The ever-intensifying market competition has brought cost optimization of local production structures to the center stage. According to the latest Horváth CxO Study, improving cost and profit structures is even back on top of strategic priorities for CxOs in the manufacturing industry.
This development is further accelerated due to the heightened importance of production in high cost but stable countries. Thus, outsourcing to low-cost regions in Asia cannot be the solution for optimal cost structures. Instead, cost-efficiency must be realized by optimizing existing production structures in stable regions.
To achieve this target, efforts must be split into two main pillars:
Due to the immense market pressure, substantial cost improvements need to be realized in production immediately. Core levers which should be addressed are:
Efficiency along value flow: Implementation of lean management & six sigma principles to increase productivity and OEE in production
Flexible manufacturing structures: Enable efficient variant changes and scalability of production
Working time management: (Temporary) adaption of existing employment contracts to gain flexibility in scaling production up and down
Right-size indirect functions: Readjust staff levels in indirect function to benchmarks from industry leaders
Product allocation: Optimize allocation of products to location to leverage economies-of-scale and economies-of-scope
Training and competency improvement programs: Elevate staff knowledge and improve employer branding to attract skilled workers
Working capital optimization: Reduction of costs for capital expenditure by optimizing inventory reach and safety stocks
However, the critical part is selecting the measures with the best fit. The way to go for companies is to conduct a comprehensive transparency analysis of their plants and local production structures. This transparency phase should consist of a detailed examination of all value streams, information flows and IT systems. Combined with benchmarking against peers, key areas for action with validated ambition levels must then be derived.
A key success factor is also the sustainable integration of all conducted measures into everyday work. Many examples show a peak in performance followed by a reversion to old states after the excellence program ends. To prevent a return to old work patterns a clear incentive structure must therefore be set up. The structure needs to be cascaded from the top to the very bottom. Even for operational blue-collar workers, incentives based on personal KPIs (e.g., output per hour, task completion time) must be considered.
For long-term success, individual short-term measures are not enough – a holistic strategy that provides answers to future challenges in production, is highly recommended. This strategy for COOs should not only aim at optimal cost and profit structures but also at other strategically significant factors like digital transformation (ranked third place in the Horváth CxO Study) or sustainability.
When designing the strategy, both external and internal influencing factors must be taken into account. In addition, a holistic COO strategy consists not only of elements directly related to the value creation, but also covers processes and organization, IT & data and elements focusing on customer orientation. Critical for success is focusing on strategy areas that are highly relevant but have a low maturity level. This focus allows for the concentration of resources and maximization of impact, ensuring that the strategy addresses the most pressing needs effectively.
In conclusion, short-term cost reductions with a long-term strategy realignment must be tackled in a focused approach. By addressing both, immediate cost concerns and strategic objectives, manufacturing companies can navigate the complexities of modern production landscapes in stable regions and ensure sustained growth and competitiveness. This mindset is not just a trend but a necessity for thriving in today’s competitive manufacturing environment.
In conclusion, short-term cost reductions with a long-term strategy realignment must be tackled in a focused approach. By addressing both, immediate cost concerns and strategic objectives, manufacturing companies can navigate the complexities of modern production landscapes in stable regions and ensure sustained growth and competitiveness. This mindset is not just a trend but a necessity for thriving in today’s competitive manufacturing environment.
M. Wenzel / Y. Weigelt / D. Nagler / A. Dolling
