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Cost down - Profit up

challenge
As a niche player in the sector of customer specific production equipment a mid-sized German company was able to "relax" on an EBIT level around 5%. This has changed 3 years ago structurally when an Asian competitor decided to broaden its product portfolio into that niche. Having a structurally lower cost level this competitor had some success. This has been new grounds for the entrepreneur. Based on "gut feeling" actions have been launched. But the company did not succeed to close the gap of appr. 25% in volumes loss.
approach
In such a case our approach always starts with the conceptual level going to the details. Starting with a cost structure analysis we have been able to identify the main cost levers and the adequate sensitivities. The sensitivities can priotise the functional cost according to their impact on overall cost and profit. Typically this starts with pricing followed by the material cost to the functional cost of a company. This is exactly how we found it in this case. We have been able to proof that the customers are willing to pay like 10% higher prices because of the proven reliability of our client. In addition we have shown appr. 8% of material cost reduction based on important material groups together with existing suppliers. A big overall effect impacting all costs has been realised by optimising the product concept with value design and modularisation.
lessons learned
A holisitc approach without losing the orientation in all details is essential for a turn around. Priorities can be set correctly and a stringent optimisation programme can be launched. It is essential to define quantified and feasible targets.
basis for success
Having experience for many years as consultants and managers in the industry our consultants are able to quickly define the most essential approaches. Based on their seniority they can also get the buy-in of the key persons in your organisation quickly. This is how we lay an essential basis for our success together with you.

holistic strategic alignment

challenge
On account of the continuous price pressure a cost-down initiative has been launched by the sales department of a mid-sized first tier automotive supplier. Following that, the defined business strategy which bases on differentiation by innovative products has been lost out of sight. The cost-down approach has been impacting the complete product development chain and appr. 2 years later it became almost impossible to launch new innovative products in the production effectively.
approach
In a pyramidal approach first of all we questioned the defined business strategy. The finding has been that a change of the strategy towards a cost leadership has a worse ROI compared to the defined innovation strategy. Obviously it is not black and white. Cost awareness is needed as well. An analysis of all functions within the value-adding processes, starting with marketing, via R+D, IE, production to sales has shown structural needs for adjustment to incorporate this strategy in the organisation. The key-players for this extensive programme have been involved from the start. Nevertheless a lot of convincing has been needed in several town hall and bilateral meetings. The change management during the implementation has been quite demanding.
lessons learned
The alignment of all essential value-adding processes to the business strategy is essential for the success of the strategy as well as in consequence the company. Often the orientation of each functional department is in contradiction to the overall business strategy as in this case. Cost efficiency is good but it should not be in contradiction to the companies strategy. All core processes have to be able to support the overall strategy.
basis for success
Our holistic, pyramidal approach to align the value-chain processes to the business strategy is proven. In addition the experience of our consultants with their focus on production companies with technical products supports this approach.

Make and Buy

Our customer is in his sector, the intralogistic industry, exposed to a very volatile project business. Additionally the vertical integration has been quite high and therefore to optimise the utilisation they produced in advance based on forecast (based on the past). This lead to high inventories and in consequence to tied capital. Due to the high vertical integration the fixed cost have been too high for the volatile business. Therefore the task has been to reduce the vertical integration considering strategic as well as financial aspects.
challenge
Our approach to balance the vertical integration is component as well as technology oriented. In this case we clustered the parts and sub-assembly groups according to technological aspects. We did this together with the companies experts and discussed the clusters regarding strategic aspects. It soon became evident that the key competence is the control engineering together with electronics production. All mechanical parts and sub-assemblies have been analysed under economical and timing aspects. As there have been bottle necks on the suppliers side quite frequently we defined an inhouse "snapshot" production with appr. 40% of the capacities needed for the defined technologies. This capacity can be utilised quite well and continuously and it enables the company to challenge the suppliers. In this case the inhouse production outsourced has been transferred into an management buy-out setup.
approach
The question of Make-or-Buy depends on various factors and in consequence it is more like a Make-and-Buy. Obviously it is an economical decision, but not only. Strategic and time relevant factors have to be considered as well depending on the sector and the series characteristics.
lessons learned
Based on our long-term experience and our knowledge of different industrial sectors we know the necessary core strength of our customers as well as the relevant supplier market. As well we always try to identify a socially agreeable solution when it comes to a reduction of the vertical integration and thereby a reduction of employee capacity needed.
basis for success

