Global automotive supplier increases profitability through holistic corporate transformation
Corporate transformation: Back in the fast lane thanks to a best-practice approach
A fundamental business transformation for over 15 global locations is always a challenge – including for a leading supplier to the automotive industry. In the context of an ongoing transformation that is affecting the entire industry, this automotive company needed to realign its structures in order to operate profitably on a global scale, reflect the successful growth that had already been achieved within the organization, and enable further expansion. Thanks to Horváth’s best-practice approach, the family-owned company achieved a comprehensive transformation, which also made it significantly more crisis-proof.
The company that initiated the transformation has made a name for itself in the industry as a supplier of high-quality control elements and drive authorization systems. The upheaval in the automotive industry caused by factors such as the transition to e-mobility, the coronavirus pandemic and the resulting supply difficulties is, of course, also impacting suppliers. For this reason, the automotive company strove to increase its profitability and rolled out a comprehensive optimization process for the entire organization to secure a sustainably successful future. The complex initial situation in the wake of rapid growth in some areas and the foreseeable changes within the automotive industry made the undertaking a real flagship project for the company’s future alignment. In this context, another project objective was to strengthen cross-functional and international collaboration.
HORVÁTH EXPERTISE FOR SUCCESSFUL CORPORATE TRANSFORMATION
The company also relied on external expertise to efficiently overcome the challenges it faced, bringing Horváth experts on board to actively drive the transformation. Together with a cross-hierarchy team comprising Management Board members and division heads as well as project managers and specialists, Horváth consultants defined, planned and implemented extensive measures to optimize the company.
INTENSIVE ANALYSIS AS A FOUNDATION
The consultancy team first analyzed key data and key figures for the company as a whole and quantified the goal of the cost reduction initiative together with the Management Board. The team then worked with the division managers to define individual hypotheses for optimization within their respective divisions. Together, all participants also identified cross-departmental potential. The clustered hypotheses finally resulted in a global transformation program, which was led centrally by a strong Transformation Office consisting of senior management on the customer side, the Horváth project manager, and other supporting employees from both companies. The team steered individual initiatives, defined standards and templates, and also worked to ensure that the respective initiatives did not overlap. The office was also tasked with defining a methodology to track savings and rolling it out across the program.
One division manager on the customer side and one or two Horváth experts each validated and quantified the hypotheses for the respective initiatives on the basis of figures, data and facts as well as qualitative workshops. For example, the 40 hypotheses initially developed were broken down into approximately 120 areas for optimization, and roles and responsibilities were defined for detailing and implementation.
THE GOAL: TO USE MATERIAL MORE EFFICIENTLY
As material costs make up a significant part of the company’s profit and loss account (P&L), one key challenge was to reduce costs in this area. The ambitious goal: To achieve a cost reduction of almost ten percent over three years. Optimization measures included a material cost reduction project. Measures implemented included optimizing purchasing processes and training employees, among other elements. Beyond the purchasing organization, the project team also recommended the greater use of identical parts in products and optimizing the interface to the Development department. Purchasing and Development subsequently drove the development of a modular product system. At the same time, those responsible also increased the use of identical parts in their products in coordination with the company’s customers. The company also managed to reduce purchase prices through renegotiations with suppliers.
REDUCING COSTS, ENSURING QUALITY
As the large quantities in the automotive industry scale not only affect sales but also impact rework expenses, deviations from the cycle, and similar quality costs, great attention was also paid to these outgoings. Horváth experts visited various plants on three continents and identified cost drivers on specific production lines. In particular, lean management skills beyond the boundaries of each individual plant and active best-practice sharing were key elements in safeguarding the one-off savings effect on the P&L in the long term.
OPTIMIZING DEVELOPMENT AROUND THE GLOBE
The customer also aimed to reduce costs in the area of research and development as part of the process. Nevertheless, it was clear that any reduction in costs was not to be at the expense of performance. In the past, the company had relocated various development services to traditional low-cost countries. However, this had led to quality losses, primarily due to high employee turnover and a lack of confidence in the work performed at the traditional development sites – especially at the company headquarters. The project team developed a concept that enables previous low-cost sites with lower staff turnover to perform larger parts of the development work independently and without any loss of quality. Thanks to its newly-acquired international responsibility, the company also increased the attractiveness of the workplace for its engineers in terms of content. In addition, further development centers were established at new locations with even more favorable salary structures, some of which were managed from the previous low-cost locations. Thanks to these measures, the project team significantly reduced the global personnel costs for the Development division. In the course of the business transformation, the customer moved from a low-cost to a best-cost understanding in the near and off-shore sector.
MOVING INTO THE AGE OF ELECTRIC CARS WITH A STREAMLINED PORTFOLIO
In a promising environment for electric drives, the automotive company has been able to win a number of large projects in recent years. In order to concentrate on high-growth products, the project team took the opportunity to perform a detailed analysis of the company’s current product and customer portfolio. This not only identified product-customer combinations that are currently not or not sufficiently profitable, but also entire product groups that do not achieve the desired profit contribution across all customers. Horváth experts assessed the loss generators discovered in the portfolio and defined corresponding optimization measures. Prices were renegotiated with customers, but some products were also completely removed from the portfolio. The company reduced its loss-makers and streamlined its complex portfolio in order to create capacities for major upcoming e-mobility projects.
A SHARED SERVICES CENTER FOR OVERHEADS
The team also identified potential in the indirect divisions and initiated corresponding measures. The company’s major challenges included the labor cost structure – due to its strong footprint in Germany and Western Europe – and, in some cases, insufficient standardization of processes between the sites. In order to meet these challenges, the consulting team designed a Shared Services Center for the company comprising four functions, which assumed responsibility for a number of important tasks for the European sites. Support was provided with selecting the location and transferring activities to the Shared Services Center until go-live.
MAKING TRANSFORMATION TRANSPARENT AND MEASURABLE
In order to make project progress and success measurable, the Transformation Office developed a tailor-made tracking system encompassing all implemented measures. In addition to monthly tracking using standardized templates, the tracking system also includes various comprehensive reporting options, e.g. through a customizable dashboard.
The automotive supplier has successfully made its corporate transformation a flagship project in collaboration with Horváth. Thanks to its successful transformation, the company is coming through the coronavirus pandemic more successfully than others and is now looking to the future with optimism.
The upheaval in the automotive industry caused by factors such as the transition to e-mobility, the coronavirus pandemic and the resulting supply difficulties is, of course, also impacting suppliers. For this reason, the automotive company strove to increase its profitability and rolled out a comprehensive change process for the entire organization to secure a sustainably successful future.