Many companies despite having profits still have problems with cash. In other words they have to improve their liquidity. This topic is not widely discussed and a few management consultants as well as managers know how to do it practice. Therefore, more companies die because of problems with liquidity than due to low profits. Luckily, there are a lot of techniques that will help you in a structured way look for ways to generate more cash from the business. In this course I will show you different methods that you can use to improve the cash position of your business. You will learn the following things: 1. How to identify potential ways to improve your liquidity, especially quick wins 2. How to estimate in Excel how much cash you can generate from specific solution 3. How to pick the optimal solution 4. How to prevent the firm from going bankrupt due to liquidity problems You will learn here how to cut costs, reduce inventory, reduce receivables, improve payables, and restructure debt and many more: For more check the following course: http://bit.ly/LiquidityManagementConsulting

1. 1
Liquidity Management for
Management Consultants &
Managers
Practical guide how to improve your cash position

2. 2
In business you have to make a lot of important decisions
Many companies despite having profits still have problems
with cash. In other words they have to improve their liquidity.

3. 3
In business you have to make a lot of important decisions
Luckily, there are a lot of techniques that will help you in a structured
way look for ways to generate more cash from the business

4. 4
In this presentation I will show you how to improve the liquidity of the firm. In
other words how to generate more cash and grow the business with less capital

5. 5
Reduce Inventory Reduce ReceivablesGeneral framework
Restructure Debt
Improve Margins &
Revenues
Improve Payables
Revise Investment Cut Costs Strategic Moves
In this presentation we will discuss the following things

6. 6
What you will see in this presentation is a part of my online course where you
can find case studies showing analyses along with detailed calculations in Excel
Liquidity Management for
Management Consultants & Managers
$190
$19
Click here to check my course

7. 7
Why Liquidity Management
matters?

8. 8
General framework for
Liquidity Improvement

9. 9
How much assets do you need?
How do you finance those assets?
What is your profit?
When talking about liquidity you have 3 fundamental questions

10. 10
Let’s have a look at the general framework that we will use in this course
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves

11. 11
Reduce Inventory

12. 12
Reduce Inventory –
Introduction

13. 13
Inventory in most business is a must if you want to sell your products and scale the
business. That is why it so vital to reduce the inventory if you want more cash

14. 14
In this section I will discuss different ways in which you can reduce
inventory
Components of Inventory
General framework for
Inventory Reduction
Cases Studies & Analysis

15. 15
Components of Inventory

16. 16
There are 4 main components that create Inventory
Inventory
Raw Materials Work in Progress (WIP) Finished Products Goods
Lead Time
# of raw materials used
Minimal quantity you have to
order
Modularity level of the
finished product
Ownership
Processing Production Time /
Cycle Time
Over-production at certain
stages
The way stages talk to each
other
# of sub-processes
Size of the factory
# of factories
# of SKUs
Accuracy of Sales Forecasting
Production Process Type (i.e.
produce to order or to shelf)
Modularity level of finished
products
# of languages / markets
# of SKUs
Accuracy of Sales Forecasting
# of languages / markets
Minimal quantity you have to
order
Ownership
# of suppliers

17. 17
General framework for
Inventory Reduction

18. 18
Let’s have a look at the general framework for inventory reduction
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves
Order Less
Reduce Product
Range
Shorten production
cycle
Unify packaging &
materials
Get rid off the
middleman
Sell more directly
Consolidate the # of
warehouses
Decrease waste
Reuse slow moving
inventory
Sell dead wood stock
Consignment Stock
Others i.e.
marketplace

19. 19
Shorten production cycle

20. 20
Let’s have a look at some standard ways to shorten production cycle
that will help you reduce inventory
Reduce processing time
Implement Kanban
Implement Continuous Flow
Change Factory Layout
Make sure you have the required
materials
Make sure you have the required
resources
Do only things that are required
Remove bottlenecks

21. 21
How to measure the impact of
shortening the production time

22. 22
To measure the impact of shortening production time we should measure WIP
in days of production
WIP
WIP in days =
Monthly Production
x 30

23. 23
Let’s have a look at short example
WIP
WIP in days =
Monthly Production
x 30
20
60 =
10
x 30

24. 24
This also means that we can show Work in Progress (WIP) as something that
depends on the WIP in days
WIP in days
WIP =
30
x
Monthly
Production
WIP
WIP in days =
Monthly Production
x 30

25. 25
Now let’s try to estimate what will happen if we reduce the WIP in days
30
WIP old =
30
x 1 000 = 1 000
15
WIP new =
30
x 1 000 = 500

26. 26
In the next lectures we will have a detailed look at 2 things
Kanban Continuous Flow

27. 27
Kanban

28. 28
Since each person is not talking to each other you are creating a lot of work
in progress (WIP) that you have to throw away
Cut the bread
Cut cheese
Cut the meat
Assemble the
sandwich
20
15
10
6
10
X
Hourly Capacity in pieces
Inventory in pieces
14
9
4

29. 29
By introducing Kanban you limit the work in progress / inventory
Cut the bread
Cut cheese
Cut the meat
Assemble the
sandwich
20
15
10
6
10
X
Hourly Capacity in pieces
Inventory in pieces
Kanban

30. 30
Below some examples of kanban

31. 31
Kanban for services

32. 32
Consulting is a place where the work is very volatile – one day you work 15
hours and next day you have nothing to do. What you want to do is use the
time of low activity to somehow prepare yourself and absorb periods of high
activity
1 2 3 4 5 6 7 8 9 10 11 12

33. 33
Therefore you create a shelf of tasks to be done once you are free. This to-dos
should be properly selected and structured and can have the form of a Kanban

34. 34
Below you have an example of defining of to-dos for the Kanban shelf
Product
development
Read articles
Read 5 articles
Read 5 articles
Read 5 articles
Read book
Read 50 pages
of 1 book
Read 50 pages
of 1 book
Read 50 pages
of 1 book
Product
proposal
Draft in pencil
Draft in PP
Fill in 5 slides
Fill in 5 slides

35. 35
Tasks from the Product development exercise you put into the Kanban
Education Product development Sales

36. 36
There are number of things that you can put on the shelf
Learning new tools
Learning new skills
Improving skills
Project preparation
Knowledge base preparation
Training preparation
Conduct training (esp. lesson
learnt)
Business development
Template preparation
Product Development

37. 37
Continuous Flow –
Introduction

38. 38
Ideally you would like to have a continuous flow of goods
 Each process “speaks” to each other and it is enough to
say to the last one what you want. The rest will follow
 Pull process not a push process
 We produce only what the customer needs and exactly
as much as he wants
 Hardly any inventory
 We use efficiently resources especially people

39. 39
In order to implement it in real life we have to define some terms
Hourly capacity
 Number of semi-products / parts that can be
produced by a specific worker
Cycle Time (CT)
 Time in minutes needed to produce 1 semi
product /part by a specific worker
=
=
Hourly Capacity =
60
Cycle Time (CT)
Takt time
 Frequency with which the product is demanded
by the customer=
Cycle Time (CT) ≈ Takt time

