Case Study – Circa 2010-2020 Timeframe
Cost Reduction- Success Story
Focus on Cost Reduction
Cost Saving Case Study
Investments in New capital types of equipment.
Lower costs structure
Click below to share this post
company and Industry
This was a large MNC, a global leader in its category. Operating on almost every continent in over 182 countries in the world. Very successful company with a long history of operating globally proactive supply chains. They manufactured and sold industrial products globally and had fantastic brand recognition among their customers. The company regularly won prizes and recognition among its peers for good reasons. The company maintained a reasonably good profitability track record through the ups and downs of economic uncertainty.
POPULAR CASE STUDY
The head of the business transformation was also in charge of the cost savings drive.
He is a very experienced, and astute businessman, and not afraid of jargon and organization defense structure people build to show activity for the sake of activity.
In other words, he can quickly look past the appearances and judge the substance of the activity to make out rapidly if the results would eventuate.
Earns big bonuses on projects he delivers and specializes in creating the best teams of internal and external consultants (looking beyond brands) for each project.
It was a curious situation where the ANZ CEO and the global head of business transformation were convinced that the business would benefit from our help on the project.
They had first-hand seen the results of the projects in North America.
They thought that if the rest of their subordinates were shown the results in North America, they would be equally convinced.
Quite the contrary – the local supply chain team kept coming up with the reasons why ANZ the supply chain was different than the US supply chain.
Finally, the local CEO mandated the project in order to streamline all the different cost savings initiatives running across the business and to find additional sources of savings.
The business had a history of starting a cost reduction drive 6 months into the FY as the budget variances grew, only to abandon half of them when costs came back in line.
These drives also failed to make any step change into the permanent cost base of the business.
The CEO and HoBT (Head of Business Transformation) were seeking to make that step change, and in a coherent streamlined manner that they saw in the USA.
Supply Chain Problem
The key problem was that there were some budget shortfalls and several incoherent cost savings initiatives as a result. In the past, such initiatives had a tendency to disintegrate once the budget was back on track. The CEO and the H0BT wanted to make a step change in the overall cost structure. They wanted permanent changes that would reduce costs forever.
We learned from this case that in this Industry keeping the factories running at 100% is very important. Keeping the supply chain clearance rate high is very important. Remove all choke points between the plant and the consumption centres.
It Was Not An Easy Problem
The staff was quite competent, but they did not know what they did not know. They were unaware of many latest supply chain techniques and methodologies which we had used successfully in the USA.
- Strategic Questions was that the competitors had already lowered their cost structure permanently and if this company did not do the same they will be permanently disadvantaged in the battle in front of the procurement departments of the customers.
- Another Question was that all the cost-savings initiatives were incoherent and half of them contradicted each other.
Key actions to Answer the Strategic Question
- Understand the situation, problems, complications, and the critical question
- Commission just the right size team to be able to make an impact and yet keep the project tightly on leash.
- We collated all the cost savings initiatives and put them in a bucket.
- We worked out the sequencing and dependencies of all the cost savings initiatives to weave them together in one cohesive program.
- We quantified the savings and disallowed any double counting, or contradictory projects.
- We collected data to benchmark anticipated costs and measured that against the actual costs.
- We fixed a long-term 3-year cost reduction target that was realistic, yet credible.
- We created new, structural changes to formulate new initiatives to cover the gap between the hopper and the target.
- We created a program management office and structure to manage the cost savings till completion in 3 years.
- End-to-end supply chain data was collected to baseline product flow, monetary flow, and information flow through the system. choke points and constraints were identified.
- More than 68 new projects were identified, in addition to 31 existing projects. cost savings target was bolstered from $2 million to $25 million.
- Current cost structure was compared against supply chain benchmarks.
- A savings hopper of $31.4 million was identified and quantified.
- $18 million savings target in 3 years were surpassed when we delivered $25 million in savings in 18 months.
- The key project owner got the highest bonus in the history of the company which has never been surpassed and was equal to 4 times.
- The cost structure of the company was permanently lowered against the competitor and made it easy to win global bids for large tenders and still make profits.
- The company was positioned for the coming commodity boom by investing in new capital equipment and refurbishing outdated plants in line with the modernization drive.