Reduce Indirect Cost with Zero-Based Approach

Case Study : Cost Reduction

Reduce Indirect Cost with Zero-Based Approach

Champions never rest on their laurels, but instead focus on the next stage goal. A company with around 5000 people across multiple sites is likewise on the lookout for a “North Star.” It all starts with an operations strategy and the initiatives that follow it, which should be applied at every location to improve efficiency. In addition to the OPEX problems, the corporation reorganized all manufacturing facilities using the “zero-based organization” method in collaboration with Praxis Value.

2 min Read | Metal Manufacturing

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Our client’s production networks are highly varied, with multiple languages, work procedures, and (organizational) cultures, and they are always looking for standardization and improvement opportunities: Why don’t locations meet their efficiency goals, despite the fact that traditional productivity is extremely high? Is it possible that there are too many or too few indirect employees? How can the processes be effectively customized to the organization? And how will management be able to govern and guide this across the sites?


The team was also presented with similar difficulties. As a result, it set very specific goals for its “zero-based” project: not only should the organization’s current state be clearly described, but also the future, ideal arrangement for all locations be defined. Already on the way there, it became clear that 40% of the potential could be transformed into coordinated actions and actual savings.


Zero Based Approach

The organization discovered the gaps between the present quo and the future ideal of the zero-based North Star in collaboration with Praxis Value. The project team was able to establish a standardized, scalable, and more efficient organization step by step with the support of Praxis Value's own zero-based strategy. On this path, four project phases are particularly important: the study of the activity structure using the Praxis Value activity roadmap, the identification of potential, the development of an organizational design including dimensioning, and the implementation strategy (roadmap).

Analyse Structure & Determine Potential

Now it's time to interpret the activity structure correctly. Where do you see opportunity, and where does the organization look to be lean? First and foremost, benchmarks are quite useful, and the project team will commit itself to them in the following phase: internal benchmarks evaluate the same activities across other facilities and departments of the organization. This is supplemented with an external viewpoint, such as industry and function benchmarks based on empirical data.
Employees were also made aware of improvement levers in the process, organization, or service portfolio - the benchmark, for example, reveals higher potential in order processing. At the same time, there are several interfaces in the process, as well as duplicate activities and underutilized IT systems. According to Praxis Value's experience, inefficient processes account for 80% of cost reduction opportunities, whereas pure organizational changes account for 20%.

Blueprint & Dimension Target Organization

The ideal organizational structure is "designed" by the project team. It accomplishes this by establishing design criteria (for example, the number of management levels and management ranges), determining the appropriate level of central and decentralized functions, and determining the best organizational dimension. The Blueprint Organization is summed up in a standardized and scalable organizational structure at the end.


Standardized, Scalable & Highly Efficient Organization

Following the clarification of the goal, the “how” is implemented. Individual transformation paths are required because, depending on the area, a works council may be required or country-specific requirements must be followed. As a result, the group created its own Praxis Value idea for each location’s implementation, with a path from the current state to a target image that is extremely close to the “zero-based north star.” From project inception to roll-out in all sites, the organization established a realistic time frame of two years. Collaboration with the plant managers on site was a critical success factor in the implementation.

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