Germersheim, 2 Mai 2011 Cost Reduction Potential in Indirect Areas Dr. Stefan Schwarzfischer
Cost Reduction Potential in Indirect Areas
Jan 20, 2015
Access savings potentials in the indirect areas in a sustainable manner
To reduce the costs in the indirect areas and maintain the competitiveness of the internal structures, Nolte Möbel [Nolte Furniture] together with Staufen AG implemented a large-scale lean administration project. The result: efficiency increased by up to 50 %, processing times decreased by up to 70 % and quality increased by up to 65 %.
When Dr. Stefan Schwarzfischer became Managing Director for Technology and Administration at Nolte Möbel GmbH & Co. KG in 2007, he faced a difficult profit situation. Shortly thereafter, the Global Financial Crisis became imminent. In consequence, the decision was made to cut costs across the entire business. During this process, the focus was to be on sustainability. "We didn't have the objective to cut costs by a certain percentage as classic management theories stipulate", Mr Schwarzfischer explains. "Primarily this was about generating long-term effects through process and structure optimizations." In a first step, Nolte Möbel initiated targeted lean production measures in manufacturing. The second lever the company wanted to use was the overhead costs, comprising all indirect areas including the indirect components of manufacturing and assembly, maintenance and internal logistics, which are also categorised as overheads at Nolte Möbel. "This was where Staufen AG entered the playing field. Together with them, we developed a comprehensive lean administration project".
As in manufacturing, lean administration is based on the idea of focusing on creating value and avoiding waste. Waste is defined as anything not directly or indirectly serving the customer. During the process, internal areas are also considered "clients" if they depend on the work results of upstream processes to carry out their own work. Staufen AG's fundamental lean administration approach was also used in the Nolte Möbel project: analyze, differentiate, optimize.
Analyzing and differentiating
For two months, Staufen consultants rigorously analyzed Nolte Möbel's overheads. "In agreement with the shop council, we initially analyzed the cost structures", explains Andreas Mohren, Senior Manager and Partner at Staufen AG and manager for the project "Nolte Möbel". "Based on these findings, we analyzed each workplace, functional areas and process in great detail where appropriate". In consequence, for the first time it was possible to define who in the company spends how much time on what. The analytical tools used ranged from job analyses of individual workplaces to function and value stream assessments to interviews with executives. The consultants presented their findings in a comprehensive final report. While differentiating between processes that create value (indirectly) and waste, they also came up with measures to improve the analyzed processes in close collaboration with managers and employees. Furthermore, they highlighted savings potentials and developed schedules for the implementation. "In some departments, we had potentials of up to 50 %", Mr Mohren says. However, due to capacity and budget constraints, not all suggested measures and approaches could immediately be implemented. During a workshop with senior management and Staufen consultants in late 2009, all measures were checked and ranked according to their potential as well the required investments, capacities and time: All items falling below a certain threshold were postponed. Moreover, the workshop team linked the measure to the context of projects already underway in other areas at Nolte Möbel - the "Power" program came to life.
Implementation and internal resistance
In early 2010, the Power program and the lean administration measures were supposed to commence. However, the program only ran sluggishly to begin with. "Everything we had considered a great kick-off with senior management seemed to have been almost forgotten over the Christmas time", Mr Schwarzfischer surmises. "
To reduce the costs in the indirect areas and maintain the competitiveness of the internal structures, Nolte Möbel [Nolte Furniture] together with Staufen AG implemented a large-scale lean administration project. The result: efficiency increased by up to 50 %, processing times decreased by up to 70 % and quality increased by up to 65 %.
When Dr. Stefan Schwarzfischer became Managing Director for Technology and Administration at Nolte Möbel GmbH & Co. KG in 2007, he faced a difficult profit situation. Shortly thereafter, the Global Financial Crisis became imminent. In consequence, the decision was made to cut costs across the entire business. During this process, the focus was to be on sustainability. "We didn't have the objective to cut costs by a certain percentage as classic management theories stipulate", Mr Schwarzfischer explains. "Primarily this was about generating long-term effects through process and structure optimizations." In a first step, Nolte Möbel initiated targeted lean production measures in manufacturing. The second lever the company wanted to use was the overhead costs, comprising all indirect areas including the indirect components of manufacturing and assembly, maintenance and internal logistics, which are also categorised as overheads at Nolte Möbel. "This was where Staufen AG entered the playing field. Together with them, we developed a comprehensive lean administration project".
