10 Ways to Reduce Operating Costs Through Structural Reengineering

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operating cost footrpint

Executives that actively manage and optimize their business footprints can deliver significant and recurring cost savings to their enterprises.

A notable amount of company spend is directly tied to geographically variable costs such as direct and indirect labor, real estate, utilities, freight, and direct and indirect taxes—all related to location and operation configuration.

The ability to influence change on these items can bring dramatic results for the company:

  • Structural operating costs can be influenced by a change in location.
  • Occupancy costs can be influenced by a change in workplace strategy.
  • Both one-time and recurring costs can be reduced with focused incentive strategies that improve the performance of the business and increase its competiveness.

Following are 10 cost reduction methods that may help your company re-engineer its operating footprint cost structure:

1. Lease Restructuring

Recessionary periods can offer tenants the leverage they need when identifying opportunities to renegotiate the terms and conditions of their lease. Seek commitments that provide at least a 20% savings opportunity compared to your existing obligations, which upon a renewed agreement, proves a win-win for both landlord and tenant.

2. Occupancy Cluster Consolidation

The objective of the effort is to shift occupancy between a combination of facilities, within the same market, that each contain un-utilized space. Seek commitments that provide at least a 20% savings opportunity compared to your existing structure.

3. Resizing the Occupancy Envelope

Savings of up to 50% of existing occupancy can be achieved when you review opportunities and potential outcomes in utilizing occupancy levers, including: space metrics and ratios, supply-demand matching/improved utilization, business process configuration, employee mobility and more.

4. Shared Services Operating Footprint

The migration of processes into a shared services center, located in a moderate-to-low cost jurisdiction, could result in ongoing savings of $14-$30 million per 1,000 headcount at that establishment.

5. Domestic Business Bifurcation and Redeployment

By identifying corporate activities suitable for bifurcation and redeployment to lower cost locations (ex. HR, IT, etc.), companies can reduce fragmentation, improve cost of execution and access to talent, and achieve scale at desired costs. Companies can realize $12-$16 million in recurring savings per 1,000 jobs bifurcated.

6. Offshoring

Companies can save up to $30 million in recurring operating costs per 1,000 jobs moved from high cost locations to low cost platforms in other countries.

7. Service Center Consolidation

The consolidation of service centers or call/contact centers, can increase labor and real estate savings up to 40%. This is achieved by a reduction in occupancy and labor spend, along with improved equipment utilization.

8. Manufacturing Consolidation

The consolidation of manufacturing operations by “lifting and shifting” to lower cost locations offers significant opportunities to companies that support multiple facilities that produce the same products, and/or operations that are no longer globally cost competitive. Results can vary by industry profile and operating cost structure.

9. Distribution Center Network Organization

Often a 5-12% cost reduction opportunity exists for the optimization of facilities across a network of operations, including the improvement of supply chain operations and/or greater flexibility with ever-changing fuel prices.

10. Incentives Negotiation

Review incentives opportunities to support business decisions. These programs are typically centered on capital investment or job creation, and projects with attractive project specifications for these metrics can often garner governmental support for the business case associated with a location decision.

For additional details on each of these cost-saving opportunities, download our whitepaper, 10 Opportunities To Re-engineer the Operating Footprint Cost Structure.

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What further actions and ideas can contribute to reducing the operating footprint for businesses?

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