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Cost Reduction Potential in Indirect Areas


    Dr. Stefan Schwarzfischer

Germersheim, 2 Mai 2011
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 management
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.

• 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.
Initial situation, analysis of potential, project management


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
 • 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
Initial situation, analysis of potential, project management


Analysis 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 and
Workspace analysis            selected workspaces       •Optimisation potential through effective          time management
                                                        time- and self-management, DP and skills
                                                        training
Initial situation, analysis of potential, project management


Potential identified


    Management Department               Sales & Marketing          Administration & Engineering

                                  Personnel          Material      Personnel          Material
            Cost type                                                                              Total
                                  costs              costs         costs              costs

Potential in numbers and
backed 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.
Initial situation, analysis of potential, project management


Project planning following a defined process flow


          Project task                       Project flow      Scheduling




                                      Capacity planning
Initial situation, analysis of potential, project management

Project controlling


        Project status report                           Implementation schedule




                                Project status report
Initial situation, analysis of potential, project management

Project 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
2   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 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 learned
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”.
Lessons learned



                          Range and average of the improvements (as %)

                          0              20           40            60        80            100


Increase in efficiency


Reduction of lead times


Quality improvement


                              •   Improvement of (internal) customer satisfaction
Other 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
Thank you for your attention.

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Cost Reduction Potential in Indirect Areas

  • 1. Cost Reduction Potential in Indirect Areas Dr. Stefan Schwarzfischer Germersheim, 2 Mai 2011
  • 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. 1 Initial situation, analysis of potential, project management
  • 4. 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. • 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. Initial situation, analysis of potential, project management 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 • 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. Initial situation, analysis of potential, project management Analysis 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 and Workspace analysis selected workspaces •Optimisation potential through effective time management time- and self-management, DP and skills training
  • 7. Initial situation, analysis of potential, project management Potential identified Management Department Sales & Marketing Administration & Engineering Personnel Material Personnel Material Cost type Total costs costs costs costs Potential in numbers and backed 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. Initial situation, analysis of potential, project management Project planning following a defined process flow Project task Project flow Scheduling Capacity planning
  • 9. Initial situation, analysis of potential, project management Project controlling Project status report Implementation schedule Project status report
  • 10. Initial situation, analysis of potential, project management Project 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. 2 Role of management in the change process
  • 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. 3 Our seven success factors
  • 14. 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.
  • 15. 4 Lessons learned
  • 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. Lessons learned Range and average of the improvements (as %) 0 20 40 60 80 100 Increase in efficiency Reduction of lead times Quality improvement • Improvement of (internal) customer satisfaction Other 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. Thank you for your attention.