reduction of complexity

challenge
For decades our customer designes and produces sealing solutions in several countries for his customers all over the world. There have always been arguments why a certain product couldn´t be taken out of the product range. This is how a huge product portfolio has been developed and in addition to that the products have been designed by different engineers with different design principles. The result has been a huge complexity which lead in consequence to a huge capacity demand allover the supply chain. In consequence this has been the main reason for a rather poor profitability of the company. As the products have been evaluated by the contribution margin only, this has not been on the radar for a long time.
approach
As the complexity developed on the basis of the product range as well as the product structure both was in the scope of our project. We started with an analysis of the customer demands regarding sealing solutions coming "from the horses mouth" and matched these to the products offered. In addition we evaluated the customer demands according to the sales volume and the profitability. The overall picture based on these analysis opened a lot of eyes in the organisation. In consequence the product range has been reduced a lot and in many cases there have been alternative solutions. For the remaining products we developed, together with the R+D Team, a modular kit. All measures together the complexity in the supply chain has been reduced structurally, the OEE of the production increased as well as the effectiveness in the application engineering. The downside was that the plan of implementation shows 2 years to implement and stabilise in steps.
lessons learned
Grown structures can be found not only in organisations of companies. The product portfolio and product structure often develops  uncontrolled and has to be restructured from time to time. Else the complexity increases strongly and this leads to inefficiencies in the product development as well as the complete supply chain. The result in the companies profitability shows subtly and therefore this main root cause for a poor profitability is often not recognised or very late.
basis for success
As engineers with experience as well as analytical consultants we are used to work with complexity and to structure it as such that insights as well as solutions can be deduced. Our long term experience help you to develop new structures as well as in value analysis and the modularisation of products.

Lean Organisation

challenge
The optimisation of efficiency function by function and department by department has lead to additional work especially at the interfaces between the departments of our customer, a second tier automotive supplier. As well the lead time of the order fulfillment process has increased. The insight that something has to be wrong with the optimisation approach came, when several contracts have been lost because of the long delivery time. We have been able to identify the root cause for the situation in a workshop with the management team. Each department optimised itself according to different optimisation criteria and didn´t take the business strategy as a guiding principle. With locations in China, Romania and Germany the transparency has been lost a little.
approach
As often in our projects we took a pyramidal approach in this case. Together with the management we questioned the business strategy. Our customer produces "commodities" and therefore has to think and act strongly cost oriented. A first analysis of capacities per function has shown quickly that both is very much concentrated in the headquarter in Germany with the highest labour cost. Within the core processes we have identified lots of interfaces, disconnected IT systems and a low degree of automation. Based on these insights we developed together with the key persons of the organisation a much more process oriented organisation structure. This has been applied to all international locations. Today there is always one decision point worldwide responsible for standards. Due to the process orientation interfaces have been reduced and IT systems have been coupled. Especially in the shared services departments the degree of automation has been increased.
lessons learned
One of the main root causes of waste is the sub optimisation of departments within a process without coordination of the overall targets and strategy. The sum of the sub optima will not be the achievable optimum optimising the overall process chain and not per department. Taking advantage of a structural increase of the degree of digitalisation especially an international organisation can take advantage a lot.
basis for success
A change in the organisation demands a high degree of methodology as well as a high degree of seniority to be able to convince. This is key. It is not only about the message but as important is the communication and the confidence transmitted, meaning the change management.

