Total Cost Management

Our Consulting Director, Richard Small, has been pivotal in the delivery of Total Cost Management (TCM) with a variety of clients. At the heart of TCM are three elements: supply; demand; and revenue. Demonstrating these three elements and seeking to reduce the cost of supply, reduce demand and increased revenue, are several national and international case studies below:

Supply

10% cost reduction on cream

An airline catering company applied TCM to develop their global procurement strategy. As a small part of this they selected a dessert supplier to be a supplier partner in order that they gain a better understanding of the dessert cost drivers. As part of this partnership they benchmarked raw material prices and found several significant cost variances. On cream alone a difference of 10%. As a result of this transparency the dessert supplier adopted the client’s contract to the benefits of both parties. Our client enjoyed reduced dessert costs and additional revenue (see below).

Demand

Wet Ice for catering on aircraft

Wet ice might be seen as a low cost item being made from water. However when wet ice is used on an international flight it drives a great many costs. Firstly the weight of the ice influences fuel consumption, there are space constraints on board and there are disposal costs on arrival. International flight regulations require all waste to go to regulated land fill at a cost of £80/tonne. On arrival some wet ice was still frozen and so needed to be disposed of. The volume was such that it could not easily be stored while it melted and so warm water was applied. This therefore cost energy to warm the water, space, water itself and labour. Previously the ice had been mixed with the food and packaging waste which as it melted increased the weight of the waste and therefore the cost of disposal.

The solution was to better regulate the quantity of wet ice being loaded. The transparency had uncovered the cost drivers which lead the client to better match the supply being loaded to the demand being used.

Revenue

10% cost reduction on cream (continued)

Supply, demand and revenue are often intertwined as in the cream case above. Here the benefit of the lower cream cost on the dessert price to non-client customers was split between the dessert manufacturer and the client received a revenue rebate.

Trolley Seals

It was found that some seals on trolleys could be opened and resealed without this being evident. In most cases the client would have raised the specification (and price) of the seals and tried to pass this cost on. In this case we developed a better seal with one supplier partner, exposed the short comings of the old seal and shared the revenue from the new ones.

Logistics, design and packaging

One client comprising several businesses within a group were not leveraging their own logistic, design and packaging capabilities. By working across the group with engaged stakeholders we increased the in-group use of these services but then we went further by encouraging suppliers to explore how they too could use these services. As a result cost benefits now include a revenue stream of additional sales margin.

Find out more about Total Cost Management.