‘Merely cutting costs is not efficient‘
As cost pressure rises, so do demands for efficiency. Cornelius Bittersohl explains where potential are hidden.
Mr Bittersohl, “efficiency” is a buzzword in the business world. What does it entail? And what do you mean by “rethinking enterprise efficiency”?
Every company wants to become more efficient. Pretty much all of them are in the middle of at least one efficiency programme. Often the focus is on a single aspect within the organisation, and normally the aim is to reduce costs. But simply cutting costs is just one aspect of rethinking enterprise efficiency. Harnessing the full power of this form of optimisation takes a combination of different topics with the goal of increasing efficiency throughout a company’s value chain.
What kind of topics?
It starts with the product and continues with the processes in production and within the organisation, going all the way through to the organisation itself and how a company works with its suppliers. It’s about the big picture, not just cutting costs. You also have to optimise the areas that do not constitute cost-relevant aspects. Nearly all companies have a need for more efficiency. Especially in times of little to no growth, companies feel the pressure to optimise their costs, particularly in the supplier sector, where OEMs often pass on the market pressure.
So the three core areas are: product, processes and organisation. In which one does the greatest potential for efficiency lie?
Companies can start with their products to achieve rapid success when it comes to costs. For example, they can leverage potential for efficiency by reducing or substituting the use of certain materials through intelligent engineering actions, an aspect known as design to costs. There’s also potential when it comes to overall product/component design. They can take a critical look at functions and applications in terms of the benefits they offer customers and trim the fat, which is known as value analysis, or design to value, and can have eventually a positive impact on costs. Furthermore, there are ways to intelligently structure and reduce the complexity of the product range to make it more efficient in the end. By contrast, optimising processes and the organisation takes more time, but often has a greater impact. Experience shows that long-standing structures and processes that have evolved over time offer a lot of potential for improving a company’s basis.
Can you put a number on the potential?
Companies can often save between 5 and 10 per cent just by looking at product costs, especially when it comes to existing product lines with limited options for changing design or functions. But there are also companies where the products are so efficiently designed at present that the material costs are already nearing their potential limits. In the automotive industry in particular, conventional combustion engine and power train components, for example, have been adapted accordingly due to the aggressive pressure exerted by OEMs. The potential when it comes to other non-electronic components, such as bodies and interior modules, has already been virtually exhausted as well. Here manufacturers need to take the next step and find optimisation potential within the processes and organisation. In our experience, that kind of optimization frequently offers an additional 15 to 20 per cent in savings potential. However, it can often be hard to spot the potential at first, which is why intensive analysis is of the essence.
And that’s where you come in?
Correct. We help to uncover efficiency potential, moderate the optimisation strategy and develop solutions for the company, across organisations, processes, products and supply chains. Often the focus is on the organisation, and therefore on the various engineering, sales and purchasing departments. The company and its staff need to understand how they can improve. Based on our experience, reducing processes and coordination to the absolute minimum – something we call a minimum viable process – also has the potential to increase efficiency. Our clients are often surprised how much “dead weight” they’ve been carrying around with them in the past. But leveraging such indirect efficiency potential also takes a certain mindset that you have to entrench among staff. Success in that respect can have a positive impact on every part of a company, often resulting in a multiplier effect across several product areas.