40. 40
Continuous flow gives you a lot of advantages
Short cycle time
Less inventory
Higher quality
Fewer inefficiency
Better usage of people
Less space
Faster servicing of the customer
Lower need for
transportation
Lower costs

41. 41
How not to make continuous flow
– sandwich factory

42. 42
Imagine that you have a small factory producing sandwiches

43. 43
You have 4 people. Each of them does the sandwich from beginning till the end
Cut the bread
Cut vegetables
Fry vegetables
Cut the cheese
Assemble the sandwich
Pack the sandwich
4
5
3
6
7
11
36
x
CT in
minutes

44. 44
You have 4 people. Each of them does the sandwich from beginning till the end
Cut the bread
Cut vegetables
Fry vegetables
Cut the cheese
Assemble the sandwich
Pack the sandwich
4
5
3
6
7
11
36
36
x
CT in
minutes

45. 45
If you divide the activities and give 1 activity per person you can lower the
waiting time of the customer
Cut the bread
Cut vegetables
Fry vegetables
Cut the cheese
Assemble the sandwich
Pack the sandwich
4
5
3
6
7
11
36
Cut the bread
Cut vegetables
Fry vegetables
Cut the cheese
Assemble the sandwich
Pack the sandwich
3
4
2
4
6
10
29
All operations done by 1 person Division of work and specialization
10
x
CT in
minutes

46. 46
Yet since each person is not talking to each other you are creating a lot of work
in progress (WIP) that you have to throw away
Cut the bread
Cut vegetables Fry vegetables
Cut the cheese
Assemble the
sandwich
Pack the
sandwich
15
30
20
15 10
6
10
3
2
4
4 6
10
10
80
X
Hourly Capacity in pieces
CT in minutes
Inventory in pieces
120
40
32
40

47. 47
When we compare the 2 options we can see that there are some strong
advantages of the division of work yet is causing lot of waste
All operations done by 1 person Division of work and specialization
 4# of people  6
 36 minutesTotal cycle time
needed to produce
the sandwich
 29 minutes
 We are not using the people – no
customer cannot do anything
Type of waste  We are wasting food that we have to
throw out at the end of the shift
 36 minutesTime the customer
awaits for the
product
 10 minutes
 None; just raw materialsInventory of Work
in Progress
 A lot . The biggest in vegetables – for 120
sandwiches

48. 48
How to make continuous flow
– sandwich factory

49. 49
If we want to limit the waste we will have to look at the cycle time of each
and every operation. As you can see this is due to the fact that some
process are much faster than the things that follow after them. You have to
get even cycles
3
2
4 4
6
10
Cutting Bread Cut Vegetables Cut Cheese Fry vegetables Assemble sandwiches Pack the sandwich
Takt time

50. 50
The are number of ways in which you can try and get the even cycle
times
 Combine two operations
 Divide 1 operation into many
 Speed up the operation
 Put Kanban between the 2 process or FIFO lane and limit the time
of specific worker spend on the working station

51. 51
We know that customers want to eat 6 sandwiches during the hour. It
means that we need cycle time of 10 for every process
106

52. 52
Let’s see what we can do with our cycle times
3
2
4 4
6
10
Cutting Bread Cut Vegetables Cut Cheese Fry vegetables Assemble sandwiches Pack the sandwich
Takt time

53. 53
We can combine some of the processes to get to the pace required by
the customer for every processes
7
6 6
10 10
Cutting Bread & Cut
Cheese
Cut Vegetables & Fry
vegetables
Assemble sandwiches Pack the sandwich Required by customer
demand

54. 54
In this we lower down the inventory drastically and have fewer people
Cutting bread &
Cut Cheese
Cut & fry
vegetables
Assemble the
sandwich
Pack the
sandwich
10
8,6
10
6
10
7
6 6
10
10
0
X
Hourly Capacity in pieces
CT in minutes
Inventory in pieces
11
21

55. 55
Let’s see how the 3 options compare with each other
All operations done by
1 person
Division of work and
specialization
 4# of people  6
 36 minutesTotal cycle time
needed to produce
the sandwich
 29 minutes
 We are not using the
people – no customer
cannot do anything
Type of waste  We are wasting food that we have to throw out at the end of the shift
 36 minutesTime the customer
awaits for the
product
 6 minutes
 None; just raw materialsInventory of Work
in Progress
 A lot . The biggest in
vegetables – for 120
sandwiches
Continuous Flow CT
10; no limiting lanes or
Kanban
 4
 29 minutes
 6 minutes
 21 sandwiches are
thrown and 11 sets of
vegetables for
sandwiches

56. 56
In this we lower down the inventory drastically and have fewer people
Cutting bread &
Cut Cheese
Cut & fry
vegetables
Assemble the
sandwich
Pack the
sandwich
10
8,6
10
6
10
7
6 6
10
10
0
X
Hourly Capacity in pieces
CT in minutes
Inventory in pieces
11
21

57. 57
If we put FIFO lanes and kanbans we can further improve
the customer experience and lower
Cutting bread &
Cut Cheese
Cut & fry
vegetables
Assemble the
sandwich
Pack the
sandwich
10
8,6
10
6
10
7
6 6
10
10
Hourly Capacity in pieces
CT in minutes
Lane limiting the inventory
FIFO Lane
Max 1
FIFOLane
Max2
FIFO Lane
Max 2
FIFO Lane
2
Kanban

58. 58
Let’s see how the options compare with each other
All operations done by
1 person
Division of work and
specialization
 4# of people  6
 36 minutesTotal cycle time
needed to produce
the sandwich
 29 minutes
 We are not using the
people – no customer
cannot do anything
Type of waste  We are wasting food that we have to throw out at the end of the shift
 36 minutesTime the customer
awaits for the
product
 6 minutes
 None; just raw materialsInventory of Work
in Progress
 A lot . The biggest in
vegetables – for 120
sandwiches
Continuous Flow CT
10; no limiting lanes or
kanban
 4
 29 minutes
 6 minutes
 21 sandwiches are
thrown and 11 sets of
vegetables for
sandwiches
Continuous Flow CT
10; lanes and Kanban
 4
 29 minutes
 0 minutes
 2 packed sandwiches
 2 almost ready
sandwiches
 2 sets for sandwiches

59. 59
Unify packaging & materials

60. 60
There are 3 ways to unify packaging and materials
Implement modularity of
finished products
Standardize similar things and
limit number of materials
used
Unified version for a big
number of use cases

61. 61
In the next lectures we will go through a case study of a cosmetics producer.
One of the things we will do there is to estimate the impact of unifying bottles
Use less – cosmetics producer
case study

62. 62
Use less – Cosmetics Producer
– Case Introduction

63. 63
Now we will have a look at a cosmetics producer and we will try to measure how
much they can save by using less. We will look at 3 areas of their activities

64. 64
Below some information about the firm we will be analyzing
They want to minimize number of
bottles they use
The are considering visiting less
frequently customers
They want to move 2 offices into 1
bigger office
Check how much they can save

65. 65
Decrease Waste

66. 66
Decreasing waste is one of the ways to reduce inventory
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves
Order Less
Reduce Product
Range
Shorten production
cycle
Unify packaging &
materials
Get rid off the
middleman
Sell more directly
Consolidate the # of
warehouses
Decrease waste
Reuse slow moving
inventory
Sell dead wood stock
Consignment Stock
Others i.e.
marketplace

67. 67
If you manage to decrease waste, there are 3 potential beneficial impacts
You waste less material
You can produce more or
order less materials
You can earn more (higher
production or lower costs)

68. 68
In the next lectures we will have a look at 2 things
Waste analysis process
Waste analysis case study –
Plywood

69. 69
Waste analysis

70. 70
Before you start analyzing the waste you have to somehow group it by stages of
occurrence and type of waste
Type 1
Type 2
Type Z
Stage 1 Stage 2 Stage X….
….

