A fast-growing production company got its SG&A expenses back on track after an over-proportional increase
Over-proportional increase of indirect SG&A
Wide product diversity, global orientation, acquisitions and high growth rates led to an over-proportional increase in complexity in indirect SG&A costs that were far from production-group functions (indirect SG&A such as HR, finance, marketing and innovation).
As a result, the costs of indirect SG&A increased annually by more than 5%, reflecting an increase of more than 25% compared to the development of the margin (around 5% per year).
This development was a warning signal for management to launch a short-term optimization program that would aim to reduce 15% of global indirect costs in the next two years and increase costs by at least 20% below the margin development in the long term.
The joint effort with Arthur D. Little was set up to identify the optimal improvement levers for short-term (evolutionary) and long-term (revolutionary) approaches.
The approach included two phases: in the first six weeks, optimization measures were defined using a quick scan analysis through collaboration with the management responsible for the indirect units (inside-out view) and external best practices and benchmarks (outside-in view).
Optimization options such as organizational changes (combining functional areas or centralization) and efficiency improvement through process optimization or implementation of internal guidelines were identified.
Following the analysis phase, the implementation phase was initiated, prompting those responsible on the client side to gear the required measures, break down the defined concept and manage the implementation.
By setting up stringent program management, Arthur D. Little contributed to the success of the program.
SG&A back on track
The required cost targets of 15% on global SG&A were realized with 2 years, and additional optimizations in other areas (purchasing, logistics and quality management) were achieved.