Cost reduction

As a result of a merger, this Europe-based organization quickly established itself as a global leader in missiles. They had built a truly competitive international business by integrating capabilities and resources, embracing a large customer base, and combining new and legacy missile systems for a large product portfolio, including air, sea, and land launched missiles.

Challenge
Following their early focus on building the business, the organization turned to the next stage in their development – reducing cost. They wanted to further integrate across businesses in sourcing, supply chain, and manufacturing operations. They recognized the key challenges lay in potential changes this might necessitate in engineering and product specifications, finding acceptable new sources of supply, and introducing new working practices across the different national business units that made up the client organization.

Approach
A joint team, with A.T. Kearney consultants, worked together to design and gain agreement on a roll-out of cost reduction initiatives, impacting commodities, services, and major equipment.

The team developed a mix of strategic sourcing approaches. For commodities they leveraged volume concentration, spend and the global supply base. For key equipments, suppliers were brought closer to the business to support product and process re-engineering. These approaches helped address the immediate cost reduction imperative and brought longer term benefits by introducing sustainable changes in engineering and manufacturing, as well as the procurement organization.

The key enabler to success was to ensure that everyone understood the changes and rationale. The team also introduced common practices and an appropriate organization structure to drive and sustain the delivery of benefits. The team was successful because their program was based on the following:

• Managing cost reduction as a program
• Empowering multi-function teams across business activities and departments
• Generating cost reduction ideas and initiatives (tested and introduced)
• Prioritizing and focusing on highest gain
• Using proven tools and techniques, including strategic sourcing strategies

Results
Phases 1 and 2 of this five-year, international cost reduction program were successfully concluded. Benefit targets were achieved and the next wave of initiatives planned with key enablers put in place. Following our support over a two-year period and an effective skills-transfer process, the client has now embarked on the concluding phases.