As China slows, the promise of rapidly increasing sales in Asia has begun to fade for many consumer goods companies. The Asian Development Bank now expects growth of 5.8 per cent for the region this year, a reduction from its 6.4 per cent forecast in March .
To maintain business performance and reignite growth, companies are trying to transform to drive efficiency and unlock new value.
At the biggest companies, measures such as outsourcing or implementing enterprise resource planning (ERP) systems and global business services functions have already delivered their one-off efficiency improvement in back office and supply chain savings.
If such organizations want to continue to make headway, they need to create new value and adjust their operating models accordingly. A good way will be to reduce costs with the strategic priority to reinvest the savings for growth. And that is where zero-based budgeting (ZBB) can help.
Creating investment capacity through ZBB
Building a budget from a “zero” base, budget holders embark on an exercise to justify each item’s need or cost, while respecting strict policies and top-down targets set by the cost category owners.
ZBB is an open and transparent way of creating a budget. By justifying each item, important insights into consumption will surface. This will help procurement drive additional savings when negotiating with suppliers or contractors. By making it an annual exercise, ZBB can be an effective and sustainable way to drive cost management.
ZBB is ultimately about creating an agile organization. It will enable companies to run in a more cost-efficient way, making them more competitive. Accenture has helped companies using ZBB to achieve cost savings from 5 percent to 40 percent depending on the cost center. In some cases, 80 percent of non-staff related cost savings are achieved within the first year, with sizeable cost savings achieved in as short a time as three months.
When done correctly, ZBB enables companies to think through what areas they need to focus on to drive growth and which areas to deprioritize. Indeed, without zero-based budgeting, it is likely the money needed to grow just would not be there.
Our client, a global food and beverage company, established a cost-conscious culture throughout its ASEAN operations with the aid of ZBB. This company now makes smarter spending decisions directly linked to its growth strategy.
Undergoing the ZBB process has helped it reduce regional costs by 20 percent. These savings were ploughed back into growth initiatives, new products and categories tailored to local tastes, to strengthen its geographical reach and market share.
ZBB goes beyond surgical cost-cutting. It requires cultural change, business process improvement and technology deployment, underpinned by a deep understanding of industry dynamics.
By creating forensic visibility into spending, ZBB enables the company to identify tangible cost reduction opportunities through better price negotiations, more competitive expenditure policies and better operational efficiency.
Reinvesting for growth is crucial, and made possible by ZBB. These investments can be made in new initiatives, innovation, improved productivity and better customer experiences.
A big win for the company will be how ZBB influences the culture of the organization, with more accountability for employees at all levels so that they too can contribute to budget goals. Such a change will drive sustainable cost management going forward.
Fabio Vacirca is senior managing director, Accenture Products Operating Group, Asia Pacific
Fabio Vacirca
Senior Managing Director – Products, Asia Pacific
Fabio Vacirca is the senior managing director for Accenture’s Products operating unit in Asia Pacific. He was appointed to the role in June 2015 and is responsible for performance of the operating unit, sales and delivery excellence and people development and engagement.
Fabio was instrumental in leading Accenture’s acquisition and integration of two consumer products software businesses and has also played a key role in the development of the Accenture Customer Innovation Network.
Fabio received a Management Engineering degree from the Politecnico di Milano University in Italy and speaks five languages. Fabio is based in Singapore.
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