As in manufacturing, lean administration is based on the idea of focusing on creating value and avoiding waste. Waste is defined as anything not directly or indirectly serving the customer. During the process, internal areas are also considered "clients" if they depend on the work results of upstream processes to carry out their own work. Staufen AG's fundamental lean administration approach was also used in the Nolte Möbel project: analyze, differentiate, optimize.
Analyzing and differentiating
For two months, Staufen consultants rigorously analyzed Nolte Möbel's overheads. "In agreement with the shop council, we initially analyzed the cost structures", explains Andreas Mohren, Senior Manager and Partner at Staufen AG and manager for the project "Nolte Möbel". "Based on these findings, we analyzed each workplace, functional areas and process in great detail where appropriate". In consequence, for the first time it was possible to define who in the company spends how much time on what. The analytical tools used ranged from job analyses of individual workplaces to function and value stream assessments to interviews with executives. The consultants presented their findings in a comprehensive final report. While differentiating between processes that create value (indirectly) and waste, they also came up with measures to improve the analyzed processes in close collaboration with managers and employees. Furthermore, they highlighted savings potentials and developed schedules for the implementation. "In some departments, we had potentials of up to 50 %", Mr Mohren says. However, due to capacity and budget constraints, not all suggested measures and approaches could immediately be implemented. During a workshop with senior management and Staufen consultants in late 2009, all measures were checked and ranked according to their potential as well the required investments, capacities and time: All items falling below a certain threshold were postponed. Moreover, the workshop team linked the measure to the context of projects already underway in other areas at Nolte Möbel - the "Power" program came to life.
Implementation and internal resistance
In early 2010, the Power program and the lean administration measures were supposed to commence. However, the program only ran sluggishly to begin with. "Everything we had considered a great kick-off with senior management seemed to have been almost forgotten over the Christmas time", Mr Schwarzfischer surmises. "
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Germersheim, 2 Mai 2011
CostReduction Potential in Indirect Areas
Dr. Stefan Schwarzfischer
Table of Contents
1 Initial situation, analysis of potential, project management
2 Role of management in the change process
3 Our seven success factors
4 Lessons learned
1 Initial situation, analysis of potential, project management1 Initial situation, analysis of potential, project management
Competitive cost structures and economic conditions require further optimisation of fixed costs
Goal:
• Nolte Möbel aimed to reduce fixed costs by further optimising processes, thereby ensuring its cost structure
would remain competitive.
• The economic crisis meant that these efforts had to be forced.
• Before the introduction of Lean Office, a comprehensive package of measures was already developed, which
entailed capacity adjustments in direct areas or resulted in overhead cost reductions through sweeping
budget adjustments in indirect functions.
Initial situation, analysis of potential, project management
• The process of overhead optimisation that had been launched was to be continued as part of an additional
step involving Lean Office, with the aid of an external consulting agency.
• The aim was to define measures using the Lean Office approach which could be used to reduced the fixed
costs of the company sustainably and appropriately – i.e. from the perspective of added value.
• To achieve this, the costs of indirect and administrative functions were first documented and analysed
(types of costs, amount of each cost element, cost structure, etc.).
• Next, detailed analyses were performed to generate optimisation measures which were incorporated into a
rated and prioritised implementation roadmap.
• All activities were carried out in a way that involved management personnel and the staff to create
information transparency and the basis for the acceptance of the resulting activities.
Definition: lean administration
The term “lean administration” refers to the prevention of waste and the optimal synchronisation of
business processes in an organisational unit. This involves using “lean production” methods with the
goal of optimising the focus on value-added processes.
