• Quantity (Q): Measures the volume of goods/services produced or delivered
• Price (P): Focuses on the unit cost or price reductions for services/goods
• Process Efficiency: Improvements in workflows that lead to cost reductions
  • Efficiency (D): Comparison of savings from one year to the next related to cost reduction due to specific action taken.
    • Value engineering/total project cost/efficiency/optimal use of resources due to intentional change and action taken. This excludes volume reductions from business or finished goods volume.

Productivity = (YOY change in cost per unit) X (number of units purchased in the Current Year

Common examples

• Make: Reducing the cost of cleaning & sanitation services in the plant
• Move: Optimizing outbound freight of finished goods to reduce overall cost
• Sell: Sourcing new point-of-sale racks for a cheaper price
• G&A: Negotiating lower rental costs for offices

Key productivity drivers

• Re-negotiating existing contracts using best practices to drive value; YoY productivity based on tangible cost reductions over comparable PY baseline (e.g., rate reductions) 
• Managing Categories centrally through COEs
• Consolidating spend across markets & regions centrally to gain leverage & drive savings

Analysing TCO

• TCO is an analysis meant to uncover all the lifetime costs that follow from owning certain kinds of assets
• TCO is sometimes called “life cycle cost analysis”

Asset Ownership

• Asset ownership entails cost of the actual purchase, but it also involves costs due to installing, deploying, using, upgrading, and maintaining the same assets; these post-purchase costs can be substantial
• For many kinds of assets, TCO analysis finds a very large difference between the purchase price and the total life cycle costs
• The difference between purchase price and total life cycle costs can be especially large when ownership covers a long time-period