office-doi

Summary of my book "Heretical Cost Reduction"

[Features of this book]

Cost reduction measures are ineffective unless they reduce "unit price" or "quantity", so other measures cannot be called cost reduction measures. All of the measures in "my book" are designed to reduce either "unit price" or "quantity",

or both.

 

If you look at the reduction measures by expense category in the second half,

you will find a measure that you can adopt immediately. Even if you are suddenly told to "create a cost reduction measure",

you can respond immediately and implement it quickly, so you can get

results quickly.

 

I think many people have had the experience of not getting the results they wanted even after implementing various cost reduction measures in the past, but

this is because there was a lack of "foundational preparation" or the "rules", "process", and "power" were unclear,

and we will also introduce how to set

and strengthen them.

[Contents]

The motivation for working on cost reduction was that, with many managers who immediately rush to "cut salaries"

when performance deteriorates, I did not want to let them reduce their income at all, and rather, I thought it was more important to eliminate wasteful costs that were being used arbitrarily for the sake of the company's reputation or personal convenience. As a result of thorough cost reduction, Daimaru made a great contribution to achieving its highest profit ever, and it came to be called "Daimaru of Costs."

 

It is important to formulate and implement cost reduction measures, but in order to implement the measures and achieve results, it is necessary to "lay the foundation" in advance, such as organizing the organization into lines and

consolidating operations, as explained in detail in "Chapter 1." And among the points for formulating cost reduction in "Chapter 2," it is essential to effectively set the conditions of "rules," "process," and "power." This is something I realized from my own experience as a cost manager at Daimaru Co., Ltd. and J. Front Retailing Co., Ltd., and it is no exaggeration to say that these hold the key to success or failure.

 

Examples of "cost reduction measures" are introduced by expense category in "Methods of Cost Reduction" in "Chapter 3." The method is to extract the components of costs, and if by "changing" them the unit price or quantity of the cost goes down, it becomes a "cost reduction measure", so when formulating each measure you need to focus on which "component" you focus on and which

"unit price" or "quantity" you want to reduce as your objective.

 

In the second half of this book, we also add "emergency measures" for when you need to secure profits at all costs. Since this requires immediate results in a time-poor situation, there are only three perspectives for reduction: "stop", "extend", and "cut". This is also summarized mainly as example measures, so you can use them as a reference and "immediate implementation" will be possible.

 

*There was an opinion that the contents of the book can be understood by reading

the "Introduction" and "Conclusion",

so I will introduce the "Introduction" and "Conclusion" here for reference.
 

[Introduction]

I joined Daimaru Co., Ltd. (hereafter

referred to as Daimaru) and was assigned

to the "Furniture Sales Department" and "Sales Promotion Department" at the Shinsaibashi store. After transferring to

the head office, I worked in the "Management Planning Department",

"New Business Development Department", "Structural Reform Promotion Department", "Investment Project Promotion Department", and "Sales Planning Department", but I only studied "cost reduction" a little on my own when I was

in the "Structural Reform Promotion Department".

 

My involvement in "cost reduction" began in March 1999 when I was appointed as the head of the Sales Planning Department of the Head Office Sales Planning

Department. The previous year,

the company had implemented

"early retirement" of 700 employees, so although it was painful, I thought

that profits would improve significantly

from this year. However, the winds of the "Heisei recession" showed no signs of stopping, and sales had been struggling since the beginning of the fiscal year in March, and only got worse with each

passing month.

 

Two months passed, and when the company's performance forecast was released in late May, sales had worsened further. If things continued like this, the effect of the "early retirement" that I had made with such a heavy heart would be

lost, so I thought I had to come up with

a counte rmeasure quickly and propose it

at the store manager meeting.

 

The only options I could think of were to "increase sales" or "cut costs," but with

only three months left until the first half

of the fiscal year ended, there was

no other way to ensure results than to choose "cut costs."

 

At that time, I thought that it would be ineffective to just take a one-off measure

like "cut costs by XX billion yen," as

in the past, and that I needed to take

a more concrete measure. So I broke down the reduction target amount I set, stopped "hiring part-timers" and reduced costs by

50 million yen by "implementing internal support,"

 

limited "newspaper advertising" to twice

a week and reduced costs by 50 million yen...

 

and formulated measures with numerical targets as specific as possible.

 

Looking back, the measures were poor,

but the situation at the time was that the "performance forecast" was finalized on Tuesday evening, the next day,

Wednesday, was a regular holiday, and

the store manager meeting chaired by

the president was scheduled for 1:00 p.m. on the following Thursday.

