Cost rationalization is a path to competitive advantage
08 March, 2021
"Cost rationalization is a path to competitive advantage " says Expert
The Institute of Internal Auditors Qatar Chapter conducted a webinar on 'Covid-19 A Framework for Cost Rationalization' by Narendra K Aneja.
Narendra K. Aneja, Ex-Global Board Member, The IIA Inc., is the Chief Executive of Aneja Associates. This firm conducts governance studies, risk assessments, management, and operational audits of over 100 companies, in India and abroad. He holds an MBA from The Wharton School (1979), is a Tata Scholar and was ranked on the Director's List at Wharton (1978).
"Almost every country in the world has been hit hard by Covid-19, with its impact is unprecedented. Most Companies have responded by temporary or permanent workforce reductions and making cuts in discretionary spending. But there are many ways for cost rationalization besides job cuts, and management expects internal auditors to play a role to build strategic, low-cost capability,"
Regarding the impact of Covid-19 on Qatar, Aneja quoted Mr. Kaabi, CEO of Qatar Petroleum, "looking to reduce operating costs and CAPEX." The GDP growth rate is expected to fall to -4.3% in 2020; still, it will grow to 5% in 2021, ahead of FIFA World Cup 2022.
The framework for cost rationalization was elaborated based on his expertise from professional practice. The first recommendation was to consolidate activities and innovate. This means review existing business models to explore opportunities for consolidation and innovation across functions, locations, and materials. Many tips are given as takeaways to implement.
Digitize processes for efficiencies and automate controls for robustness is the next aspect of the cost rationalization framework. The recommendations were digital sales channels, RPA software, supplier onboarding, customer support and chatbots, HR assistance, use drones for inventory verification, etc.
"Look for economies in buying by finding opportunities to curb leakages and improve procurement practices for goods and services. Spend analysis, Vendor analysis, and Contract process analysis are broad areas to bring further improvements," Aneja stated.
The other areas are making logistics leaner by reducing wasteful activities and increasing the supply chain and logistics efficiencies. One important area is to build tighter controls in areas that result in cost advantages.
"Defer Avoidable Expenditure," said Aneja and strongly recommended postponing non-essential/ non-core expenditure as much as possible. Operating and Capital expenditure should be monitored and managed to curb costs.
"Aneja's presentation's final takeaways were (1) Look for cost rationalizations and institutionalize them, (2) Automate or Digitize maximum processes and operations (3) Banish waste and inefficiencies, however small. The most powerful statement was Cost rationalization is a path to a company's competitive advantage," said Sundaresan Rajeswar, Board member.
Internal Auditors are waiting for the upcoming book by Richard Chambers, President of the IIA Global. The book 'Agents of Change: Internal Auditors in an Era of Disruption' is an outstanding guide for all internal auditors to plan their trajectories to become "catalysts for transformation" and enhance their organizations' value.
Fahad al-Marri, senior Vice President of the IIA Qatar, addressed the gathering, Muralikrisha introduced the speaker, and Girish Jain and Murtaza hosted the meeting.