reduce product cost

challenge
The order intake has been decreasing for our customer, a mid sized company designing an producing production machinery, since 3 years. Before that period the company with its products has been leading technologically. This changed when 2 competitors from Poland and Turkey became increasingly strong. Today our customer is confronted with price pressure and he has to adjust his product cost structurally. We are talking around 15%. The vertical integration is already quite low, a lot has been outsourced. Regarding the production mainly the final assembly is still inhouse. Within a first potential study we identified the topic product cost as one of the most promissing.
approach
Typically the product cost are called as well marginal cost or variable cost per unit. This definition can be much too narrow. The scope is mainly on the cost of goods sold of a certain product per unit. This can lead to cost optimisation product by product by designing specific variants of components and sub assembly groups. This can lead to a structurally increased variance of products and the complexity cost in the overhead departments, not considered, will increase. Therefore we typically consider the whole range of products in a certain family and not only the marginal cost but the total cost including indirects. We like to start in parallel with value analysis and certain methods to analyse the potential of modularisation. After having defined the functions and elements that add value from the customers view we conducted in this case a value design based on a defined modular kit. Together we have been able to reduce the product cost by more than 20%.
lessons learned
Approximately 70% of the cost of a technological company are influenced by the product design. This insight is not new. But it always is astonishing to see the impact on the profitability when product design is changed.
basis for success
Competence in analytics and methods is needed when it comes to reducing the product cost of technically complex products. As well skills in moderation and convincing people are needed to overcome the "not invented here" factor.

Global Footprint

challenge
First tier automotive suppliers often grow by acquisitions of competitors as did our customer, a big French company. Appr. every 3 years an international competitor has been bought. For a system integrator to the OEMs there has always been the customer demand to deliver JIS and thereby a proximity to the global customers plants. Mainly 2 things happened. First the pendulum tended more and more towards decentralisation and second the once defined standards have been more and more neglected due to the autonomie of the decentralised plants. As every plant has been cost responsible every plant manager launched initiatives to reduce cost. As the plants have been competing occasionally the alignment between the plants was rather poor.
approach
A driver considering the optimisation of the footprint of a company are labour cost. Especially if the locations, as in this case, are placed mainly in high cost countries like France, Germany, Spain and Italy. But this is not the only aspect. Proximity to the customers, cost for logistics, economies of scale or proximity to R+D, if we are talking about innovative products, play an important role. It is also important to consider that every restructuring needs investment and one time expenses. It is important to understand the cost structure and its optimisation levers in detail before thinking about restructuring. Therefore we start our footprint projects with a detailed analysis of the cost structure together with a potential study in the existing plants. In this case we analysed all European plants. It soon became evident that there are substantial optimisation potentials in the production processes. Based on these insights we defined a scenario "as-is, optimised" which considers these optimisation potentials in cost and expenses. This has been the scenario against which the other scenarios have been evaluated each in cost, expenses and implementation time. The scenarios have been defined by a different prioritisation of the factors economies of scale, logistics cost and personnel cost.

lessons learned
When thinking about the restructuring of a footprint it is important to know the optimisation potentials in the existing structure. Only then the different alternatives can be compared fairly to each other. Often high one time expenses like severance packages and redundancy programmes,... are the consequences of a restructuring. Followed by tension in the organisation due to uncertainty. Therefore after the announcement of a restructuring the implementation of the measures planned should be as quick as possible.
basis for success
For us footprint restructuring projects are rather common since the opening of the Eastern European countries and especially as well the economic development of  low cost Asian countries as so called "best cost countries". Based on this experience we have developed a set of methods as well as a good degree of empathy dealing with the people involved. This helps in such politically demanding projects.