I had only Wednesday, a regular holiday,

to work on it, so I desperately created it

at home, thinking that I had to propose it

as soon as possible.

 

I explained this measure to my boss, Managing Director Matsumoto (former Managing Director of Daimaru Co., Ltd.

at the time), on the morning of the store manager meeting, and the instructions I received were not about "cost reduction measures," but just one word: "Include

sales improvement measures."

 

With very little time, I came up with

a "sales improvement plan" as I thought

of it, and without having time to show it

to my superiors, I went straight to

the "store manager meeting".

 

At the "store manager meeting",

I explained the results and forecast from March to May as the premise of the proposal, and explained that, based on

the sales results so far, the operating profit for the first half of the fiscal year ending in August would not reach the budget.

 

As a measure to resolve this, I should not abandon the "sales improvement plan",

but I focused on the "cost reduction"

plan because I had to ensure that it would produce results.

 

As soon as I finished my explanation, President Okuda (then former chairman

of J. Front Retailing Co., Ltd.) immediately said "Let's go with this", which surprised

the person who proposed it the most. Before President Okuda took office, the president never gave a first-mover decision in such meetings that were similar to the board of directors, and it was impossible

to make an immediate decision, especially for proposals that would affect the entire company. Furthermore, even for urgent proposals, if the groundwork had not been done beforehand, questions would be

asked such as "What is it saying on the ground?", "Did everyone say it can be done?", etc., and the proposal would often be "scratched" without even being addressed in its contents. Even if it was approved, restrictions would be placed

such as "Please consider it a bit more and propose it again...", making it difficult to

put it into action.

 

However, the proposal was judged on the "content" rather than the "procedure"

and was approved immediately. I was very touched as the proposer, and I also felt

that I had caught a glimpse of President Okuda's "amazingness" as a manager.

 

The proposal at this meeting was the starting point for the "cost reduction"

work that I would be involved in from then on. Emergency "cost reduction" measures were implemented in the second half

of the year, and the financial results showed an increase in profits. When we first started "cost reduction," we were so badly

criticized within the company that we were called "crazy," but by repeatedly demonstrating our track record of

achieving profit budgets, such voices gradually disappeared.

 

At that time, we did not have quarterly settlements, but "first and second half settlements," so when sales deteriorated, we implemented "cost reduction

measures" as emergency measures in May and November, which were the midpoints, and made up for the loss in profits

in the first half in the last three months. In this way, despite the continued decline in sales, profits continued to increase, and

this contributed greatly to the achievement of the "highest profits ever" in fiscal year 2006 (Heisei 18).

 

I didn't read books or study about "cost reduction," I just learned it through repeated practice, so it was completely "self-taught," but I worked on it because

I wanted to somehow achieve my profit target.

 

In general, many managers rush to cut salaries when business performance worsens, but the department store industry is an industry that is known as the "3K" industry, with long business hours, irregular holidays, etc. Therefore, I absolutely did not want to cut salaries, and I was determined

to eliminate wasteful costs that were being used arbitrarily for the sake of the company's reputation or for personal convenience, so I continued to thoroughly "cut costs."

 

"Cost reduction" improved business performance, and analyst reports began to call Isetan "Daimaru of Costs." When I joined the department store industry in 1972, Isetan's business performance was outstanding, and starting salaries were about 10,000 yen higher than other companies at the time, earning the nicknames "Isetan of merchandising" and "Isetan of fashion."

 

It feels like a different era when, under President Okuda, Daimaru's operating

profit margin became higher than Isetan's and the company came to be nicknamed "Daimaru with low costs," but I believe this is entirely due to the efforts of all my colleagues who supported the "Okuda Distribution Revolution" from behind the scenes with "cost reduction."

 

Until now, the "cost" department was an unnamed, unsung department, but by all working together to reduce costs,

we were able to improve the company's performance and increase its value, so I thought it would be good for someone to record this, and so I have taken up my pen despite my limited writing ability.
 

[Conclusion]

We have been able to achieve this level of cost reduction thanks to the understanding and support of the top management.

This is very encouraging for the parties involved, and I sincerely hope that the top management will understand and support cost reduction as well as sales.

 

Also, top management does not need

to be familiar with costs, but if there is a proposal for cost reduction, I would like

the person in charge to confirm two things: "Which will be reduced, the unit price

or the quantity?" and, in the case of

external orders, "Did a competitive quote take place?" This one word can make a big difference in performance, so

 

I would appreciate it if you would keep this in the back of your mind.

 

Looking back, I am only able to contribute

to the company, even if only for a short

time, thanks to the teachers who gave me the opportunity to study.

