Cost management

How do I develop a cost management strategy that maximizes efficiency without compromising growth potential?
Traditional cost reduction methods typically fail to achieve the targeted reduction, take longer, and are more expensive than expected. Often, costs are allowed to creep back to historical levels. In working with clients to address cost concerns, PwC has found that there are two foundational elements that should be addressed to help ensure business improvement efforts are well positioned for success. The first element is to focus on costs that can be reduced by understanding what money is spent and why on a functional basis, and by ensuring these functional costs have sound alignment to company financial plans and budgets. The second fundamental element is to change the way money is spent, making these cost reductions sustainable, and creating a culture of cost consciousness that will promote further cost reductions.

How PricewaterhouseCoopers Can Help

Our retail and consumer professionals team with your company, helping you develop strategic responses to the following cost management issues:

• Financial/credit crisis

  Amid the turmoil in the financial markets created by the economic crisis, R&C companies are confronted with several cost management and liquidity issues that need to be addressed in the short term. While addressing short-term risks related to the destruction of wealth, companies need to remain focused on the long-term horizon to remain competitive. Pressure on margins will continue, the need to explore global expansion remains, the shift in consumer demographics and purchase behavior will only increase, the rise of corporate social responsibility is permanent and the influence of digital media to influence consumers will become stronger. Our R&C professionals can work with companies on managing cash to ensure you have sufficient liquidity to operate in difficult times, help evaluate cost structures to improve efficiencies, assist in managing supplier and vendor relationships to avoid costly supply chain disruptions, and carefully evaluating your capital investments through a renewed risk/return lens. Working with you to develop strategic and targeted responses to these various risks can help you survive the downturn and better prepare you for tomorrow's successes.

• Input and commodity pricing

  For the retail sector: Consumers today are not willing, nor able to absorb the pass through of higher input costs as companies continue to deal with these rising economic pressures. Retailers are trying to mitigate this pressure with efforts such as reformulations, new/replacement product innovation, supply agreements, changing product mix, collaboration through distribution channels, and adjusting trade promotional spend to influence consumption. PwC's R&C professionals can assist with identifying potential derivative strategies that may enable your company to achieve competitive advantages. Our enhanced focus on controls and processes can enable a competitive procurement foundation and more accurate forecasting which in turn can help reduce costs through procurement hedging and lead to long-term cost reductions.
  For the consumer products sector: Rising input costs, especially commodity costs for grain, have put increased upward pressure on consumer products manufacturers. Companies are trying to mitigate this pressure with efforts such as reformulations, new/replacement product innovation, supply agreements, changing product mix and collaborations through distribution channels. PwC's R&C professionals can assist with identifying potential derivative strategies that may enable your company to achieve competitive advantages. Our enhanced focus on controls and processes enables a competitive procurement foundation and more accurate forecasting which in turn can help reduce costs through procurement hedging and lead to long-term cost reductions.

• Packaging/transportation/Energy cost reduction

  With rising input costs, the cost of packaging for many products is increasing while rising energy prices are costing companies more to get their products to retail. This is causing a demand for new and creative packaging that reduce overall production and transportation costs through the utilization of less production material, fewer shipping containers, smaller retail displays, more consumer-friendly shapes, sizes and weights. Leveraging our deep industry knowledge, PwC's R&C professionals can help your company focus on controls and processes that enable a more competitive procurement foundation, optimize shipping methods, and leverage more effective route and logistics management.

• Supply chain effectiveness

  More and more, environmental, social and reputational risks are making supply chains even more complex and difficult to monitor. Adding to these supply chain challenges is the increasing importance of environmental preservation, responsible sourcing, carbon footprint management, and other environmental impacts. From source to the point of use, enabling the use of technology and establishing quality management are key opportunities to increase throughput as well as improve gross margins through cost reduction. . Companies must also ensure that their supply chain practices and standards comply with applicable laws and regulations and that overall processes are monitored in order to enforce business partners’ contractual and ethical commitments. Teaming with your company, PwC can help align your operations and business strategy, analyze your direct and indirect spend for potential procurement savings, and develop enhanced controls and systems for a long term solution. Our practitioners can help your company navigate the complicated supply chain puzzle and balance operational objectives with reputational risks to ensure supply chain effectiveness and integrity.

• Portfolio management

  For the retail sector: Brand differentiation is increasingly crucial for profit growth. Retailers are looking to adjust product offerings through SKU rationalization that provides more distinct price points to provide consumers with more streamlined product offerings, while maintaining clear choices. Additionally, private label products provide opportunity for retailers to increase profitability and for CPG companies to improve asset utilization by manufacturing private label products. Proper portfolio management can help your company maximize your revenue potential through a renewed focus on your core business and brands. Our R&C professionals can help you achieve this through effective SKU rationalization; defining and implementing policies, processes and technologies to support brand & channel strategy; and by helping your company to understand, align and manage relationships with customers and suppliers, resulting in enhanced inventory management and customer service.
  
  For the consumer products sector: Manufacturers are refocusing on the core brands that drive growth and profitability. These efforts are providing consumers with more streamlined product offerings, while maintaining clear choices. Such changes also drive simplicity throughout the distribution channel resulting in better inventory management and improved customer service. Proper portfolio management can help your company maximize your revenue potential through a renewed focus on your core business and brands. Our R&C professionals can help you achieve this through effective SKU rationalization; defining and implementing policies, processes and technologies to support brand & channel strategy; and by helping your company to understand, align and manage relationships with customers and suppliers, resulting in enhanced inventory management and customer service.

• Outsourcing/On-shoring

  In response to a constantly changing economy that includes rising transportation costs, talent shortages and other global production issues, domestic companies are looking to bring operations back from "off-shore" to "on-shore." With talent shortages overseas - as well as real labor costs domestically becoming relatively cheaper due to the weak dollar - more companies are taking another look at moving vital parts of their supply chain and infrastructure back to the United States. PwC can work with your company to perform a target assessment, build business cases, structure the deal and negotiate contracts. Through our assistance, your company can locate functions where it makes the most sense, resulting in more effective operations, controls and risk structures and helping you to not only increase your global presence, but reducing operating costs and the strain on resources.

• Taxes/customs/duties/transfer pricing

  With globalization comes new and potentially costly challenges. When sourcing or manufacturing abroad, companies tend to focus on the costs that are most transparent: expenditures related to plans and equipment, raw materials, and employees. However, there are many hidden costs related to moving materials and goods through the global trade network. Our experience tax professionals can help you to align your company transfer pricing policy with your new direction. By integrating often overlooked indirect tax treatment (generally defined as customs duties, VAT, excise taxes, customer processing fees, etc.) into strategic planning, your company can benefit from a long term approach to global tax management. This strategic foresight and operational focus can result in effective tax rate savings, global tax compliance, and effective mitigation of various tax-related risks.