Case studies
Complexity Management for a global chemical company
A €3-billion specialty chemical business unit of a global chemical player faced high complexity along its customer, product, and production dimensions.
- The customer industries of the business unit were hit by economic downturn
- The business faced a sharp sales decline in 2009 and had to prepare for further overall rightsizing
- Rising raw material prices, e.g. for raw materials, eroded profitability as price increases could not be passed through to customers
Approach
A.T. Kearney used its unique complexity reduction methodology to address both value and cost of complexity.
During a 16-week project, complexity costs and drivers across the entire value chain were analyzed:
- All costs were allocated on an activity basis
- The “Pocket Margin” per product and customer was introduced as a "real” profitability metric
- Variant trees with market and technical views created transparency for the costs and value of complexity
Results
- For the first time, cost-to-make and cost-to-serve has been allocated to customers and products on an activity-basis (Pocket Margins)
- Customer and product portfolio has been streamlined, bulks by 20% and SKUs by 35%
- Almost 50% of the accounts have been recommended as transferable to distributors
- A significant complexity optimization potential of € 80-95 mil. EBIT improvement has been identified and consequently implemented
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