71. 71
For finding the potential improvements in waste I propose the following
approach
Measure and
allocate waste by
stages and type of
waste
Pick specific type of
waste and the stage
you want to tackle
Find the root cause
Find the
improvement
Calculate whether it
makes economic
sense or not

72. 72
There are some standard reasons for high waste
Reasons for high waste
Faulty machines
Lack of procedures and processes
Poor training
Lack of measurement
Change of technology
Lack of preventive maintenance
Badly applied technology /
procedures

73. 73
Decrease waste –
Case Introduction

74. 74
Imagine that you work for a plywood firm with 3 factories
3 plants
They have different waste level
Estimate the potential impact
on profit and cash
You can find waste: in too big
level of wood usage or plywood
quality

75. 75
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
Liquidity Management for
Management Consultants & Managers
$190
$19
Click here to check my course

76. 76
Reduce Receivables

77. 77
Reduce Receivables –
Introduction

78. 78
Most firms don’t sell directly, so a lot of money are tied up in receivables.
Luckily, there are certain ways to lower receivables and increase cash position

79. 79
In this section I will discuss different ways in which you can reduce receivables
General framework for
Receivables Reduction
Switching from indirect to
direct sales – case study in
SMCG
Reducing cash gap – case
study in B2B service business
model

80. 80
General framework for
Receivables Reduction

81. 81
Let’s have a look at the general framework for receivables reduction
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves
Shorten payment
terms
Set limits on your
customers
Sell more directly
Offer discounts for
cash payments
Barter
Factoring
Others

82. 82
In the next lectures we will go through 2 case studies which will show you how
to estimate cash impact and pick the optimal solution
Smartphone producer that wants to
build own retail chain
Reducing cash gap after M&A of a
Data Scientist firm

83. 83
Direct Distribution – Case
Introduction

84. 84
Imagine that you are working for a smartphone producer that considers direct
distribution. Check whether it makes sense
He currently gives 30% discount to
retailers
He considers building his own
multichannel retail
His target is to sell through new
channel 500 K phones

85. 85
To see whether the direct distribution makes sense we will have to calculate
the net margin from selling the same number of units
# sold
Unit production
cost
Net Margin from
current distribution
Average shelf price
Unit Net Margin
x
Unit discount given
to the retailer
-
# sold
Average shelf price
Unit Net Margin
x
Net Margin from
direct distribution
% EBITDA of own
retail
x

86. 86
Before we move to calculation for the cases study let’s first see how to model in
Excel retail
Modeling of retail in Excel

87. 87
Direct Distribution – Back to the
Case Study

88. 88
In the previous 3 lectures I have shown you how to model retail
business. We will use it to solve our case
Modeling of retail in Excel

89. 89
Just as a reminder are working for a smartphone producer that considers
direct distribution. We want to check whether it makes sense
He currently gives 30% discount to
retailers
He considers building his own
multichannel retail
His target is to sell through new
channel 500 K phones

90. 90
In the next lectures I will show you slowly the model we have build to
check what direct distribution gives us
Modeling of Current Net Margin
without Direct Distribution
Modeling of 1 store if we did
Direct Distribution
Future Net Margin for Direct
Distribution
Comparison

91. 91
Direct Distribution – Case
Solution

92. 92
Just as a reminder are working for a smartphone producer that considers
direct distribution. Check whether it makes sense
He currently gives 30% discount to
retailers
He considers building his own
multichannel retail
His target is to sell through new
channel 500 K phones

93. 93
Let’s have a look how to show in Power Point the comparison of the
direct distribution vs distribution via retailers
1 387
922
465
35 23 27
434
NPV Future Net Margin NPV Current Net Margin NPV of the Difference in
Net Margin
NPV of Capex NPV of Inventory Increase NPV of Receivables
decrease
NPV of the whole
investment
NPV of benefits and investments – 10 year perspective
In millions of USD

94. 94
Reduce Cash Gap – Case
Introduction

95. 95
Imagine that you have bought a firm providing Data Science services. You will mainly use
a Debt put on the purchased firm but there is still Cash Gap you have to take care of

96. 96
A few information about the firm that we will be analyzing
The company has 500 Data Scientists
80% of their time are billable hours
Customers pay on average EUR 48 K
fee per Data Scientis
Consider 8 scenarios

97. 97
Let’s have a look at the scenarios
Scenario 1 – Small reduction
of the Receivables Conversion
Period
 We reduce Receivables Conversion Period (Days Sales Outstanding) from
90 days to 60 starting from Year 2
 No impact on sales growth in the forecast period
Description of the scenario
Scenario 2 – Big reduction of
the Receivables conversion
 We reduce Receivables Conversion Period (Days Sales Outstanding) from
90 days to 30 starting from Year 2
 Growth rate will go down from 20% to 15%
Scenario 3 – Factoring
 You use factoring to reduce Receivables Conversion Period (Days Sales
Outstanding) from 90 days to 10 starting from Year 1
 Annual rate used for factoring is 5%
Scenario 4 – Additional Credit
Line
 You take in Year 1 additional credit line of EUR 1 500 K
 This line you keep throughout the forecast period and you pay the same
interest rate as on the debt you used for the purchase of the firm

98. 98
Let’s have a look at the scenarios
Scenario 5 – Medium increase
of Payables
 We increase Payables Conversion Period from 10 days to 30 starting from
Year 2
 No impact on margins
Description of the scenario
Scenario 6 – Big increase of
Payables
 We increase Payables Conversion Period from 10 days to 60 starting from
Year 2
 EBIT margins moves from 20% to 19% in Year 2
Scenario 7 – Small increase of
prices
 We increase the price per 1 Data Scientist from EUR 48 K to EUR 50 K per
year
 We assume that this will not have impact on growth rate
 EBIT margin will increase from 20% to 24%
Scenario 8 – Big increase of
prices
 We increase the price per 1 Data Scientist from EUR 48 K to EUR 52 K per
year
 The revenue growth rate will go down from 20% to 5%
 EBIT margin will increase from 20% to 28%

99. 99
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
Liquidity Management for
Management Consultants & Managers
$190
$19
Click here to check my course

