Turning the downturn into a benefit – Cutting costs sustainably

The changing automotive market is putting lots of pressure on global OEMs. Autonomous driving, electrification and other market forces cause massive changes and require huge investments at a time when the overall global economy is also facing headwinds. Consequently, almost all global OEMs started corporate cost saving programs which will force suppliers to cut their costs as well. So, what can suppliers do to cut their Sales costs sustainably?

The ultimate target is to maximize profitable turnover per employee (Turnover / No. of Sales employees) or per Sales EUR / USD spent (Turnover / Cost of Sales), two KPIs frequently used to measure the productivity of Sales organizations. Looking at the development of these KPIs gives a first glimpse whether the trend goes into the right direction or not. However, a positive development might be misleading since one side of the ratio might outperform the other. Hence, we must dig deeper and to look at both figures separately. In the following the focus is on the “Cost of Sales” which include costs for…

  • People,
  • Processes,
  • Infrastructure and tools.

To reduce people costs, suppliers can consider cutting jobs or shifting specific tasks and people, e.g. the back office, to best-cost countries (Romania, Mexico, Thailand and others). Most of the time, simply cutting jobs is not sustainable in the mid-/long-term. Frequently, a mix of missing metrics, targets and implemented measures increases the cost-levels again once the economy starts to improve. Starting to measure the two KPIs and their components mentioned above is a first step to sustain an overall lower cost-level in Sales.

To reduce process costs, suppliers can consider streamlining processes and stop non value-adding activities. A quick-win is to identify and eliminate reports which may be nice to have but which are actually not used to take decisions. Reporting consumes lots of resources across a global Sales organization, which is frequently underestimated by the management who receive only the final reports. Starting to continuously streamline and standardize processes is another important step to sustain a lower cost-level. However, without appropriate infrastructure and tool support, it is almost impossible to ensure effective and efficient process execution, control and governance in today’s business environment. It is important that suppliers come to understand and accept that tools and digitalization do not only cause costs. They also have a direct impact on the supplier’s competitiveness and competitive advantage, a fact unfortunately ignored by too many for too long.

To reduce infrastructure and tool costs, suppliers can consider consolidating the system and tool landscape. A high number of isolated, scattered, non-integrated tools and data cause high maintenance efforts, on top of tremendously slowing down Sales people. Excel worksheets can be a starting point and temporary workaround but should never be the final tool to run a high-performing global sales organization. It is important to start thinking about the future way of working and where to do what in the future. A global central Sales-/ CRM-platform will provide a solid core for the Sales tool landscape to build on and is probably the only realistic solution.

To sum it up, cutting costs sustainably, or maintaining a best cost structure, can only be reached through a combination of measures on people, process, infrastructure and tool levels. Reducing people today, without ensuring at the same time an appropriate process, infrastructure and tool landscape through specific investments, will not lead to a sustainable lower level of Sales costs tomorrow.

Why not swim against the current and use the economic downturn as a chance to prepare and strengthen the organization to outperform competitors now and in the future?