 

My first job in the "Sales Promotion Department" at the Shinsaibashi store, where I was assigned as a section manager, was to formulate the "Shinsaibashi Store

Key Strategy." I created it without knowing anything and submitted it, and it was Mr. Matsufuji Masaru (former auditor of

Daimaru Co., Ltd.) who taught me when I read over the manuscript that Mr. Matsufuji returned to me. I noticed that he had

added and revised it while respecting my ideas as much as possible, and I was able to understand my own shortcomings and

learn how to write a proposal document. This became the foundation for my future proposal and proposal writing.

 

Mr. Iida Hiroshi (former auditor of Daimaru Co., Ltd.) was my senior when I was

assigned to the newly established "Management Planning Office" at the head office from the "Sales Promotion Department of Shinsaibashi Store". He taught me that in order to proceed with work, you need to create a "specification document" in advance and check it with your superiors to make the work go smoothly. By learning by example, I learned to proceed with work logically by creating work procedures and setting goals in advance, instead of the impulsive way of working that I had done up until then.

 

When I was assigned to the Business Planning Department, my boss, Professor Miyashita Ryoji (former director of Daimaru Co., Ltd.), asked me to "tell me the components of mail order sales" at our first meeting. I was completely unaware of the answer and was stunned. He then told me

to read McKinsey's "Modern Business Strategy." I thought "What the hell?" so I tried, but at first I couldn't understand

even half of it. It wasn't until I read the introductory book "Corporate Adviser"

that I finally began to understand.

 

Studying "strategic thinking" in this way became like the backbone of my career,

and it is thanks to Professor Miyashita's teachings that I am still able to work as

a consultant today.

 

Professor Kiyoshi Kitamura (former

president of Daimaru.com Planning Co., Ltd.) was my boss when I was transferred from the Business Planning Department to the New Business Development Department. When I was working on a redevelopment plan for the former Minami Junior High School site in Americamura, Osaka, I received a blueprint from a general contractor, and while I was looking at it, Professor Kitamura told me, "You can't understand it just by looking at the blueprint, go to the site." So, I ended up suddenly going to the site with Professor Kitamura at the front. When I actually measured the atrium space on site, I was able to get a real sense of scale that cannot be understood by blueprints, and I was able to get an image of the building. In this way, Professor Kitamura always put the "site first" into practice, and I learned through

my body that you can't grasp the facts by just sitting at a desk.

 

Professor Tsutomu Okuda (former chairman of J. Front Retailing Co., Ltd.), whose name

I have borrowed many times in this book, is a gentle and friendly person in appearance and speech, but he is very strict when it comes to management. Since a company must always produce results, and execution is essential to produce results, I was strictly taught to put "execution first," and to do it quickly. To do "execution first" quickly, the prerequisite "plan" must also be made quickly, and I was taught to learn and practice the cycle of "R (research) - P (plan) - D (execution) - C (check)" quickly. Thanks to this, when I work, I first think about how to achieve my goal and finish the job as

quickly as possible.

 

Up until now, Daimaru has done more than enough to prepare materials and consider things, but there was a tendency to "act after other companies do it."

When Mr. Okuda became president,

a "consciousness reform" was carried out

that turned the previous way of thinking

180 degrees and made it "act before other companies do it," and I believe this was reflected in the business model change of "J. Front" from a department store business.

 

Another thing I learned from him is that

Mr. Okuda always treated everyone equally in the company, regardless of gender, age, position, etc., and always gave everyone a chance to put into practice any idea that would improve the company. I still try to follow Mr. Okuda's example and treat people as "without prejudice" as much as possible, but it is very difficult and I have

not yet mastered it. However, I am self-satisfied that I have been able to give people a chance, even if it is a small effort, thanks to what he taught me.

 

Mr. Tsuneo Iijima (Chairman of Aing Co., Ltd.), who I am still on friendly terms with,

is older than me, but he is still active and

his desire to grow and expand the business has not waned at all. Every time I meet him,

I hear that his business is getting bigger

and his goals are getting higher, and I thought that it was about time to retire from consulting work, considering his age, but

he seems to encourage me by saying,

"You still have a lot to do, too," and I am learning to look forward regardless of age.

 

I would like to express my deepest gratitude to the teachers who taught me, and

I believe that unlike me, who am not very good at my studies, all of you with

promising futures will be able to open up

a bright future by meeting many teachers

in the future, so I hope that you will continue to seek out and study greedily.