100. 100
Improve Payables

101. 101
Improve Payables –
Introduction

102. 102
Most companies have plenty of suppliers that they have to pay for their services
and goods. A lot of additional cash can be generated by optimizing the payables

103. 103
In this section I will discuss different ways in which you can improve
payables
General framework for
Receivables Reduction
Reducing cash gap – case
study in B2B service business
model

104. 104
General framework for
Payables Improvement

105. 105
Let’s have a look at the general framework for payables improvement
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves
Renegotiate Payment
Terms
Consolidate suppliers
Look for new
suppliers
Barter
Reverse Factoring
Consignment Stock
Change frequency of
purchasing
Change the moment
of issuing the invoice
Use Faster Transport
Others

106. 106
Payables Improvement –
Case Introduction

107. 107
We are back to our case study of a consulting company buying Data Scientists firm. Now
we will give more attention to the scenarios where we increase payables

108. 108
Just as a reminder a few information about the firm
The company has 500 Data Scientists
80% of their time are billable hours
Customers pay on average EUR48 K
fee per Data Scientis
We considered 8 scenarios

109. 109
Previously we went through 4 scenarios
Scenario 1 - Small reduction
of the Receivables Conversion
Period
 We reduce Receivables Conversion Period (Days Sales Outstanding) from
90 days to 60 starting from Year 2
 No impact on sales growth in the forecast period
Description of the scenario
Scenario 2 – Big reduction of
the Receivables conversion
 We reduce Receivables Conversion Period (Days Sales Outstanding) from
90 days to 30 starting from Year 2
 Growth rate will go down from 20% to 15%
Scenario 3 – Factoring
 You use factoring to reduce Receivables Conversion Period (Days Sales
Outstanding) from 90 days to 10 starting from Year 1
 Annual rate used for factoring is 5%
Scenario 4 – Additional Credit
Line
 You take in Year 1 additional credit line of EUR 1 500 K
 This line you keep throughout the forecast period and you pay the same
interest rate as on the debt you used for the purchase of the firm

110. 110
Now we will have a look at the next 4 scenarios
Scenario 5 – Medium increase
of Payables
 We increase Payables Conversion Period from 10 days to 30 starting from
Year 2
 No impact on margins
Description of the scenario
Scenario 6 –Big increase of
Payables
 We increase Payables Conversion Period from 10 days to 60 starting from
Year 2
 EBIT margins moves from 20% to 19% in Year 2
Scenario 7 – Small increase of
prices
 We increase the price per 1 Data Scientist from EUR 48 K to EUR 50 K per
year
 We assume that this will not have impact on growth rate
 EBIT margin will increase from 20% to 24%
Scenario 8 – Big increase of
prices
 We increase the price per 1 Data Scientist from EUR 48 K to EUR 52 K per
year
 The revenue growth rate will go down from 20% to 5%
 EBIT margin will increase from 20% to 28%

111. 111
Restructure Debt

112. 112
Restructure Debt –
Introduction

113. 113
Another way to improve cash position is to restructure the debts you have and
to make them cheaper to service or change the schedule of payments

114. 114
In this section I will discuss different ways in which you can restructure
the debt
General framework for Debt
Restructuring
Debt Restructuring case study
– Retailer bought by PE

115. 115
General framework for Debt
Restructuring

116. 116
Let’s have a look at the general framework for debt restructuring
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves
Consolidate &
Refinance Debt
Switch from short-
term to long-term
financing
Change the timing of
payments
Use alternative
financing i.e. Leasing
Swap Debt for Equity
Issue new shares
including IPO
Hide Debt i.e. reverse
factoring
Others

117. 117
Restructure Debt– Case
Introduction

118. 118
Imagine that you are working for PE fund that has just bought a low-cost fashion Retailer.
You have to estimate the impact of debt restructuring efforts they are considering

119. 119
A few information about the firm that we will be analyzing
The company has 200 stores and adds
50 new every year
The PE bought them using only high
yield debt (12% interest rate)
They consider 4 scenarios to
restructure Debt
Analyze and propose the optimal
solution

120. 120
Let’s have a look at the scenarios
Scenario 1 – Refinancing using
debt with lower interest rate
 In the Year 2 you refinance the purchase with cheaper debt. The interest
rate goes down from 12% to 7%
 You don’t reduce debt
Description of the scenario
Scenario 2 – Increasing Equity
and repaying part of the Debt
 In the Year 2 you put in EUR 100 M and repay part of the Debt
Scenario 3 – Increasing Equity,
repaying Debt &
renegotiating
 In the Year 2 you put in EUR 100 M and repay part of the Debt
 You renegotiate the interest rate as you have improved the balance
sheet of the firm. You expect to be able to get interest rate of around 5%
Scenario 4 – Low Growth
Scenario
 Since you have a lot of debt you have decided to lower the growth from
50 stores to 25 stores a year

121. 121
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
Liquidity Management for
Management Consultants & Managers
$190
$19
Click here to check my course

122. 122
Improve Margins & Revenues

123. 123
Improve Margins & Revenues –
Introduction

124. 124
Many managers forget that one of the ways to get more cash is simple to increase the
margins or revenues. This may help you, under certain conditions, improve your cash position

125. 125
Just as a reminder improving margins is one of the ways to improve your
liquidity
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves

126. 126
We will discuss this direction in more details
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves

127. 127
In this section I will discuss different ways in which you can improve the cash
situation by improving the margins and revenues
General framework for
increasing sales and margins
in consumer goods business
General framework for
increasing sales and margins
in retail business
General framework for cost
reduction
Improving profitability in
FMCG business – case study
Improving profitability in
Retail business – case study

128. 128
Increasing sales framework –
Consumer Goods

129. 129
Let’s have a look at the general framework we can use to increase sales
in consumer goods
Increase sales
Increase distribution Increase Product Range Price & Discount Policy
Increase demand for
your product
Bigger share on the shelves in
the current distribution
Better penetration of existing
channels
Enter new channels
Enter new markets (regions,
countries)
New products within existing
categories
New categories within
existing brands
New brands
Changing price structure
Changing discount policy
Changing prices formula
Increase consumption per
capita
Shorten the lifespan of the
product
Find new customers

130. 130
Increasing sales framework –
Retail & B2C Services

131. 131
Let’s have a look at the general framework we can use to increase sales
in Retail and B2C Services
Increase sales
New stores LFL / same store growth New Brands New Channels
Build faster more stores
Create new formats within
existing brand
Enter new markets (regions,
countries)
Bring more traffic to existing
stores
Improve % conversion
Increases Average Transaction
Value (ATV)
Create new retail brands for
the same segment but within
the same product range
Create new retail brands for
different segments but within
the same product range
Create totally new retail
concept (different product
and segment)
Own online
Marketplaces and other
online stores
Franchising
Wholesaling
Increase selling space within
existing stores

