Case Study: Global Cost-Reduction
The following Case Study demonstrates Gagnon Associates’ approach to worldwide cost-reduction for a global maker of consumer electronics products:
A major European-based, worldwide manufacturer of consumer electronics products.
Fiercely competitive market pricing by the Japanese and other rival consumer electronics manufacturers places extreme pressure on margins. To reduce costs and maintain margins, company must bring about global standardization so as to better leverage worldwide economies of scale.
In its effort to reduce the integral cost of each TV component — and thereby, total TV cost — company embarks on a component-by-component, team-based, analytical approach, using the services of Gagnon Associates. Over a period of two and a half years, cross-functional teams working with Gagnon Associates consulting support identify significant cost-reduction opportunities across all components, e.g., transformers, connectors, speakers, etc.
Representative example: the first-ever global TV speakers team meets to identify opportunities to standardize and reduce integral cost for this component. Team includes representatives from the company’s European, U.S., South American and Far Eastern operations. Functions represented include: purchasing, electrical and mechanical development, marketing/sales, product management, and finance. Internal and external materials suppliers are also present. Team’s target is to reduce the $24 million spent globally on speakers per year by at least 10% or $2.4 million.
Following a process designed and managed by Gagnon Associates consultants and working over a period of several days, team members work independently, in sub-teams and in close coordination, as required, to: a) break down geographical barriers by communicating speaker cost status across regions, b) exchange data on new speaker technology, materials and suppliers, c) identify global cost-reduction opportunities from a common knowledge base and d) develop and commit to global cost-reduction implementation plans.
The global speakers team identifies cost-reduction strategies for worldwide supplier reduction, standardization of product design and development processes, elimination of costly overspecification of speaker components and logistics simplification procedures, among others. Resulting cost reductions total $3.8 million, termed a “conservative estimate” by the team, and well above the $2.4 million goal.
On the engagement’s final day, at an open forum designed and moderated by consultants from Gagnon Associates, division management approves all global cost-reduction plans, thus accelerating the implementation process.