Cost Reduction

Cost Reduction by Outsourcing and Off-shoring

A coatings and polymers manufacturing site had to reduce its cost base by €10 million to meet corporate targets. A range of options was under investigation: one of the BU’s planned to build new capacity in China; another was considering setting up a production facility in Eastern Europe. There was an idea to outsource material handling and packaging activities. Setting up a site maintenance organization would result in synergies. And more flexible use of the workforce could also reduce costs.

Implementum helped to define different cost reduction scenarios, ranging from aggressive to more evolutionary, which included all or just parts of the ideas listed above. We then applied our D&RA methodology to assess the risks and uncertainties of each scenario, and how they could impact the outcome.

It was found that outsourcing non-core activities had lower than expected benefits, while it had a significant risk of social unrest, even more so than the off-shoring initiatives, which were expected to be seen more as a corporate and less as a site decision. Part of the assessment was confidential discussions with the commercial teams to better understand the potential loss of customers when the site was unable to deliver product during a longer strike. 

A detailed analysis of site demographics revealed that the majority of redundancies caused by off-shoring and implementation of a site maintenance organization could be coped with through early-retirements, natural attrition and termination of temporary contracts.

The analysis clearly revealed the preferred scenario in terms of risk-reward balance. Corporate management followed the recommendations, and site management was confident that they could implement the change.

Manufacturing Site Closure

A US engineering plastics manufacturer had 5 compounding sites in Europe. Under continuous pressure from the market, rationalization of the asset footprint seemed unavoidable, and it was decided to assess if the smallest site could be closed.

Implementum helped with the study to close the site. We looked at redistributing the products over the remaining sites, the investments required to do so, the impact on future capacity expansions, the costs for a social plan and the costs to disassemble and rearrange the site. The overall business case was positive, taking into account the significant cost savings potential.

We then supported the implementation phase, coordinating debottlenecking and modification projects at other sites, and the transferring of products to new production lines. All works council, union and individual discussions were taken care of by local management.