A medium-sized company from a large German group of companies ran into considerable problems after a patent protection expired. As a supplier of important components for large-scale manufacturers, the company had been the global market leader in this product area for many years due to the patent. Now, however, Asian competitors were pushing vehemently into the previously high-margin market. They were supplying at prices that the company could not match. On a positive note, the delivery quality and delivery service were highly valued by customers. The proximity to the customer was also exemplary, only the price of the products was no longer competitive.
Initial restructuring and cost-cutting measures were initially unsuccessful
In order to withstand the high price pressure in the market and at least partially absorb dumping offers, the company had already revised its production structure and built a new plant. Great emphasis had been placed on partial automation and optimization of mass production. However, it quickly became apparent that the real and achievable cost improvements were not sufficient to keep up with market prices or to be able to sell at a profit. This was followed by drastic cost-cutting measures, but these were not enough either. After the parent company had been breaking even for a long time and there was no prospect of a significant improvement, the decision was made to bring in external help.
Company situation analyzed in detail and project team formed
When the interim manager took over, many large customers had switched to other providers. For the remaining customers, to whom large volumes could still be supplied, the prices that could be achieved were no longer sufficient. At the same time, many technical processes were no longer up to date. Some of the machinery also had to be kept operational at high maintenance costs.
In order to resolve the situation, the interim manager first analyzed the cost structure from purchasing to production processes, subcontracting and logistics structures through to overhead costs. He delved into the details of many areas in order to identify which costs were incurred where and to find starting points for competitive structures.
Fully automated production and global procurement rejected as a solution
In the end, the interim manager formed a project team made up of specialists from the departments. It turned out to be expedient to involve people from the day-to-day business in particular. Last but not least, he focused his attention during the selection process on those who were willing to tackle weak points openly and cooperatively.
The project team initially concentrated on developing a fully automated production concept and expanding procurement activities worldwide. However, calculations and market research showed that this would not improve the cost situation. The achievable prices for six-digit delivery quantities would be lower than the costs of material procurement.
New strategy developed with small batch sizes for customer-specific products
The interim manager then developed a new product strategy. Many customers wanted smaller and more flexible deliveries - or special customer-specific products from certain product groups. By focusing on these market requirements, cost-covering prices were once again possible. This also meant a significant change in purchasing and production structures.
In order to achieve a sustainable cost structure with smaller and more flexible production volumes, the interim manager planned many steps with the project team. Among other things, in-house production was consolidated at one production site. Two key processes were outsourced to specialized and more cost-effective subcontractors. The assembly of the product segments, which mainly involved manual activities, was relocated to sister companies in Eastern Europe.
At the same time, direct contact between the development department and customers was intensified in order to find common paths to customer-specific variants. The sales department also retrained. Priority was given to questions about possible further customer benefits.
New product strategy brings high-margin offers and sales
All areas of the company were heavily involved in the reorganization. After just a short time, the company was able to serve the targeted market for smaller batch sizes and customer-specific products at competitive prices. The development department was now in a position to develop specific products together with customers in the shortest possible time, which were offered and sold at high-margin prices. After a few months, the company had left the critical area and the figures showed a positive trend.
