an investment pool for experimentation Enablers Cultivate the culture of cost frugality Cost consciousness starts at the Top Take a zero based approach to budget (and take a wide angle view of cost) Learn to experiment and experiment to learn Re-frame failures as learnings Create investment pool for experimentation Gigafactory Develop Acquire 30% fall in battery price expected Kiva 20% OPX reduction Savings expected: USD 800 Mn Keep in mind transformation is a journey (and not an event) Enable ecosystem 300+ investment in areas like Data, Consumer, Robotics etc. A.T. Kearney/ CII/ TCM Cost Congress 14

15 A.T. Kearney is a leading global management consulting firm with offices in 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit Americas Atlanta Bogotá Boston Calgary Chicago Dallas Detroit Houston Mexico City New York San Francisco São Paulo Toronto Washington, D.C. Asia Pacific Bangkok Beijing Brisbane Hong Kong Jakarta Kuala Lumpur Melbourne Mumbai New Delhi Perth Seoul Shanghai Singapore Sydney Tokyo Europe Amsterdam Berlin Brussels Bucharest Copenhagen Düsseldorf Frankfurt Istanbul Lisbon Ljubljana London Madrid Milan Moscow Munich Oslo Paris Prague Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East and Africa Abu Dhabi Doha Dubai Johannesburg Riyadh A.T. Kearney/ CII/ TCM Cost Congress 15