A leading tool manufacturer took the quick route to higher product profitability
Competitive pressure and increasing complexity
Increasing market and customer focus offers growth potential, but also generates product and inconsistency, as well as a significant increase in complexity and cost.
Due to competitive pressure, full price adjustments cannot be carried forward to the customers. To ensure a long-term target return, it is critical to manage complexity costs effectively and align the portfolio accordingly.
Therefore, it is crucial to provide transparency with product-complexity costs and create “true” product profitability to enable a valid basis for decision-making.
The common allocation of overhead costs by applying the surcharge calculation may lead to unfavorable product decisions due to missing profitability analysis.
Ensure effective decision-making and increase product profitability
Our approach is divided into three parts, and delivers full transparency of complexity costs and detailed recommendations to improve the portfolio in 10 to 12 weeks.
- In the complexity analysis, complexity drivers, as well as positive and negative effects along the entire value chain of the company and directly attributable overhead-cost drivers, are identified and quantified to determine real product profitability and potential for complexity reduction.
- In addition to product cost accounting, the analysis serves as an input to create a complexity-cost model that consolidates data according to the “polluter-pays” principle. It provides true cost transparency and supports product-portfolio decision-making used for introduction, continuation or elimination of an existing variant.
- Product governance is defined considering use cases and processes for complexity cost calculation, the bodies involved and documentation requirements, and an explanation of how complexity costs that complement the existing product cost calculation can be applied.
Significant platform and COGS savings realized
The identified potential summed up to 30% in platform and 5% in COGS reduction.