Cost Reduction Potential in Indirect Areas


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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. "

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Cost Reduction Potential in Indirect Areas

  1. 1. Cost Reduction Potential in Indirect Areas Dr. Stefan SchwarzfischerGermersheim, 2 Mai 2011
  2. 2. 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
  3. 3. 1 Initial situation, analysis of potential, project management
  4. 4. Initial situation, analysis of potential, project managementCompetitive cost structures and economic conditions require further optimisation offixed costsGoal:• 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.• 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.
  5. 5. Initial situation, analysis of potential, project managementDefinition: lean administrationThe term “lean administration” refers to the prevention of waste and the optimal synchronisation ofbusiness processes in an organisational unit. This involves using “lean production” methods with thegoal of optimising the focus on value-added processes. Typical methods: • Cost/functional analysis • Value stream analysis • Activity structure analysis • Interface analysis • 5S method3 levels of process streamlining Analysis Differentiation Optimisation • Surveying the cost structure and drivers • Designing value- • Activities analysis • Value-generating activities generating activities • Obvious waste • Minimising Lean • Documenting input, output and cost of activities hidden waste Processes • Hidden waste • Documenting internal process • Eliminating chains obvious waste
  6. 6. Initial situation, analysis of potential, project managementAnalysis approach Method Area Content Goal Cost analysis: • Creating transparency •Identifying cost types and their amounts • Eliminating redundant work •Cost structure analysis • Eliminating unused services Cost/functional Total range of analysis •Identifying cost drivers • Minimising cost drivers analysis • Identifying areas of action 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 Process analysis Priority areas with the • Identification of redundant interfaces Integration, parallel(value stream and interface • Interface analysis with respect to friction processing, synchronisation greatest potential losses and minimisation of activities analysis) • Identification of areas needing process definition Identification of: •Opportunities for increasing efficiency at Optimisation of the Analysis of individual workplace and at team level workspace layout andWorkspace analysis selected workspaces •Optimisation potential through effective time management time- and self-management, DP and skills training
  7. 7. Initial situation, analysis of potential, project managementPotential identified Management Department Sales & Marketing Administration & Engineering Personnel Material Personnel Material Cost type Total costs costs costs costsPotential in numbers andbacked by actions: < 6 months 5.0% 1.5% 5.6% 0.0% 12.2% Implement- 6–12 months 11.0% 1.7% 20.5% 2.0% 35.2% ation horizon > 12 months 8.8% 0.0% 38.2% 5.9% 52.8%Potential total in numbers and 24.8% 3.2% 64.1% 7.9% 100%backed by actions: 27.9% 72.1% 100%A feasibility of at least 50% is expected.
  8. 8. Initial situation, analysis of potential, project managementProject planning following a defined process flow Project task Project flow Scheduling Capacity planning
  9. 9. Initial situation, analysis of potential, project managementProject controlling Project status report Implementation schedule Project status report
  10. 10. Initial situation, analysis of potential, project managementProject controlling • Monthly summary of status reports Multi-project overview from sub-projects • Visualisation of the entire project FSC-PEFC certification landscape for management Investments Standardisation Analysis of deadline compliance and Domestic sales Product development process achievement of goals Order fulfilment process Key production figures => deviation management Introduction of premiums Maintenance • Basis for regular communication in SCM (IT) the steering committee/core team Likelihood of achieving the target Process planning high Business management Company-internal logistics Master efficiency low Discount and conditions system poor good Likelihood of complying with deadline
  11. 11. 2 Role of management in the change process
  12. 12. 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.
  13. 13. 3 Our seven success factors
  14. 14. Our seven success factors1. 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.
  15. 15. 4 Lessons learned
  16. 16. Lessons learned Positive Negative• Proven successes and shared goal • Areas of potential are not always directly orientation. measurable in the profit/loss statement.• Change in the area of administration, despite • Change process was not implemented in all initial resistance. areas to an equal degree.• Better cooperation between departments and • In some areas, a data harmonisation reduction of “rifts”. between departments must take place first. • In some cases, there is too much project documentation and therefore too much “idle power”.
  17. 17. Lessons learned Range and average of the improvements (as %) 0 20 40 60 80 100Increase in efficiencyReduction of lead timesQuality improvement • Improvement of (internal) customer satisfactionOther positive effects • Improvement of employee satisfaction • Improvement of internal/external customer focus • Creating room for strategic/value-generating activities 0 20 40 60 80 100 Range Average
  18. 18. Thank you for your attention.