Typical methods:
• Cost/functional analysis • Value stream analysis
• Activity structure analysis • Interface analysis
5S method
Initial situation, analysis of potential, project management
3 levels of process streamlining
Analysis Differentiation Optimisation
• Value-generating activities
• Obvious waste
• Hidden waste
• Designing value-
generating activities
• Minimising
hidden waste
• Eliminating
obvious waste
• Surveying the cost structure and
drivers
• Activities analysis
• Documenting input, output and
cost of activities
• Documenting internal process
chains
Lean Processes
• 5S method
Analysis approach
Cost/functional
analysis
Process analysis
Method Area Content
Total range of analysis
Priority areas with the
Cost analysis:•Identifying cost types and their amounts•Cost structure analysis•Identifying cost drivers
Functional analysis:•Value creation factor for each function•Activities with time apportionment•Cost drivers for each function
• Analysis of key processes and their share of waste
• Identification of redundant interfaces
Goal
• Creating transparency• Eliminating redundant work• Eliminating unused services• Minimising cost drivers• Identifying areas of action
Integration, parallel
Initial situation, analysis of potential, project management
Process analysis
(value stream and interface
analysis)
Workspace analysis
Priority areas with the greatest potential
Analysis of individual selected workspaces
• Identification of redundant interfaces• Interface analysis with respect to friction losses
• Identification of areas needing process definition
Identification of: •Opportunities for increasing efficiency at workplace and at team level•Optimisation potential through effective time- and self-management, DP and skills training
Integration, parallelprocessing, synchronisation and minimisation of activities
Optimisation of the workspace layout and time management
Potential identified
Management Department Sales & Marketing Administration & Engineering
Cost typePersonnel costs
Material costs
Personnel costs
Material costs
Total
Potential in numbers and backed by actions:
Implement-ation horizon
< 6 months 5.0% 1.5% 5.6% 0.0% 12.2%
6–12 months 11.0% 1.7% 20.5% 2.0% 35.2%
Initial situation, analysis of potential, project management
A feasibility of at least 50% is expected.
> 12 months 8.8% 0.0% 38.2% 5.9% 52.8%
Potential total in numbers and backed by actions:
24.8% 3.2% 64.1% 7.9% 100%
27.9% 72.1% 100%
Project task Project flow Scheduling
Project planning following a defined process flow
Initial situation, analysis of potential, project management
Capacity planning
Project status report Implementation schedule
Project controlling
Initial situation, analysis of potential, project management
Project status report
Multi-project overview• Monthly summary of status reports
from sub-projects
• Visualisation of the entire project landscape for management
Analysis of deadline compliance and achievement of goals
=> deviation management
• Basis for regular communication in
Project controlling
Maintenance
Key production figuresOrder fulfilment processIntroduction of premiums
Standardisation
SCM (IT)
Domestic salesProduct development process
FSC-PEFC certification
Investments
Initial situation, analysis of potential, project management
• Basis for regular communication in the steering committee/core team
poor good
high
low
Likelihood of achieving the target
Likelihood of complying with deadline
Maintenance
Discount and conditions system
Company-internal logistics
SCM (IT)
Master efficiency
Business management
Process planning
2 Role of management in the change process2 Role of management in the change process
Role of management in the change process
• A lean office project cannot be implemented successfully without active support and
guidance from management because the will to change, particularly in area of
administration, is less pronounced than it is for lean production projects.
• Ongoing communication of project tasks and partial results.
• “You must set an example with, and demand, the lean office philosophy or the project
will fail!”
• Management must be a team player and not a power factor or administrator.
3 Our seven success factors3 Our seven success factors
Our seven success factors
1. Creation of a uniform analysis methodology that is communicated ahead of time.
2. Prioritisation of projects according to savings potential, speed of implementation and
resource compatibility.
3. Overcoming insular thinking within departments by deploying neutral consultant.
4. Avoiding time windows that are too small – in practice, everything takes longer than
planned.
5. Training key staff in the lean philosophy.
6. Management providing reinforcement/support for project leaders – lean is a managerial
task.
7. Implementing routine communication protocols and motivating the employees.
4 Lessons learned4 Lessons learned
Lessons learned
• Proven successes and shared goal
orientation.
• Change in the area of administration, despite
initial resistance.
• Better cooperation between departments and
Positive
• Areas of potential are not always directly
measurable in the profit/loss statement.
• Change process was not implemented in all
areas to an equal degree.
• In some areas, a data harmonisation
Negative
reduction of “rifts”. between departments must take place first.
• In some cases, there is too much project
documentation and therefore too much “idle
power”.
Lessons learned
Range and average of the improvements (as %)
Increase in efficiency
Reduction of lead times
0 20 6040 80 100
Quality improvement
Other positive effects
0 20 6040 80 100
• Improvement of (internal) customer satisfaction
• Improvement of employee satisfaction
• Improvement of internal/external customer focus
• Creating room for strategic/value-generating activities
Range Average
Thank you for your attention.
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