Cost Reduction Potential in Indirect Areas

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


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


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%


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


Capacity planning

Project status report Implementation schedule

Project controlling


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


• 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.