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Smart Zero-Based Budgeting

A growth enabler is gaining momentum among CPG players in this current era of cost pressures. If you’re not already thinking about how to operate in a zero-based budgeting environment, you should be.

In this slow growth environment, why are so many CPG players talking about zero-based budgeting (ZBB)?

ZBB uncovers cost savings for companies, allowing them to reinvest in long-term sustainable growth opportunities—like innovation—by resetting companies’ cost basis and ensuring it’s kept lean in the long-term. ZBB is about making smart choices on where to spend. :

ZBB enables the following key outcomes in CPG companies:

  • Freeing Low-Return Dollars. Rationalize lower return on indirect spend. Be willing to be bold and let go of sacred cash cows.
  • Freeing Up Time. Simplify processes and organization for efficiency and effectiveness. Support with usable tools.
  • Reinvesting in High-ROI Activities. Add additional headquarter resources. Introduce new capabilities and channels, such as e-commerce and revenue management.

How to Implement Smart ZBB

There’s a smarter approach to ZBB. .

  1. Vision. Understand motivation, determine ambition, link to strategy, and design a tailored ZBB program.
  2. Transparency. Create full transparency with detailed baseline along value drivers and a rigorous analysis of cost drivers.
  3. Governance. Introduce dual cost accountability, support decision-making system, and enable people.
  4. Target. Lock in business model choices, prioritize saving areas, and set smart targets.
  5. Zero-Based Budget. Create granular packages from the bottom up, challenge the budget rigorously, and integrate targets.
  6. Monitoring. Set clear system for tracking costs and how to address variances and the reallocation of funds.
  7. Execution. Devise action plans and milestones, and implement and follow a variance/reallocation process.
  8. Reinvestment. Reinvest a significant part of savings in growth.
  9. Culture. Establish culture of cost ownership with strong performance management, then manage and communicate change.

Smart ZBB is not a one-time effort, but a cultural change that calls for a new set of roles, responsibilities, and processes. Success depends on accountability, and leadership needs to be invested in the outcomes.

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