Cost out program delivers savings of 2.6 bn euros

Managing costs is becoming even more important these days due to various effects that are changing the way forward across all industries. In this case, our client – a world leading system automotive supplier – was facing a huge challenge to get a new product development back on track, both technically and commercially.

The biggest challenges from the very beginning of the program

• Complexity increase based on modular construction system of conventional and various hybrid drive solutions
• This new product was already negotiated with multiple OEMs with clear expectations of acceptable cost, especially for the hybrid solutions
• Latest internal business case simulations showed a significant profitability decrease and further technical risks
• Complex project organization with about 200 people over four business units already installed

What makes this situation so much more complex compared to other projects?

How did we approach this challenge to overcome the criticality?

The need for fast and structured profitability programs was clear from the very beginning. We agreed with our client to set up a task force and the initial task was to run a health check to identify the fields of action.

The biggest question at first was how to identify all critical areas and to work on them at the same time without losing the necessary speed to meet all SOPs.

What was key to success within this task force?

A wide set of optimization levers was key to success

The holistic end-to-end VA / VE profitability program covered:

• Target Costing
• Benchmarking
• Design to Cost
• Complexity MGMT
• Make-and-Buy analysis
• Advanced negotiations
• Invest Optimization
• Strong PMO
• Measure tracking
• Sales Support

+ an unbiased support of the executive management with full support within the realization phase until SOP

A holistic Profitability Program helped our client position themself to reach ambitious targets

The client benefits were significant:

• Improvement of the previous strained business case toward 10,6 percent contribution margin today, i.e. worth 2.6 billion euro
• Improvement of the business case even beyond the additional five percent contribution margin
• One-time payments were reduced by around 300 million euros. Further commitments and measures reduced the one-time payments by around 200 million euros