Insight

Build a cost efficiency strategy that drives growth and value

In uncertain times, take bold steps to build resilience.

Make cost efficiency your business

Defining cost efficiency is straightforward. It’s the ability to maximize profit while minimizing expenditures – and it’s a key component of productivity.

What’s more challenging: identifying strategies to reshape cost efficiency throughout the enterprise.

Today’s geopolitical uncertainty, inflationary pressures, energy volatility, and supply chain disruptions are fueling uncertainty and risk. In this environment, CFOs have a chance to step up as change leaders – and take bold steps to build resilience and agility with a balanced focus.

KPMG helps you take a holistic approach to your cost efficiency strategy, as you assess which people, process, and technology optimization levers to pull while addressing governance, controls, and reporting.

Reorganizing

An interesting concept, especially if some of the spending categories have receded. There may be an opportunity to shift responsibilities, enabling category managers to take on more of the sourcing responsibilities and supplier management. Or you could move some of those activities into the stakeholder organizations, which can increase efficiency and free up time to address some of the more high-value tasks.

Supplier self-service

Self-service is one of the key benefits of e-procurement done right. Companies should maintain solid supplier portal functionality so suppliers can check invoice status and engage in digital bidding. Pushing supplier enablement, taking advantage of the time to bring new suppliers on board, and making sure invoices are coming in digitally can save a tremendous amount of time.

Standardizing contract templatess

Simplifying the way firms contract with new suppliers could significantly streamline the approval process, where back and forth over legal redlines is often a major speedbump. Putting a collection of basic templates in place and then, for example, rationalizing a clause library to house standard preapproved contract language, can facilitate the transition to an efficient level of guided self-service contracting.

Process mining

This tactic continues to be an important part of procurement portfolios, providing a clear snapshot of enterprise-wide purchasing processes in near real time, enabling you to identify and address pricing, compliance, and supplier inefficiencies. Process mining can be instrumental in discovering where manual efforts are producing inefficiencies, as well as help identify automation opportunities. If you plan to embark upon this exercise, it’s critical to ensure the relevant data is accessible, properly structured and, above all, accurate.

Overcome common cost efficiency challenges

In a KPMG cost efficiency webcast survey CFOs and other finance leaders identified some of their most persistent concerns and challenges.

Which cost efficiency mindset does your organization struggle with the most ?

What is your greatest concern with implementing a cost efficiency program?

Six strategies for effective cost takeout

Support a leaner, more sustainable and cost efficient enterprise – without sacrificing capabilities.

Here’s where to focus:

Prompt-pay discounts

Many organizations are simply missing these opportunities. Procurement teams should review their current purchasing process and standardize payment terms to ensure you realize these discounts.

Extending payment terms

If working capital is a priority, work with suppliers to push payments out. This entails better managing master data, reviewing the overall terms for accuracy, ensuring approval thresholds are where you want them to be, and communicating with suppliers to ensure everyone is on the same page.

Tail spend management

This is another area that is often overlooked. During periods when you're busy with higher-value sourcing tasks, you may not focus on tail spend—intermittent, low-volume spending that’s largely uncategorized and not well organized. Simply by doing a percentage of the firm’s purchasing through one of the many e-commerce sites, you can activate a “one-stop” shopping experience and potentially reduce the effort needed to onboard numerous smaller suppliers.

Spend forecasting

By leveraging historical data and spend forecasting technology to optimize inventories and third-party spend, companies can learn from the past, establish spend targets and goals, and drive cost reductions more methodically.

Benchmark-driven category management

Take the opportunity to look externally for ways to improve the financial performance of your procurement function. Analysis can uncover data leading to competitive best practices and new spending objectives to work toward. A number of today’s procurement applications include embedded analytics that enable firms to compare themselves against competitors within their industry, as well as other similar businesses.

Contract analytics

Are you initiating contracts and filing them away, but not reviewing them regularly? Particularly in connection with complex external service providers, are you truly receiving the support the contract calls for? Do you have clear SLAs to validate those contracted services? Identifying trends, irregularities and any resulting opportunities to improve terms and ensure maximum commercial value.

1

Real understanding of the business

Ensure leadership is aligned with the state of the business, with proper planning to prepare for and respond to future uncertainties.

2

Clarity and knowledge

Have in-depth knowledge to identify root causes to gain good, clear visibility for realizing cost savings.

3

Clear leadership and communication

Drive the tone and commitment throughout the organization to build buy-in and momentum.

4

Behavior change

Focus on a cultural reset by embedding new ways of thinking and working into day-to-day behaviors. Doing so helps align control around costs.

5

Fresh thinking

Having a growth mindset across the organization enables bold thinking and holistic decision making.

6

Rigorous implementation

Set up project management and key performance indicators (KPIs) to have strict controls of the program.

The six strategies work best with alignment – and effective communication – across functions and business units.

Future-focused operating model

As you prepare for an economic downturn, work to expand oversight by analyzing cost structures, designing cost-efficient programs, and quantifying the level of effort.

The KPMG Target Operating Model (TOM) can help. It combines leading technology and outcome-driven transformation to enhance the value of the finance function across an enterprise. With a comprehensive, future-focused approach, KPMG’s model emphasizes business goals and quick wins, which in turn helps drive cost efficiency.

Unlike other models, ours covers six layers of the finance function. It yields a more complete view that includes:

Governance	People	Functional process	Technology	Performance insights and data	Service delivery model
Risk and internal controls for every process	Span of control, job definitions, skills mix, and skills prioritization	Process re-design and standardization	Integrations and automation	Standardizing KPIs and reporting	Optimizing offshoring/outsourcing models