Practical example
Product Cost Optimization
Product cost optimization is a key lever for securing a company’s market position in the long term and creating the flexibility needed to address current business challenges. Whether it is to meet rising investment needs—such as those driven by digitalization—or to achieve sustainable cost reductions during economically challenging times. For highly complex products, such as those in the automotive industry, which have a correspondingly complex structure in terms of costs and product requirements, a company-wide approach is needed to identify and realize the right opportunities. This involves scrutinizing not only new products but also existing ones.
Background
How can we address rising cost pressures? In response to an overall increase in our client’s corporate and product-related expenses, an initiative was launched to significantly scale up existing product cost optimization efforts and achieve an ambitious annual cost savings target.
Specific task
Initialization and implementation support for a product cost optimization program.
KBC's Approach
Collaboration Model
After identifying the right cost center levers and establishing cross-functional teams to generate ideas, the initial phase focused on developing a collaborative model with standardized guidelines, decision-making processes, and clearly defined responsibilities. The focus of this phase was on:
- Quick decision-making processes
- Clearly defined handoff points to ensure the ideas are implemented
Managing and coordinating the cross-functional teams was one of the biggest sources of complexity in the initiative.
Goals
Another essential component for the success of product cost programs is a rigorous and transparent process for deriving and agreeing on targets. Comprehensive cost transparency is crucial here to create a holistic, coherent system of targets. Key success factors in this phase included:
- A clear and logical approach to setting goals to increase acceptance
- Establish a set of goals across all functions and departments (including cross-functional roles) to ensure broad-based commitment
The initialization phase was rounded out by defining a coordinated set of values and a communication strategy to reinforce the initiative’s significance for employees and the company as a whole, and to ensure transparency regarding its content.
Idea Generation & Implementation
During the operational phase, the focus was on developing and implementing cost-saving measures to achieve the ambitious goals of the overall initiative. A wide range of methods was employed: from supplier workshops and cost analyses to product benchmarks, the most appropriate method was selected for each specific project to generate and evaluate ideas.
As mentioned earlier, a rapid decision-making process is a key success factor in this phase for moving ideas quickly from evaluation to implementation. To achieve this, in addition to a consistent evaluation framework and thorough decision preparation, a sufficient frequency of top-management meetings is essential. This frequency must be integrated into the organization through lean action tracking to ensure rapid progress and prevent ideas from being discarded prematurely—every idea counts!
