Managing Cash Flow

124 Cost Reduction Analysis Procedures
have indicated, any process that helps reduce costs will result in an improvement
in cash flow as long as it does not impair sales activity or customer relations or
otherwise jeopardize the survival of the organization. Benchmarking and activitybased
costing are well-accepted techniques to accomplish improved operations
and reduced costs as well as to improve bases for pricing of products and services.
BENCHMARKING STRATEGIES
Benchmarking identifies, implements, and maintains objective internal appraisal
and external comparison and analysis. It is becoming the tool of choice for gathering
data related to cost-reduction analysis, programs of continuous improvement,
and to gain competitive advantage.
Benchmarking can be defined as a process for analyzing internal operations
and activities to identify areas for cost reduction and process improvement in a
program of continuous improvement. The process begins with an analysis of
existing operations and activities, identifies areas for cost reduction and improvement,
and then establishes a performance standard against which the activity can
be measured. The goal is to improve each identified activity so that it can be the
best possible—economically, efficiently, and effectively—and stay that way. The
best practice is not always measured in terms of lowest costs, but may rather
reflect what stakeholders value and expected levels of performance.
BENCHMARKING PROVIDES TARGETS TO ATTAIN.
The Concept of Stakeholders
Benchmarking processes are directed toward the continuous pursuit of cost reduction
and operational improvements, excellence in all activities, and the effective
use of best practices. The focal point in achieving these goals is the customers—
both internal and external—who establish performance expectations and are the
ultimate judges of resultant quality. A company stakeholder is defined as anyone
who has a stake or interest in the ongoing operations of the organization, or anyone
who is affected by its results (type, quality, and timeliness). Stakeholders
include all those who are dependent on the survival of the organization, such as:
• Customers/end users
• Owners/shareholders
• Suppliers/vendors/lenders
• Management/supervision
• Employees/subcontractors
• Special-interest groups (environmental, diversity, union, etc.)
• Government agencies, legislation, etc.