132. 132
Cost reduction framework

133. 133
Let’s have a look at the general framework we can use to cut costs
Cut costs
Reduce usage Automate
Optimize process and
costs
Renegotiate contracts
Eliminate fully certain
expenses
Change specification – use less
of certain thing
Change specification – use
cheaper substitute
Standardized the process
using the best practice
Automate with software
Automate with machine
Simplify and optimize
processes
Replace Opex with capex
(analyze Opex vs capex
tradeoff)
Make it or buy it analyses and
if needed outsource or buy
outside
Renegotiate contracts with
current suppliers
Change the supplier
Change the form of using (i.e.
owing something instead of
leasing)

134. 134
Increasing margins framework –
Retail & B2C Services

135. 135
Let’s have a look at the general framework we can use to margin in
Retail & B2C Services
Increase gross margin
Improve space
productivity
Renegotiate contracts Price & Discount Policy Private Labels (PL)
Increase the space devoted to
more profitable products
Change the store layout to
have the best sellers in the
best places
Cross-selling of higher margin
products
Renegotiate contracts with
current suppliers
Change the supplier
Get additional money / back
margin from suppliers
Changing price structure
Changing discount policy
Sell more in 1st price (full
prices)
Increase the share of the PL In
a specific category
Introduce PL in new categories
Promote PL outside your retail
channels

136. 136
How to increase the profitability for
cosmetics producer – Problem

137. 137
Imagine that you are working for a cosmetics producers. And you have
to increase his profitability
2 brands. 1 stong in Poland the
other in Romania
No e-commerce
Penetration in some regions is
stronger than in others
Has 2 Head Quarters (in Romania
and in Poland) and 4 factories
Every factory has different supplier
base and buys independently

138. 138
Divide your answer into 2 fields
Increase sales Cut costs

139. 139
How to increase the profitability for
cosmetics producer – Sales Increase

140. 140
Let’s have a look how we can increase sales in the cosmetics
Increase sales of
cosmetics
Increase distribution Increase Product Range Price & Discount Policy
Increase demand for
your cosmetics
Add e-commerce
Improve sales in the regions in
which you are under-
represented
Enter other new channels or
enter new markets (regions,
countries)
Increase your shelf space
within the existing partners
Consider introducing the
Polish brand in Romania and
Romanian brand in Poland
Add new products within
existing categories
Add new categories within
existing brands
Changing price structure. Look
at the prices vs competitors
Changing discount policy used
toward channels
Changing pricing for specific
channels
Increase consumption per
capita
Find new segments of
customers i.e. different age
groups / men
Find new customers

141. 141
How to increase the profitability for
cosmetics producer – Cost Reduction

142. 142
Let’s have a look how you can cut costs in a cosmetics producer
Cut costs
Improve factories Standardize the product
Reduce head offices
costs
Renegotiate contracts
Optimize process in the
factories using best practices
lean manufacturing, TOC
Consider consolidating the
production in smaller number
of factories
Automate production if
necessary
Check how similar the
products are
Standardize materials or
products
Create 1 universal version for
all markets
Go through the Head Offices
costs and organizational chart
and check the overlaps
Consolidate some functions in
1 place and reduce FTE
Get best practices and
implement them in both
Consolidate purchases of main
materials in 1 -2 places
Consolidate suppliers
Renegotiate contracts with
current suppliers or get new
ones
Simplify and optimize
processes at the head-office

143. 143
How to increase the profitability of
a retail chain – Problem

144. 144
Imagine that you are working for a fashion discounter that operates a
retail chain in Easter Europe
Sells mainly cheap fashion, toys and
small items for the home
No e-commerce
Competes with other low cost
discounters and hypermarkets

145. 145
Let’s have a look at some KPIs for the firm you are advising and their
competitor
Size
Profitability
Pace of growth
Cash
generation
Debt level
 Revenues
 % EBITDA
 % Gross Margin
 # of new stores
 LFL Growth
 Cash to EBITDA ratio,
 Inventory in DOS
 Payables in DOS
 Debt to EBITDA ratio
Your Customer Competitor 1 Competitor 2
 USD 2 000 M
 8%
 45%
 30
 2%
 50%
 140
 70
 5.5
 USD 1 000 M
 15%
 55%
 10
 5%
 55%
 90
 150
 1
 USD 3 000 M
 17%
 57%
 100
 5%
 40%
 120
 200
 2
Costs
 Head office as % of Sales
 Average # of employees per
managers and directors
 # of managers and directors
 11%
 4
 80
 7%
 6
 30
 8%
 10
 70

146. 146
Divide your answer into 2 fields
Increase sales & Margin Cut costs

147. 147
How to increase the profitability of a
retail chain – Solution – Sales Increase

148. 148
Just as a reminder you are working for a fashion discounter that
operates a retail chain in Easter Europe
Sells mainly cheap fashion, toys and
small items for the home
No e-commerce
Competes with other low cost
discounters and hypermarkets

149. 149
Let’s first start by analyzing the sales and margin increase
Increase sales & Margin Cut costs

150. 150
Let’s have a look at some KPIs for the firm you are advising and their
competitor
Size
Profitability
Pace of growth
Cash
generation
Debt level
 Revenues
 % EBITDA
 % Gross Margin
 # of new stores
 LFL Growth
 Cash to EBITDA ratio,
 Inventory in DOS
 Payables in DOS
 Debt to EBITDA ratio
Your Customer Competitor 1 Competitor 2
 USD 2 000 M
 8%
 45%
 30
 2%
 50%
 140
 70
 5.5
 USD 1 000 M
 15%
 55%
 10
 5%
 55%
 90
 150
 1
 USD 3 000 M
 17%
 57%
 100
 5%
 40%
 120
 200
 2
Costs
 Head office as % of Sales
 Average # of employees per
managers and directors
 # of managers and directors
 11%
 4
 80
 7%
 6
 30
 8%
 10
 70

151. 151
Let’s have a look how we can increase sales and margin for our
customer
Increase sales & margin
Open more new stores
Find ways to increase LFL
sales
Expand some categories Gross Margin
Build faster more stores in
existing markets – 2x or 3x
Enter new markets (regions,
countries)
Create new formats if needed
Bring more traffic to existing
stores
Improve % conversion
Increases Average Transaction
Value (ATV)
Check sales and margin
densities per category
Consider expanding some
categories
Consider totally new
categories for the same target
group
Renegotiate with suppliers
Do value engineering
Look for cheaper suppliers
Consolidate some products or
suppliers
Increase selling space within
existing stores

152. 152
How to increase the profitability of a
retail chain – Solution – Cost Reduction

153. 153
Just as a reminder you are working for a fashion discounter that
operates a retail chain in Easter Europe
Sells mainly cheap fashion, toys and
small items for the home
No e-commerce
Competes with other low cost
discounters and hypermarkets

154. 154
Let’s first have a look at how to cut costs
Increase sales & Margin Cut costs

