Cost Optimization

There are many cost levers at a company’s disposal. Some provide short-term impact but may conflict with strategic goals, while others require long-term investment to be released. To create an optimal and sustainable cost position that is aligned with strategy and commensurate to capital investment, L.E.K. supports its clients in undertaking a comprehensive review of all possible levers, leveraging a broad toolset and deep functional experience.

Overview

Taking out cost is easy. Companies that seek to balance material, sustainable cost reductions with broader strategic goals, however, have a far more complex challenge on their hands. Addressing short-term cost-out imperatives, while ensuring your company maintains sufficient abilities within its core capabilities to support strategic goals and compete in the marketplace, is a delicate act.

Often the most obvious places to look for savings either directly conflict with these strategic considerations or limit the amount you will be able to extract. In addition, it is often difficult to challenge your organization as to whether it has a sufficiently robust view of potential opportunities because the fact base of key cost levers is not documented. Or your senior team may be of the opinion that there is no room for improvement, while they may be oblivious to best practices elsewhere in your industry or analogous sectors.

Furthermore, when it comes to achieving the most material and sustainable cost transformations, these predominantly require complex solutions, such as material organizational or process redesigns, and material investment in terms of capital and senior leadership’s time. As a result, the payback period or simply the reticence to change becomes a stumbling block.

How we help

L.E.K. supports its clients in taking a fresh look at their cost base. Our philosophy is that you don’t need a lengthy and overly detailed, desktop-based diagnostic, but rather a rapidly developed, fit-for-purpose fact base that is leveraged to support a well-coordinated program of client-led initiatives.

Fact base development. We are able to help clients quickly create a single source of truth within a matter of weeks. This normally involves:

  • Cost segmentation by function
  • Segments decomposed, cost reduction levers identified
  • Cost reduction levers (or gap to ideal state) based on deep, sector-relevant functional experience

Opportunity hunt. We leverage a broad productivity toolset to identify opportunities that we deploy as appropriate for each client situation, in order to develop an overall savings target that can be cascaded down into initiatives. This toolset includes:

  • Spans and layers: Ensure that the breadth of reporting lines to the front line is appropriate
  • Value stream mapping/LEAN: Minimize duplication and ensure only “value” activities are undertaken
  • External benchmarking: Create a clear view of what “good” looks like
  • Process redesign: Eliminate redundancies and streamline processes
  • Cost/value driver trees: Decompose costs into their underlying drivers and address the drivers
  • Contractor assessments: Investigate the reliance on contractors and the efficiency of their use
  • Operating model: Redefine allocation of responsibilities and where work is done

Our understanding of market trends and drivers, along with deep industry-specific functional expertise and analytical firepower, enables us to provide the evidence-based analysis executives need in order to make informed decisions.

Mobilizing the program. A change program led by leaders within the company has a far greater chance of succeeding than one driven by external advisors. We view our role as supporting business-led initiatives in developing robust, practical plans, with our teams supporting them with the right tools, analytical bandwidth, and overarching program structure.

We are able to draw on our deep experience in Organizational Strategy to support our clients in configuring their businesses in a way that fully supports and unlocks the value of the most complex cost opportunities.

With world-class capabilities in Value Activation, we are able to ensure our clients develop and deliver actionable strategies that create measurable and sustainable long-term value for organizations.

We typically are able to deliver profit improvements of 10-30% for our clients.

Examples of our work

To learn more about how we help our clients, please refer to these case examples:

  • Product portfolio rationalization and opportunity sizing for a global commercial explosives manufacturer, including short-term 1-2% gross margin improvement and mobilization of a comprehensive activation program to achieve material additional value. Read more
  • Comprehensive performance diagnostic, identifying greater than 10% profit uplift, and mobilization of an activation program for a leading independent film studio. Read more
  • Cost-reduction diagnostic and execution plan development for a South American agricultural storage system manufacturer. Read more
  • Undertook a comprehensive strategic review for a private equity-backed global currency services provider, subsequently standing up and supporting the resultant activation program that was ultimately successful in delivering 100% growth in EBITDA within two years. Read more
  • Development and implementation of an end-to-end efficiency program for a roughly $2 billion electricity and gas transmission and distribution company. Read more
  • Development of a transformative operating model and comprehensive cost-out program delivering 10% savings, for a large freight railway operator. Read more
  • Cost reduction opportunity identification and implementation planning for a roughly $5 billion state-owned electric power distribution company to deliver 20% improvement. Read more
  • Organizational restructure and potential cost-savings identification for a very dispersed resource base. Read more
  • Managed a turnaround effort for a U.S.-based manufacturer of mission-critical aerospace components to streamline production, re-engineer RFP response capabilities and prioritize company initiatives. Read more
  • Helped the leading U.S. manufacturer of plastic horticultural containers to drive improved levels of profitability by optimizing its product portfolio and improving manufacturing operations. Read more
  • Identified critical overhead and operational cost-reduction opportunities for a leading global high-technology engineering business. Read more
  • Helped a global paint-systems supplier turn around its supply chain strategy, including capability mapping and footprint rationalization, resulting in best-in-class inventory turns of greater than 25% and a 70% improvement in operating profits. Read more
     
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Actionable insights borne out of deep, in-market experience in the world’s major industries.

Learn about how we can help you with your Performance Improvement needs.