Transformational Cost Repositioning for Building Materials Giant

Opportunity

After years of growth, a leading roof tile supplier faced declining profit margins due to a combination of increasing pricing pressures and rising manufacturing costs. Past cost cutting initiatives failed to keep pace with new industry realities.

For this reason, the client required an intensive approach to help achieve the “Next Level” of improvement – using dedicated resources and utilizing a structured program which focused on the cost levers of the business.  Almost half of their operations were put through the process over a four-month period. Objectives for the waves included:

1. Reduction in the range of 5% compressible costs

2. Identification of “quick win” ideas transferable to the other plants

3. Detailed understanding of key cost drivers and their sensitivities

4. Process skill development delivered to internal resources

The bottom line: the company needed to cut costs faster and more permanently without jeopardizing quality, with the goal of using savings to fund growth opportunities in new markets and through acquisitions.

Approach

Working collaboratively with the plant and regional managers, we deployed our performance improvement toolkit to develop a multi-prong strategy for transforming the manufacturer into a cost leader.

We want to ensure that the teams were focused on the ideas that had the maximum value for the business. Therefore, as a prioritization step, ideas were sorted out that could deliver the most value in the shortest relative timeframe. For example, the ideas were grouped in a matrix as shown below:

The team used this type of analysis, and other cuts at the data (segmented variable costs, value chain benchmarking) to identify those “leverage” areas where the team should focus its effort to deliver the greatest value.

The value improvement process consisted of three distinct phases in order to drive home the expected results.  Exhibit 1 shows the activities in each:

Exhibit 1: Value Improvement Process

Recommendations

We recommended that the group president and the executive team implement a comprehensive cost transformation plan to achieve its goals of improved financial performance and funding growth opportunities with cost savings.

The plan called for deploying five major initiatives:

1. Reformulate the product mixes to provide greater short and long term strengths and at more efficient costs

2. Optimize labor schedules to reduce OT costs by 60%

3. Smooth the utility loads and eliminate peak usage penalties

4. Continue testing on reducing strength additives by virtue of more efficient mixing

5. Eliminate high cost scrap grinding process

Results

With Next Level’s help, the sweeping transformation plan is quickly re-positioning the company as a building products cost leader. It is achieving quick wins and sustained savings while better meeting evolving customer needs.

Exhibit 2: Example of one site’s monthly savings curve.

• Savings of $1.6 million year on year—and resources freed up for re-investment in growth through acquisitions and emerging markets

• Implemented work plans and mobilized team for improved productivity

• Established program management office