155. 155
Let’s have a look at some KPIs for the firm you are advising and their
competitor
Size
Profitability
Pace of growth
Cash
generation
Debt level
 Revenues
 % EBITDA
 % Gross Margin
 # of new stores
 LFL Growth
 Cash to EBITDA ratio,
 Inventory in DOS
 Payables in DOS
 Debt to EBITDA ratio
Your Customer Competitor 1 Competitor 2
 USD 2 000 M
 8%
 45%
 30
 2%
 50%
 140
 70
 5.5
 USD 1 000 M
 15%
 55%
 10
 5%
 55%
 90
 150
 1
 USD 3 000 M
 17%
 57%
 100
 5%
 40%
 120
 200
 2
Costs
 Head office as % of Sales
 Average # of employees per
managers and directors
 # of managers and directors
 11%
 4
 80
 7%
 6
 30
 8%
 10
 70

156. 156
Let’s have how we could cut costs in the Retailer
Cut costs
Reduce Head-office costs
Improve inventory
management
Reduce Store costs Renegotiate contracts
Decrease the number of
directors and managers
Simplify the structure
Simplify and optimize
processes in the Head-office
Check why they keep so high
level of stock and change the
algorithm / policies
Sell deadweight stock (non-
rotating)
Keep more stock in the central
warehouse
Simplify and optimize
processes in the stores
Replace Opex with capex
(analyze Opex vs capex
tradeoff)
Destock the stores
Renegotiate contracts to
increase the payment terms
Make the supplier do certain
things currently done by you
Look for optimal size of
logistic delivery batches

157. 157
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
Liquidity Management for
Management Consultants & Managers
$190
$19
Click here to check my course

158. 158
Revise Investment

159. 159
Revise Investment –
Introduction

160. 160
Many firms spend millions on investments to scale their businesses.
Therefore, it is crucial to analyze investments if cash is a challenge

161. 161
Just as a reminder revising investments is one of the ways to improve your
liquidity
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves

162. 162
We will discuss this direction in more details
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves

163. 163
In this section I will discuss different ways in which you can improve the cash
situation by revising the investment plan
General framework for
revising investments
General thoughts on
investments
Investment in a bottleneck –
case study in plywood
Cost reduction investment –
case study in Retail

164. 164
General framework for
Revising Investment

165. 165
Let’s have a look at the general framework for revising investments
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves
Slow down growth
Slow down
investments
Do the investments
that improve the CF
Make somebody else
do the investment
Change the business
model i.e. franchising
Make the investment
cheaper
Change Capex into
Opex
Carve out assets and
lease them back
Others

166. 166
Investments –
General thoughts

167. 167
Apart from capacity increase there are 4 main reasons why you do
investment
Investments
Replacement
Required by the
customer
Reducing costs Removing bottlenecks
Total cost of Ownership /
Usage – comparison
Margin that may be lost if you
don’t do the investment
Margin that can be gained if
you do the investment
Change in labor costs
Change in materials and
related costs
Change in energy & other
utilities costs
Margin gained thanks to the
removal of the bottlenecks
Reduction of costs related to
production
Reduction of other costs (not
related to production)
Change in maintenance costs

168. 168
To decide whether something makes sense or not we compare Capex and
Benefits
Capex Benefits?
Cash outflow /
Negative cash flow
Cash inflow /
Positive cash flow
?

169. 169
We usually use the NPV or IRR to decide whether the investment makes
sense
NPV IRR

170. 170
In the next lectures we will go through different case studies
Replacement Investment –
Furniture Production
Required by customer
investment – Food Industry
Investment in bottlenecks
removal – Plywood

171. 171
In the next lectures we will go through different case studies
Cost reduction Investment –
Retail
Cost reduction Investment –
Ceramic Tiles

172. 172
Replacement Investment –
Introduction

173. 173
Imagine that you work for a furniture producer that operates in Europe
10 factories
Sells most of his production to
France & Germany
You have to calculate whether the
investment in new forklifts makes
sense

174. 174
Replacement Investment –
Solution

175. 175
Just as a reminder you work for a furniture producer that operates in
Europe
10 factories
Sells most of his production to
France & Germany
You have to calculate whether the
investment in new forklifts makes
sense

176. 176
Let’s have a look how to show the results of investment in replacing
forklifts in the Power Point
3 691
7 185
10 875
8 182
2 694
NPV of Difference in Maintenance
Costs
NPV of Difference in Fuel / Electricity
Costs
NPV of Total Benefit NPV of Capex NPV of the whole investment
NPV of benefits and investments
In thousands of USD

177. 177
Required by customer investment –
Introduction

178. 178
We will now have a look at a company selling branded juice in Romania.
They were asked to start using plastic bottles
Currently they sell juice in glass,
tetra pak and aluminum cans
One of the customers (a
discounter) wants to get juice in
plastic (PET) bottles
This will require significant
investment

179. 179
Required by customer investment –
Solution

180. 180
Just as a reminder we have to estimate wheter it makes sense to get
into PET bottles as we were asked by the customer
Currently they sell juice in glass,
tetra pak and aluminum cans
One of the customers (a
discounter) wants to get juice in
plastic (PET) bottles
This will require significant
investment

181. 181
Let’s have a look how to show in Power Point the results of PET
investment
34 804
12 489
22 315
13 182
9 133
NPV of Additional margin from PET NPV of fixed costs related to PET NPV of Net Benefit NPV of Capex NPV of the whole Investment
NPV of benefits and investments – 10 year perspective
In thousands of USD

182. 182
Investment in bottlenecks removal –
Introduction

183. 183
Let’s have a look at a plywood producer that considers removing a
bottleneck for one of the factories he has
3 plants
They have a bottleneck in 1 of
the factory
They have a demand for
products from this factory

184. 184
Below you can see the capacity for the factory in question by stages. As
you can see sanding is the bottleneck
200
100
90
80
120
100
50
90
120
Preparation of
the wood
Peeling Drying Repairing Cold Press Hot Press Sanding Foil Triming &
Packing
Production Capacity by stages
In thousands of cubic meters (m3)

185. 185
Just

186. 186
Investment in bottleneck removal –
Solution

187. 187
Just as a reminder we are working for a plywood producer that
considers removing a bottleneck for one of the factories he has
3 plants
They have a bottleneck in 1 of
the factory
They have a demand for
products from this factory

188. 188
Let’s have a look how to show in Power Point the results from the
improvement of sanding line
6 565
1 004
5 561
209
5 352
NPV of Additional margin from
higher sales
NPV of Additional fixed costs NPV of Net Benefit NPV of Capex NPV of the whole Investment
NPV of benefits and investments – 10 year perspective
In thousands of USD

189. 189
Cost reduction investment – Retailer
– Introduction

190. 190
Imagine that you are working for a fashion discounter that operates a
retail chain in Easter Europe
The retailer has 2 000 stores in
Europe
The retailer uses traditional lighting
He wants to switch to LED lighting

191. 191
Cost reduction investment – Retailer
– Solution

192. 192
Just as a reminder you are working for a fashion discounter that
operates a retail chain in Eastern Europe
The retailer has 2 000 stores in
Europe
The retailer uses traditional lighting
He wants to switch to LED lighting

