Case 1: Complexity causing heavy losses

THE COMPANY

• Specialty chemicals
• Global player situated in more than 20 countries
• One of the 3 biggest players in the industry in Europe, Middle East and South East Asia

THE SITUATION

• Accelerating negative results over the last 3-4 years requiring a severe turn-around
• Among the 14 manufacturing sites around the world, the European units were the biggest value destroyers
• With limited market growth and fierce competition, the industry struggled with overcapacity and price pressures

THE ANALYSIS

• Based on a few, carefully selected hypothesis on root causes, a focused and highly effective opportunity assessment was conducted addressing:
  • What improvement opportunities exist?
  • How big are they?
  • How should we go forward to capture them?
• Customer and product profitability were analyzed based on an activity based costing approach
• An internal benchmarking among all units clarified why the best was the best
• A trend analysis of last years’ performance development uncovered the main cost drivers together with causes/effects

THE DIAGNOSIS

• By putting growth above profit the company had developed a highly complex product-/customer base driving costs in all parts of the value chain
• Day-to-day operations were characterized by many small orders, tailor-making and unnecessarily high service levels
• The complex delivery situation was causing a lot of transactions, and considerable resources were put into non-value-adding activities

THE ACTIONS

• A concrete action plan focusing on profit improvement a.s.a.p. was implemented
  • New product pricing
  • De-proliferation of product portfolio
  • Distinct customer differentiation according to profit potential
  • Standardization of products and services
  • Manpower reduction in non-value-adding functions
• A well thought through market communication plan was introduced inviting customers to contribute to a win-win situation

THE RESULTS

• Able to track considerable results improvement already 4-5 months after kick-off of implementation
• Within one year the company had achieved a profit improvement equal to 10 % of turnover

Effective implementation of the recommended actions gave a substantial results improvements:

Complexity management

Case 2: Complexity causing unsatisafactory delivery capability

THE COMPANY

• Products for building construction and refurbishing
• Manufacturing in Norway distributing to all Nordic countries
• Dominant in Norway and major player in Sweden and Denmark

THE SITUATION

• Highly profitable business based on well established brand names with high market shares
• However, declining delivery capability/reliabilty and long lead times are causing increasing customer complaints
• The delivery situation was alarming for the high profile products in particular which could in the end be harmful to the company’s market position

THE ANALYSIS

• Based on a few, carefully selcted hypothesis on root causes, a focused and highly effective opportunity assessment was conducted addressing:
  • What improvement opportunities exist?
  • How big are they?
  • How should we go forward to capture them?
• Market demands with seasonal variations of volumes and buying frequences were analysed while evaulating current supply control system
• Product profitability (alltogether 2500 individual products) was analysed based on an activity based costing approach
• A trend analysis of last years’ performance development uncovered the main success drivers together with causes/effects

THE DIAGNOSIS

• The number of different products had grown considerably during the last years, of which many small products actually proved to be unprofitable
• The high number of products and customers caused many small deliveries, a lot of tailor-making and high stock-levels
• Current supply control system proved to be inadequate and not suited for the actual nature of the business and how the market behaved
• The highly complex delivery situation was causing a high number of transactions requiring many resources to execute non-value-adding activities
• The analyses uncovered a number of small products causing losses due to an inadequate pricing system

THE ACTIONS

• A concrete action plan focusing on improved delivery capability and sustained profitability was implemented
  • New product pricing ( a new pricing model was implemented)
  • Differentiation/deproliferation of product portfolio
  • A new materials planning and control system
  • Distinct customer classification with differentiated service offerings according to profit potential
  • Manpower reduction in non-value-adding functions
• The actions were classified and implemented as follows:
  • Immediate actions: New apprroach to supply planning and control
  • In 4-6 months: Implement new price structure for selected products
  • In 12 months: Manpower reduction in support functions

THE RESULTS

• New supply control system implemented in 2 months time giving improved delivery capability combined with reduced stock levels
• Selective price adjustments resulted in a 20% bottom line growth
• Alltogether the action program delivered a 7% top line growth after 1 year