CASE STUDY
[AUTOMOTIVE SUPPLIER INDUSTRY]
PROFIT IMPROVEMENT
PROGRAM:
CONCEPT AND IMPLEMENTATION
Task
PROFIT IMPROVEMENT PROGRAM:
CONCEPT AND IMPLEMENTATION
Our client company has a global market presence with numerous production sites and is one of the world’s leading automotive suppliers in its segment. During the financial year
2011, the corporation recorded almost 1.5 billion Euros in sales. Business operations in Europe, aggregated in the Business
Group Europe, accounted for more than half of net sales.
In spite of the difficult market environment, our client had
managed to increase sales and results on a global scale in
recent years. However, the European business was putting a
strain on overall corporate results.
The objective for this business group was to increase and
sustain the profit level across all areas of potentials in a challenging corporate environment. There was a need for a profit
improvement program increasing the EBIT margin by at least
four percentage points over two years. This goal had to be
achieved by a series of measures addressing different areas.
Increasing efficiency in all areas
Reducing material cost and other operating expenses
Background information
TRENDS IN THE SUPPLIER INDUSTRY
After the automotive boom of 2011, the year 2012 brought
significant amount of disillusionment to the industry. The
situation was particularly difficult in Europe due to the
euro crisis. In the first half of 2012 (at the time we received
this commission) the number of new vehicle registrations
in the EU-27 countries had dropped drastically. Italy saw a
decrease of more than 20 per cent and Spain of over 10 per
cent. Suppliers have to continuously enhance productivity
by controlling costs and boosting efficiency.
For companies with an international scope, optimizing
their global footprint along the entire value chain – from
development and engineering to production to sales – is
key. This is especially true against the backdrop of the current weak economic prospects in Europe. This is exactly
the situation our client was facing.
We focused on production, customer relations, sales pricing,
material cost, payroll cost, administration and management
expenses as well as other operating expenses. Further key topics were site restructuring and changes to be made in organizational structure.
Changes in product and client portfolio
Changes in pricing
In early summer 2012, Haselhorst Associates were asked to
accompany this program in conceptual and operative terms
for the European business at almost 20 administration and
production sites. We were also commissioned to provide operative assistance during implementation. One of the main
challenges stemmed from the corporation’s culture, marked
by a large degree of autonomy of the individual companies
in each country.
Approach
SUSTAINABLY INCREASING PROFIT IN A COMBINED EFFORT
Given the challenging requirements and the complexity of
the task, the Haselhorst Associates team immediately discussed country-specific goals as well as key measures and the
overall conditions of the program with the management responsible. Conjointly with the international management, our
consultants developed a coherent and comprehensive profit
improvement program.
We examined processes and turnover/cost items of sales,
development and engineering, production (direct and indirect labour), logistics, purchasing and administration across
all company sites. We also checked the viability of sales prices, e.g. regarding credits for material cost or spare parts.
Moreover, we benchmarked process and material cost/other
expenses within the corporation and in comparison to competitors.
Haselhorst Associates supported our client’s management
in identifying opportunities for improvement and defining
specific goals in order to realize potentials (please see chart
on the right). Our joint program management office singled
out adverse effects such as inflation rates on material cost and
salaries/wages as well as risks regarding implementation and
integrated them as further incentives for a sustainable improvement of results.
These factors were combined to a coherent profit improvement program consisting of immediate, medium-term and
long-term measures. The program included several hundred
packages of measures. The image on the right (blue box)
shows an overview of the main work packages and the corresponding subcategories.
The program management office directed by the Haselhorst
Associates consultants was in charge of managing all packages of measures. On the client side they worked closely
with the people in charge of each individual measure and reported back to the group management on the progress of the
implementation. Swift and comprehensive reporting (regular
biweekly meetings) was facilitated by an interactive project
management tool allowing all sites to add and update their
data. This provided the basis for a continuous evaluation of
the status quo of the individual modules of the program according to their degree of implementation.
Details
The mandate of Haselhorst Associates not only included initiating and supervising the defined packages of measures.
The team of consultants also derived recommendations for
further action to increase profitability. These recommendations had an impact on the optimization of the corporation’s
sites throughout Europe. Based on the expected results of the
measures taken the budget was regularly adjusted and the
adjustments were communicated as revised targets.
2. Purchasing
> renegotiations
> make-or-buy/insourcing
NINE WORK PACKAGES
1. Sales
> pricing/product and client development
> spare parts business
3. Materials: increasing efficiency
> reduction in rejects and waste
> internal recycling options
Benefit
4. Direct labour efficiency
> labour productivity
> optimization of machine and facility utilization
INCREASED PROFITABILITY IN A DIFFICULT
MARKET ENVIRONMENT
5. Plant structure optimization
> optimization of indirect production
> adapting layout/footprint
Merely a year after the initialization, the profit improvement
program contributed positively and half of the identified
potentials to increase profitability had been realized. The
success of the measures implemented is illustrated by the
improvement in results. The present development indicates
that the European’s business group’s project goal of a sustainable enhancement of profitability will be reached. The conditions created even allow for an increase of the EBIT margin
by five percentage points instead of the initially envisaged
four points.
The profit improvement program for the European sites provided our client with valuable insight. This knowledge is now
being applied to other regional business groups so that our
concept and its implementation have become a corporationwide pilot program.
6.Quality
> reduction of non-quality costs
> material inspection/charge back suppliers
7.Logistics
> container management
> premium freights
8. Administration and Management
> overhead adjustments
> reduction of operating expenditures
9. Cash Program
> claim and liability management
> reduction in stock
OVERVIEW POTENTIALS PROFIT IMPROVEMENT PROGRAM
GROSS POTENTIAL NEEDED
Inflation
effects
Balance
inflation
effects
Wages
Energy
Sales pricing negotiations
Material
Purchase price reductions
ADVERSE EFFECTS
Material efficiency, volume
and mix effects
Labour
efficiency
Plant
structure
Administration and
Management
Risk
adjustment
Target EBIT
improvement
Sabrina Hirniak – Project Manager
[email protected]
Haselhorst Associates GmbH
Schiffbauerweg 1
82319 Starnberg
Ph: +49 8151 65040-0
Fax: +49 8151 65040-20
[email protected]
www.haselhorst-associates.com
WE DRIVE CHANGES.
TOGETHER.