193. 193
Let’s have a look how to show the results from the change to LED bulbs
in the Power Point
15 624
1 250
620
17 494
3 636
13 858
NPV of Difference in electricity
costs
NPV of Difference in bulb costs NPV of Difference in labor
costs
NPV of Total Benefit NPV of Capex NPV of the whole investment
NPV of benefits and investments – 10 year perspective
In thousands of USD

194. 194
Cost reduction investment – ceramic
tile producer – Introduction

195. 195
Imagine that you are working for a ceramic tiles producer that has 10
factories in Eastern Europe
He has 10 factories
Every factory on average has 15
production lines
Currently loading the tiles is done
mannually (2 people per line)

196. 196
Cost reduction investment – ceramic
tile producer – Solution

197. 197
Just as a reminder you are working for a ceramic tiles producer that has
10 factories in Eastern Europe
He has 10 factories
Every factory on average has 15
production lines
Currently loading the tiles is done
mannually (2 people per line)

198. 198
Let’s have a look how to show in Power Point the results from the
introduction of robots to ceramic tiles factory
156 890
37 566
16 657
102 668
27 273
75 396
NPV of Difference in labor
costs
NPV of Difference in electricity
costs
NPV of Difference in
maitenance costs
NPV of Total Benefit NPV of Capex NPV of the whole investment
NPV of benefits and investments – 10 year perspective
In thousands of USD

199. 199
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
Liquidity Management for
Management Consultants & Managers
$190
$19
Click here to check my course

200. 200
Strategic Moves

201. 201
Strategic Moves
– Introduction

202. 202
In some cases in order to improve the cash position of your firm you are
forced to do more drastic moves. This requires change to the strategy as well

203. 203
In this section I will discuss different ways in which you can improve the
cash situation by considering some strategic moves
General framework for
Strategic Moves
Getting rid off the non-core
assets – case study

204. 204
General framework for
Strategic Moves

205. 205
Let’s have a look at the general framework for strategic moves
How to improve your
liquidity
Reduce
Inventory
Reduce
Receivables
Improve
Payables
Restructure
Debt
Improve
Margins &
Revenues
Revise
Investment
Cut Costs &
Improve
Efficiency
Strategic
Moves
Slow down growth
Sell-non-core assets
Sell some business
units
Split the firm
Use less assets for
the business
Others

206. 206
Sell non-core assets
– Introduction

207. 207
By non-core assets we mean things that you do not need for your core
business. You may have different strategy
Non-core
Do we use the assets
for current
operations?
Non-core assets that are for some reason used
today
 Spin-off into a new business if they are above
the market average in operating those assets
 Check whether they give you some competitive
advantage with respect to customers, suppliers
of employees
 Go through make-it-or-buy-it analysis to see
whether you are the best owner of this
business
 Try to improve the utilization of those assets
Non-core assets that you do not need
 Spin-off into a new business if they are above
the market average in operating those assets
(have high % EBITDA or ROA, ROCE)
 Try to improve the utilization of those assets
 Sell the assets if they are below the market
standards
Asset that remained from glorious past or give
you room for growth
 Keep them
 If possible rent them
Core assets currently heavily used
 Optimize usage
 Look for efficiency gains and cost cutting
 Apply lean manufacturing and theory of
constraints to use them to the fullest potential
Core
Not-used
Used

208. 208
In the next few lectures we will use the case study of cosmetics producer
Cosmetics producer

209. 209
Sell non-core assets –
Case Introduction

210. 210
Let’s imagine that you have to decide what to do with not used core
assets and non-core assets of a cosmetics producer
A big production site in
Poland
Only 1 factory used
There are some non-
core assets

211. 211
Let’s have a look how their production site and how it looks like
Factory 1 Factory 2
Kindergarten Hotel
Core assets
Non-core assets

212. 212
Sell non-core assets –
Case Solution

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Just as a reminder. We are trying to decide what to do with not used
core assets and non-core assets of a cosmetics producer
A big production site in
Poland
Only 1 factory used
There are some non-core
assets

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For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
Liquidity Management for
Management Consultants & Managers
$190
$19
Click here to check my course

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Cut Costs

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Cut Costs – Introduction

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One of the ways to improve you cash position is to spend less. This requires in
most cases some cost reduction. This is what we will discuss in this section

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One of the ways to improve you cash position is to spend less. This requires in
most cases some cost reduction. This is what we will discuss in this section

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In this section I will discuss different ways in which you can improve the cash
position by cutting costs
General framework for cost
cutting
Quin Wins Framework for
cost cutting
Identifying quick wins for cost
cutting in Retailer – case
study
Examples of analyses / cases
studies

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Cost reduction frameworks –
Introduction

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Frameworks are great because they help you see the big picture. They
also provide you with guidance what to do to achieve your goals

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In this section I will discuss frameworks for cost reduction. I will show you also
2 cases where we will modify the framework to better address specific industry
General cost reduction
framework
How to increase the
profitability for cosmetics
producer
How to increase the
profitability of a retail
chain

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Cost reduction framework

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Let’s have a look at the general framework we can use to cut costs
Cut costs
Reduce usage Automate
Optimize process and
costs
Renegotiate contracts
Eliminate fully certain
expenses
Change specification – use less
of certain thing
Change specification – use
cheaper substitute
Standardized the process
using the best practice
Automate with software
Automate with machine
Simplify and optimize
processes
Replace Opex with capex
(analyze Opex vs capex
tradeoff)
Make it or buy it analyses and
if needed outsource or buy
outside
Renegotiate contracts with
current suppliers
Change the supplier
Change the form of using (i.e.
owing something instead of
leasing)

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Cost reduction framework –
adjustment to FMCG & Retail

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In the previous lecture you have seen the general framework
for cost reduction. Let’s adjust it to specific business models

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In the next lectures I will show you adjusted version of the cost reduction
framework. We will have a look at the framework for Retail and FMCG
Cost reduction framework for Retail Cost reduction framework for FMCG

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Cost reduction framework –
Stores

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When it comes to offline stores there are 2 major cost groups that you
should concentrate on
Labor (the people) Rent (the space)

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Let’s adjust our general framework accordingly to the stores
Cut costs in the store
Reduce usage Automate
Optimize processes and
costs
Reduce the space needed
Eliminate fully certain
expenses
Change specification – use less
of certain thing
Change specification – use
cheaper substitute
Standardized the process
using the best practice
Automate with software
Automate with machine
Simplify and optimize
processes
Replace Opex with capex
(analyze Opex vs capex
tradeoff)
Make it or buy it analyses and
if needed outsource or buy
outside
Estimate the full cost of
keeping stock in the whole
supply chain
Have more frequent deliveries
and move the stock to
regional / central warehouse
Change layout / fixtures /
space arrangement and zoning
Move the process in a
different place

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Cost reduction framework –
Head Office

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Headquarters in many cases are significant cost position and you
can find a lot of opportunities for potential performance
improvements

