Industrial Footprint. Service optimization and cost reduction

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1 Industrial Footprint Service optimization and cost reduction

2 Industrial Footprint what and why? We define Industrial Footprint as What and how much products and services should we develop and produce where. Typical questions to be answered are: What products and services should we offer to what markets? Where should we locate our operations? How can we generate value and how should we develop and make our products and services? Why perform an Industrial Footprint Analysis? A footprint study can have a major impact on the business and is all about balancing several competing goals. Dynamic markets force companies to revisit their operational footprint regularly in order to stay competitive. Typical triggers that cause a need to revisit the production footprint and the sourcing setup are: Cost/cash restraints demand a restructured footprint in order to invest, amortize on debt or give dividend Current footprint is not suitable for existing business due to changes in the market or cost development Current industrial footprint does not support strategy or business development 2 Industrial Footprint

3 The underlying drivers behind can be both external and internal changes. Examples of external drivers are: Consumer demand growing from emerging economies Changed structure of the market due to the competitive situation Low cost countries turn into emerging economies Examples of internal drivers are: Changes in the company strategy results in product line no longer being core Business unit no longer core due to change in market focus Changes in the supply chain setup reduce need for many production facilities There are several issues that force companies to consider the level of production cost, future production capacity needs and general structure of the company, including considerations of divestments/investments. Outcome An optimization of the production footprint and supply chain network design can deliver reduction in supply chain costs by up to 20% and lead to improvements in service levels by better aligning supply chain strategies. Network optimization can be used to close the gap in performance in the critical areas of cost, service and control. The result is enhanced visibility, control of costs and performance and a reliable and flexible logistics network. Industrial Footprint 3

4 Examples of workstreams depending on the issues that triggers the footprint A Activities B Cost/cash restraints demand a restructured footprint in order to invest, amortize on debt or give dividend Preparation Understand constraints Data verification As-is Subscenarios Aggregated scenarios Current footprint is not suitable for existing business due to changes in the market or cost development Activities As-is Carry-out a spend Analyse current sourcing strategy Analyse current technology / Know-How Scenario Build-up and evaluate alternative To-be scenarios Derive capacity and sourcing requirements based on the scenarios Develop a criteria catalogue to assess scenarios New platform strategy Project duration 4-6 weeks weeks Analyse key areas based on facts and trends Analyse current sourcing strategy Develop alternative To-be scenarios Assess risks issues Derive capacity and sourcing requirements Build-up a policy regarding Sourcing Strategy Build-up overall business case (incl. customs), final concept and recommendation C Current industrial footprint does not support strategy- or business development Activities Preparation As-is Platform strategy 2-6 months Data gathering and verification Understand constraints and objectives Carry-out a spend and sourcing Scenario development and capacity and sourcing Carry out a risks assessment Build-up a comprehensive implementation roadmap Define actions for transformation of the footprint 4 Industrial Footprint

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6 Re-design of manufacturing footprint for global automotive manufacturer Client Global automotive manufacturer Region in focus: Global Description Challenges Rapidly shrinking revenues caused by the financial crisis Substantial losses during the prior two years The goal was to determine short-term and mid-term measures to improve the profitability of the company to achieve a turnaround EY s Role Analysis of the product profitability situation, related reasons for low profitability, identification of product related cost reduction and revenue improvement potentials Definition of measures to reduce the cost basis on unprofitable products as well as revenue improvement measures concerning price increases at several OEMs (Originally Equipment Manufacturing) Analysis of the market and competitive situation Detailed of the manufacturing footprint by carrying-out a Production Plant Performance Benchmarking: Analyzing and comparing the global locations with respect to product groups, technology, cost structure, revenue development and future prospects, operational performance, CAPEX (Capital Expenditure) demand, capacity utilization, personnel cost structure, and others Building alternative plant closure scenarios in order to reduce the fixed cost basis and to eliminate over-capacities in the network Definition of measures to reduce the CAPEX (e.g. stop investments in building-up a LCC (Low Cost Country) plant) Detailed of the manufacturing processes for unprofitable products and definition ofcost reduction measures Detailed of the other operating expenses focus on repair and maintenance with specific focus on Repair & Maintenance costs, and detailed definition of cost reduction measures Project Achievements Identified cost reduction of approximately 80m. Defined measures on a detailed level agreed upon with top management 6 Industrial Footprint

7 Re-design of international supply chain network to reduce logistics and duty costs for retailer Client EU retailer Description Challenges This EU retailer (multi-cp formats) wanted to redesign the international logistics network to reduce logistics costs and duties EY s Role Mapping of current and future business requirements and flows, which the network must support Network cost modelling for current and future network options, based on consolidation hub location options Indirect tax to reduce customs costs based on current and future network options Project Achievements Identified logistics network cost savings of 10% ( 30m) of total logistics costs, based on reduced product recirculation, cargo optimisation and customs duty improvements Defined new organisation international trade structure to support and sustain the new network model and savings Identified indirect tax opportunities through the use of bonded warehouses, customs valuation, capability improvement and limiting ongoing customs risk exposure Identified further operations and processes improvements to reduce cost and increase efficiency EY has helped several clients optimizing their operational footprint Industrial Footprint 7

8 EY has a highly experienced team with considerable knowledge of and experience in reviewing and setting up new operational footprints. Contacts Ulf Borgcrantz Partner Jens Indahl Partner EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. Mobile: ulf.borgcrantz@se.ey.com Lasse Laurio Partner Mobile: jens.indahl@dk.ey.com Eirik Albrigtsen Partner EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Mobile: lasse.laurio@fi.ey.com Mobile: eirik.albrigtsen@no.ey.com 2015 EYGM Limited All rights reserved ey.com