Every manufacturing company faces the same yearly returning challenge; how to reduce the cost of goods and operations to reach the aspired margin levels? Without exception, all of the companies we work with have a cost saving process in place and apply some sort of continuous improvement approach to place initiatives against the different functional and geographical cost targets, assigned to functions, domains and sites via a classical top-down divide & conquer.
Some call it integrated margin management, others spice it up via go for profit campaigns. And it must be said, in many occasions these conventional approaches are sufficient. However, in rough years or as part of a strategic catch-up or in case the pipeline is running empty, companies require something extra. The overall goal remains untouched and simple: get the cost savings identified and delivered in the next 6-12 months. The answer is not that trivial.
We identified 3 key success levers to reinforce cost saving programs to the next level:
Collective energy & motivation
1. Redefine cost cutting bucket in pursuit of collective accountability
What typically happens in cost saving is that one team works on optimizing symptoms as the underlying root causes fall outside of their control perimeter or cost savings are claimed by simply shifting costs outside of the allocated cost bucket. For the company, left pocket or right pocket doesn’t matter, the cost is still there.
To counter this, we apply 2 measures. First of all, we find it is key to use the P&L ‘waterbed’ as overall anchoring point, to rule out cost escape routes. The ‘waterbed’ uses transparent and logical ‘activity-based’ cost allocations to understand the primary cost drivers. The waterbed principle means that if costs go down in 1 line of business, they obviously go up in the other lines of businesses. Net cost savings are required to get water out of the bed.
Next, we complement classical cost cutting buckets by looking at end-to-end processes, across functional and geographical handovers, across global and regional practices. This way, symptoms, pain points, frustrations can always be linked back to the root causes and properly addressed and people owning the activities and processes are held collectively accountable.
This common sense analysis is often somewhat neglected and provides the demarcation of the most prominent end-to-end cost buckets.
2. Go beyond usual suspects, involve more people in pursuit of collective intelligence
Cost analysis, allocation and cost reduction is not just a financial or accounting manipulation, nor KPI or Excel management. It’s rather a result of underlying tactical and operational business decisions and actions, taken by people driving the processes.
Here comes a next paradigm. The people who really know, cannot be identified upfront. The people who really know cannot be disturbed too much as they drive the manufacturing day-in day-out. So how to walk this thin line?
We find the optimal balance using a lightweight virtual workspace, specifically crafted for cost reduction collaboration and brainstorming, available on any device at work and at home, without disturbing the busy day-to-day. This way we include hundreds of people in the process, going far beyond the usual suspects. We bring together key stakeholders across the entire process from shop-floor operators to R&D and product marketing, procurement, sourcing, process engineering, manufacturing operations, distribution & logistics, even including regional sales organizations. Because these groups of people build a collective intelligence with many ideas and know-how sharing.
3. Trigger intrinsic motivation to be your best self in pursuit of collective energy
When people don’t get intrinsically triggered to jump on the boat or don’t automatically believe more can be done, because of ‘not now’, ‘no interest’, ‘don’t see it’,… it’s very difficult, nearly impossible to reach the harsh goal of cost reduction. Let’s face it, it’s not trivial, it’s not sexy.
What we do is make it competitive, anonymous, engaging, reputation driven. In other words, we apply advanced gamification elements to add fun into the recipe. Gamification, when applied right (I’m not talking about just some points and badges) is an excellent technique to boost the energy level, create awareness to make people step up and take initiative.
In the competitive manufacturing businesses, people are generally well aware of the need for cost optimization (they face the yearly target). The gamified approach builds upon this basis bringing the energy and motivation of the people to act upon this awareness.
Overall, if companies apply these key success levers, we see amazing results, overshooting cost reduction targets by 30-100%.
Curious to learn more about how to we do it in more detail? With Venture Spirit, we provide companies with the necessary structure, tools, and guidance to foster collective accountability, collective intelligence and collective motivation to go the extra mile and deliver real business value. We are the catalyst, the guide, the trusted advisor and we share the credits with your people. Do not hesitate to get in touch for more information.