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Let’s adjust our general framework accordingly to the Head-office costs
Cut costs in Head-office
Reduce usage Automate
Optimize process
and costs
Renegotiate
contracts
Eliminate fully certain
expenses
Change specification – use
less of certain thing
Change specification – use
cheaper substitute
Standardized the process
using the best practice
Automate with software
Automate with machine
Simplify and optimize
processes
Replace Opex with capex
(analyze Opex vs capex
tradeoff)
Make it or buy it analyses
and if needed outsource
or buy outside
Renegotiate contracts
with current suppliers
Change the supplier
Change the form of using
(i.e. owing something
instead of leasing)
Org Chart and
motivation systems
Simplify structure i.e. less
directors
Change / align
motivation systems
Change reporting system

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Cost reduction framework – Sales
& Marketing in FMCG

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Let’s have a look at the general framework we can use to cut costs
Cut costs & improve
efficiency
Sales Force Costs
Optimize allocation of
money on marketing
Optimize other processes
and costs
Renegotiate contracts
Standardized the process
using the best practice
Improve efficiency of their
actions
Optimize process and costs
Calculate efficiency and
capacity of each channel
/method
Allocate money according to
strategy, efficiency and
capacity
Improve the efficiency of main
channels
Simplify and optimize
processes
Replace Opex with capex
(analyze Opex vs capex
tradeoff)
Make it or buy it analyses and
if needed outsource or buy
outside
Renegotiate contracts with
current suppliers
Change the supplier
Change the form of using (i.e.
owing something instead of
leasing)
Automate with machine or
machine

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Cost reduction framework –
Head Office

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Headquarters in many cases are significant cost position and you
can find a lot of opportunities for potential performance
improvements

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Let’s adjust our general framework accordingly to the head-office costs
Cut costs
Reduce usage Automate
Optimize process
and costs
Renegotiate
contracts
Eliminate fully certain
expenses
Change specification – use
less of certain thing
Change specification – use
cheaper substitute
Standardized the process
using the best practice
Automate with software
Automate with machine
Simplify and optimize
processes
Replace Opex with capex
(analyze Opex vs capex
tradeoff)
Make it or buy it analyses
and if needed outsource
or buy outside
Renegotiate contracts
with current suppliers
Change the supplier
Change the form of using
(i.e. owing something
instead of leasing)
Org Chart and
motivation systems
Simplify structure i.e. less
directors
Change / align
motivation systems
Change reporting system

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Quick wins – Introduction

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You want obviously to get the savings fast. Therefore you should
concentrate on the quick wins. We will discuss this in this section

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In this section we will discuss how to identify quick wins in cost
reduction.
What is 80/20 Pareto
principal
Low hanging fruits
Quick wins for cost
reduction
Quick wins for cost
reduction – drugstore
chain case study

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So let’s start with the low hanging fruit frameworks and later we will
move on to 80/20 rule
Low hanging fruit framework 80/20 rule

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Low hanging fruits

244. 244

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Get the low hanging fruits first. By low
hanging fruits we mean things with big
impact and easy to accomplish

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Resources needed
Impact
SmallBig
High
Low
 Things with big impact that
require little work
1
 Easy but with low impact
3
 Things with big impact yet
expensive, time consuming
2
No
How to find low hanging fruits?

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 Office hours
12
4 3
 Blog posts
 Slideshare presentation
Impact
High
Low Resources needed
SmallBig
 Udemy Course
 Sniply
 Youtube
 Events
 Twitter
 Additional resources
Low hanging fruits for StartupAkademia

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Applying 80/20 rule in practice

249. 249
80/20 Approach

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 Concentrate only on the big items
 Concentrate on the big customers
 Analyze the most typical cases
 Concentrate on the most frequently occurring problems
 Analyze problems with big impact
 Your analyses should have only 20% of the variable that generate 80% of the impact
 Start with subjects where you see the biggest difference between actual results and
benchmarks
What does 80/20 mean in practice

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 Learning Visual
Basic for Excel
 Checking
competitors
 Salsa course
Area
 Learn only the 5 most used items that will take only 20% of full course and will be used
by in you in 80% cases
 You check only 20% of competitors that sales add-up to 80% of the market
 Go through 20% of the course to learn the moves and the figures used in 80% of cases
Description
Here are 3 examples of using 80/20 rules

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Quick wins for cost reduction

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How easy it is to
implement it?
What is the potential savings we
can achieve
EasyDifficult
Big
Small
 Holly Grail
1
 Compounding savings
 You need a lot of them to make the
difference
3
 Second best
2
4
Let’s look how the quick win framework looks for savings
 Big effort savings
 To be considered at later stage

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How easy it is to
implement it?
What is the potential savings we
can achieve
EasyDifficult
Big
Small
 Cow savings – easy to kill and big
1
 Chicken savings – easy to kill yet
you need to kill a lot of them not to
be hungry
3
 Elephant – difficult to catch yet big
2
4
Let’s look at what animals could represent every category
 Bat savings – small and difficult to
catch

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Remember that the potential reduction in costs depends on 2 elements:
potential percentage cost reduction and the cost starting point.
Potential % cost
reduction
x Cost starting point = Potential Saving
10% x 100 = 1
50% x 2 = 1

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When it comes to cost savings what would you be happier about?
% $
 Big savings
expressed as % of
initial costs
 Big savings
expressed in
absolute value (i.e.
in dollars)
regardless of the
initial cost

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Quick wins in Drugstore – Case
Introduction

258. 258
Imagine that you have to identify quick wins in cost reduction for
an international chain of drugstores. We know their cost structure

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A few information about the firm that we will be analyzing
They have 4 000 stores
We have their cost structure
They have send us a list of projects that
will help them reduce costs
Estimate the potential and group them
using the quick wins framework

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How to estimate the potential
reduction in costs

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How easy it is to
implement it?
What is the potential savings we
can achieve
EasyDifficult
Big
Small
 Cow savings – easy to kill and big
1
 Chicken savings – easy to kill yet
you need to kill a lot of them not to
be hungry
3
 Elephant – difficult to catch yet big
2
4
In quick wins for cost reduction we want to set priorities to projects
 Bat savings – small and difficult to
catch

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As we said potential reduction in costs depends on 2 elements: potential
percentage cost reduction and the cost starting point.
Potential % cost
reduction
x Cost starting point = Potential Saving
10% x 100 = 1
50% x 2 = 1

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Cost starting point is known. What is a mystery is the potential percentage cost
reduction. We have to somehow estimate it
Potential % cost
reduction
x Cost starting point = Potential Saving
? x 100 = ?
? x 2 = ?

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There are some ways to estimate the potential reduction in costs
Get benchmarks
Carry out 1-day audit
Measure a sample
Ask experts
Ask suppliers of tools / IT solution /
machines
Organize auction / tender
Do a consulting project with a
consulting firm

265. 265
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
Liquidity Management for
Management Consultants & Managers
$190
$19
Click here to check my course

266. 266
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Consultants
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267. 267
Decision Making for Managers
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Practical Guide
presentation
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268. 268
Strategy for Management
Consultants & Business Analysts
Practical Guide
presentation
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