Value-Added or Value Destroyed?
Client:
A long-established manufacturing company, selling to high-end customers in the automotive industry.
Problem:
One of their major automotive customers required the company to undergo a Value For Money audit before they would be considered for additional business awards, and the company were concerned that they did not have the information or expertise in-house to successfully undertake or manage this exercise.
What did we do?
The project we undertook had the following key components:
1. Development of a full activity-based cost system to accurately identify the difference in costs between the various products that the company produces. This broke the cost of production down to each step in the production process, enabling the company and their customer to see how the overall cost was built up and the impact of certain aspects of the product specification on cost.
2. Completion of the VFM analysis requested by the customer, breaking down the material cost, value-add and profit by product and process and showing to them, for the first time, the significant impact of batch size on cost.
3. Project managing the VFM audit, facilitating the factory visits / production analysis by the customer and leading discussions on our client's behalf with customer's sourcing / procurement team who were undertaking the VFM audit.
4. Working with our client's finance & production teams to help them understand the true cost breakdown of the company's products and enabling them to focus their efforts on effective cost down activities.
5. There were a large number of aged invoices which remained unpaid due to inadequate administrative processes. By working with our client and their customer, we were able to solve most of the issues that were delaying payment and amend the process so that the problems would not be repeated in the future.
What was the outcome?
The most significant outcome of the project was the successful conclusion of the VFM audit. This resulted in our client being awarded significant new business from their customer, and being given the opportunity to quote to become single source for this customer. This represents a business opportunity of some £2 million p.a.
Addressing the obstacles that were delaying payment of invoices by their customer has resulted in a £500K reduction in overdue payments, and good progress is being made on addressing the balance.
The company now has a very powerful tool to calculate the cost of production, and is able to compare different production routings to see what the impact on cost would be - effectively being able to optimise the production process to achieve lowest possible cost. This has benefitted their commercial decision-making across the customer base.