Real-World Example
Product Cost Optimization
Product cost optimization is a key lever for securing a company’s market position in the long term and creating room to maneuver in the face of current business challenges—whether 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 light of our client’s overall increase in corporate-wide 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 Description
Initialization and implementation support for a product cost optimization program.
KBC Approach
Collaboration Model
After identifying the right cost center levers and establishing cross-functional teams to generate ideas, the focus during the initialization phase was on developing a shared collaboration model with standardized guidelines, decision-making processes, and clearly defined responsibilities. The focus of this phase was on:
- Fast decision-making processes
- Clearly defined handoff points to ensure the ideas are implemented
Managing and coordinating the cross-functional teams across the board 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 were:
- A 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 utilized: from supplier workshops to cost analyses and product benchmarks, the appropriate method was selected based on the scope of each project to generate and evaluate ideas.
As previously mentioned, a fast decision-making process is a key success factor in this phase for quickly moving ideas from evaluation to implementation. To achieve this, in addition to a consistent evaluation framework and thorough decision preparation, it is important to establish an appropriate meeting schedule for top-management committees. This schedule must be integrated into the organization through a streamlined action-tracking system to ensure rapid progress and prevent ideas from being discarded prematurely—every idea counts!