 

Finally, I would like to express my sincere gratitude to everyone who worked with me on cost reduction at Daimaru and J. Front, everyone who supported me, everyone who desperately tried to achieve ``Single-year  profitin 3 years'' at JFR Consulting, the clients and related parties who supported me, the clients at Office Doi who still support me, and my family, and then I will close my writing.

 

Thank you very much.
 

[Table of Contents] 

Introduction... 3 

Prologue... 13 

[Section 1] "Emergency measures" cannot fail... 14 

[Section 2] Understand the facts and benchmark... 16 

[Section 3] Repeat meetings until approval... 18​ 

Chapter 1: Laying the foundation for cost reduction... 21 

[Section 1] Establishing a core organization... 22 

[Section 2] Organizing the organization into lines... 25 

[Section 3] Clarifying the scope of budget responsibility... 30 

[Section 4] Establishing a meeting of responsible parties... 32 

[Section 5] Checking with the progress management table... 38

 [Section 6] Creating an order price table... 43 

[Section 7] Implementing a low-cost campaign... 44 

[Section 8] Clarifying the mid-term strategy... 45 

[Section 9] Shared services are an effective cost reduction measure... 50​ 

Chapter 2: The concept of cost reduction... 57 

[Section 1] Making profits from costs... 58 

[Section 2] Using costs to solve problems... 60 

[Section 3] Accidents won't happen if we cut costs... 63 

[Section 4] Market criteria are the evaluation criteria... 63 

[Section 5] Costs are also "unit price" x "quantity"... 65 

[Section 6] Changing the components of the cost structure... 66 

[Section 7] Deciding on "rules," "processes," and "power"... 68 

Chapter 3: How to cut costs... 75 

[Section 1] Measures common to all expense categories... 76 

〘Section 1〙 Thorough application screening... 76 

〘Section 2〙 Making rules for advance applications... 77 

〘Section 3〙 Putting management in charge of a line... 78 

〘Section 4〙 Establishing a company-wide cost management organization ...79 

〘Section 5〙Implementation of competitive bids... 81 

〘Section 6〙Consolidation of ordering operations... 83 

〘Reference〙Common "elements"... 84 

【Section 2】Personnel cost-related measures... 85 

〘Section 1〙Personnel cost-related/common... 86 

〘Section 2〙Overtime pay... 91 

〘Section 3〙Part-time pay... 99 

〘Section 4〙Commuting pass... 102 

【Section 3】Facility cost-related measures 104 

〘Section 1〙Facility cost-related/common... 105 

〘Section 2〙Cleaning costs... 109 

〘Section 3〙Security costs... 111 

〘Section 4〙Electricity costs... 114 

〘Section 5〙Rental fees・・・ 119 

〘Section 6〙Automobile lease fees・・・ 122 

〘Section 7〙Repair costs・・・ 125 

【Section 4】Advertising-related measures・・・ 128 

〘Section 1〙Advertising-related/common・・・ 129 

〘Section 2〙Newspaper advertising costs・・・ 134 

〘Section 3〙Direct mail advertising costs・・・ 140 

〘Section 4〙Decoration costs・・・ 143 

〘Section 5〙Renovation investment costs・・・ 145 

[Section 5] Measures related to operating expenses... 152 

〘Section 1〙Operating expenses related/common... 153 

〘Section 2〙Logistics expenses... 156 

〘Section 3〙Copying charges... 161 

〘Section 4〙Telephone charges... 167 

〘Section 5〙Postage charges... 172 

〘Section 6〙Office supplies expenses... 175 

〘Section 7〙Business trip expenses... 179 

〘Section 8〙Transportation expenses... 184 

〘Section 9〙Newspaper subscription expenses... 187 

〘Section 10〙Entertainment expenses... 189 

[Section 6] Emergency measures... 191 

〘Section 1〙Personnel expenses related... 196 

1. Overtime pay... 196 

2. Temporary staffing and part-time work fees... 197 

3. Education costs... 198 

Second item: Facility costs... 199 

1. Cleaning costs... 199 

2. Security costs... 200 

3. Electricity costs... 200 

4. Repair costs... 200 

Third item: Advertising costs... 201 

1. Newspaper advertising costs... 201 

2. Direct mail and insert advertising costs... 202 

3. Decoration costs... 202 

4. Renovation investment costs... 203 

Fourth item: Operating costs... 204 

1. Copying costs... 204 

2. Telephone charges... 204 

3. Postage... 204 

4. Office supplies... 205 

5. Travel expenses... 206

6. Entertainment expenses... 206 

[Appendix] Cost reduction results... 208

 Conclusion... 214

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