Supply Chain stabilisation

challenge
Big system integrators like e.g. Airbus are very much depending on the reliability and stability of the supply chain. In 2019 Airbus delivered 863 Airplanes. Typically, of these planes delivered the first quarter of the year doesn´t account for 25% but rather for 10% and there is a race to cover the rest at the end of the year. A big part of the reason for that is the unreliable delivery performance of some of the suppliers. We experienced this phenomenon live. The task has been to increase the efficiency in production and stabilise the overall supply chain of an interior supplier. Airbus was already on site and the supplier under special surveillance. As the interior parts have been very much customer specific and mainly manually produced a certain volatility of the output as well as the quality is rather typical. But this range has been exceeded by far.
approach
A first step in this project has been to get some transparency of the overall supply chain. Which means starting with the customer forecast and call offs to the production of the own suppliers we analysed the information as well as the physical production and logistics processes. It soon became evident that our customer was a good part of the issue but not all. The instability of many suppliers to Airbus results in many changes of the order call offs, by Airbus rather lately communicated. But this doesn´t help. One should start to clean it´s own house... . We identified that one main supplier of our customer changed his ERP system and had some issues with delivering reliably. As it is hard to replace a supplier in aerospace the consequence has been to insource partially to balance the instability. But it was evident as well that the own production was the biggest issue. Root causes for that have been a poor degree of standardisation and parametrisation of the processes, quality deviations caused by poor training of the operators, poor flexibility of the capacity of persons and equipment as well as a rigid working time modell. For all of these issues we developed measures and commited these with the management and the worker council. In the following we implemented these measures together with a product modularisation as interim managers. The result has been that we won the Airbus SQIP award (Supply Chain & Quality Improvement Program) a year later.

lessons learned
The stabilisation of the Supply Chain of a production company is one of the most complex tasks. A multitude of external and internal influencing factors are coming together. Therefore it is most essential to get transparency about the mechanisms of the Supply Chain system first of all. The implementation is in fact hard but in the end very satisfying.
basis for success
In the project described a main factor for success was the co-operation of all-rounders with process expertise and experts in glass fiber respectively in ERP parametrisation. In a next step the stability of the processes can be further increased by digitalisation. But to do that the new processes just introduced have to proof their stability. As on main insight is "digitalisation before stabilisation" is not effective.

reduce inventories / lead time

challenge
Producers of engineered equipment often tend to balance the volatility in the order intake by producing ahead and thereby increase inventories. That is what our customer did, a mid sized producer of conveyor systems. In a certain range this may be legitimate. In our case the turn rate was on level like 2 and that means the fixed capital is quite high. As some investment have been pending, especially into the development of new products, time has come to take care of financing and thereby of fixed capital in inventories.
approach
Our first priority in this project was to reduce the inventories. To do that it was important to identify all inventories in the process chain and to analyse the influencing factors that result in these inventories. To have this kind of transparency we analysed all stock as well as the WIP with inventory per product group, including technology and capacities, as well as lead time from stock to stock. This analysis showed that the inventories are placed not only in the stock areas but for some parts even more in the WIP. The main reason for the WIP was an untuned planning of the respective production steps. In a next step we did an ABC analysis and for the AB volumes we introduced a KANBAN system. The C components are planned today tuned over all the production steps. The main reason for the high inventories of finished goods was the approach to balance the utilisation. We introduced mainly 3 mesures to flexibilise the capacity available. 1. Flexibilisation of the working time after a long discussion with the workers council. 2. We introduced a qualification matrix together with a training concept to be able to make use of the workers wherever needed. 3. partial outsourcing to optimise the equipment utilisation. In total we have achieved a reduction of the inventories by appr. 50%.
lessons learned
Instead of trying to balance out the volatile order intake by pre production it is better to cope with that fact and flexibilise the capacities intelligently. This is not only to follow the LEAN thinking and avoid waste but as well to steer capital into the right direction to get the most bang for the buck.
basis for success
As a consultant for mid sized producing companies we are very much success oriented and let us be measured up to that. As in this case. Our fee was strongly depending on the success of the project. This obviously motivates additionally.

reduce production cost

challenge
A producer of complex sub assemblies made of plastics had a structural issue with his production cost. Especially in comparison with his main competitors in Czech and Romania. To get back to a competitive level and to achieve the planned sales significant adjustments had to be made in the cost structure. To get there, based on the 2 plants in Germany, the processes had to be set up much more efficient as the ones of the competitors in the "best cost countries".
approach
As consultants of the producing industry we obviously are trained in the LEAN set of methods. In this case the task was to optimise 2 very different areas.  On the one side the injection moulding area and on the other side the assembly with final inspection. In the injection moulding we first of all did a detailled OEE analysis. As it is an investment driven area we set the basis for the OEE on 6 days, 24 hours. The result has been 41%! Main reasons for that were a 2-shift run, a high degree of NIO parts and at some machines maintenance that has not been planned. On the basis of this analysis we negotiated a 4-shift run with the workers council to produce the sales planned without additional inventment. The root cause for the high degree of rejects was mainly the tool design which we optimised together with the companies specialists. For the maintenance we introduced a preventive maintenance. As we have been able to stabilise the production it has been possible to work 4 machines with 1 operator instead of 2 machines only. To be able to get there the layout had to be adjusted and a team of floaters had to be trained. In the assembly the main approaches have been an adjustment of the standard times and a much higher degree of automation. The investment needed has a ROI of 2 years.
lessons learned
Main success factor was the facts and figure based transparency to be able to convince people. This has not been easy for the responsible persons. The analysis results we used to design a success-cockpit to check the sustainability of the measures. Within the project we took over the P and D of the PDCA circle. The persons responsible for the production today are responsible for the "Check" and "Act".
basis for success
To achieve a high degree of acceptance we implemented some quick wins at the very beginning of the project. This has been possible on the basis of our long term experience and it helped throughout the project especially when the measures defined have been implemented.

reduce material cost

challenge
Our customer, a leading producer of rail guided conveying systems wanted to improve the profitability mainly to use the additional cash-flow to increase his business by adding business units. The company is focused mainly on the design, the assembly and the final inspection of the products. Therefore the share of material cost within the cost structure is around 65%. Additionally the purchasing department has been rather neglected as the company has been always sufficiently profitable and the focus has been clearly on the technology. The supplier structure has shown the consequence of that. It has been a nice example of not looking farther then to the church in town. Everybody preferred the known when it came to suppliers.
approach
In the first phase of getting transparency we structured the purchasing volume into families according technological similiarity and dedicated these clusters to suppliers. In total we identified around 700 suppliers delivering appr. 30 purchasing families. The production of almost every supplier has been in Germany or Austria. After that we analysed the terms of payment. As our customer is in a project business the purchasing has been project dedicated as well, without any kick-back agreements or scaled discounts. In addition there was no cluster oriented purchasing strategy. This is what we did first of all. We defined a purchasing strategy for each family of components with clear targets. More than 60% of the purchasing volume has been dedicated to the cluster "economicaly driven purchasing". Which means there are sufficient suppliers to change without big risk. After a detailled specification of this purchasing volume we called for tenders via a digital purchasing system. The effect has been astonishing mainly for the management. In this group we have been able to show 25% lower prices. This effect includes the negotiation of yearly contracts instead of project wise purchasing.
lessons learned
The combination of structuring the purchasing volume, the detailled specification of the components and making use of a digital purchasing system with a big range has lead to the success.
basis for success
The combination of a analytical procedure, seniority and using a digital sourcing approach was key to the success.

agile programme and project management

challenge
Producers of ceramic products are struggling with a loss of sales since years. As does our customer. In an extensive consulting project this company has elaborated with a big consultant a substantial optimisation programme affecting all departments of the company.  The target is to optimise the profitability of the company even with further reduced sales. More than 10 workstreams have been sketched and targets have been defined using benchmarks. Within a PMO approach we have been asked to detail and introduce these workstreams together with the responsible persons of the departments affected.
approach
Talking about PMO, programme- and projectmanagement, you will think about agile as well. To cope with not clearly defined targets, agile started in the software development but today it is one of the standards in programme- and projectmanagement. For the task described, when it comes to keep a strict time schedule as well, we combined classical project management with agile approaches and a digital controlling of the progress. We applied the agile elements especially to cope with unforeseeable resistance and problems during the implementation.
lessons learned
Neither a purely agile procedure nor a purely conventional approach is always ideal. Each has its legitimation and both approaches can be combined intelligently.
basis for success
A stringent procedure, seniority of our consultants and additional functional expertise lead to the success in this project.
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