Closing the cost gap with precision
A global automotive market leader optimizes its plants for efficiency – EFESO delivers results across all cost categories
Translating clear objectives into actionable and effective cost reduction measures is at the core of an automotive OEM’s efficiency program. Together with EFESO, the company ensures that three plants contribute to closing a performance gap at group level.
Challenge
An automotive manufacturer faces increasing cost pressure. The OEM quantified a performance gap at brand level and defined cost reduction targets for three plants.
MoreEFESO approach
The project team analyzed the status quo of a plant and identified more than 100 concrete measures across four key cost categories of the efficiency program to close the cost gap.
MoreLessons learned
Clarity is critical to success: all cost-saving opportunities must be identified at both shop floor and cost center level, translated directly into measures and concepts, and brought into execution to realize impact.
MoreEFESO success model
A four-stage approach developed specifically for this project was implemented in a synchronized manner across all three plants to achieve maximum impact in closing the cost gap.
MoreTarget breakdown with cost KPIs per vehicle
For a global market leader in the automotive industry, challenges in its core business are intensifying on a weekly basis. Driven by ongoing geopolitical crises and increasing competitive pressure, the company must manage multiple transformations, particularly in digitalization and alignment with local market requirements. To address the rapidly increasing cost pressure and close the performance gap at group level, the OEM launched a comprehensive efficiency program.
Through a “target breakdown”, the company derived cost reduction targets for all corporate functions as well as for each individual plant. To do so, the OEM translated the overall performance gap into a euro amount per vehicle, multiplied this value by the planned production volume at each respective plant, and thereby defined concrete savings targets per site. Each plant was then tasked with developing its own approach to cost reduction. No predefined areas for savings were specified. As a result, the scope covered all factory costs at each site, including all production areas and cost categories.
At this point, EFESO was engaged to establish rapid transparency and enable immediate action on cost reduction across three of the OEM’s plants. The overarching project objective was to identify value-generating savings based on the defined targets within nine months and to initiate implementation as quickly as possible. All measures were to be implemented within one and a half years from project start. A key challenge was that while a clear overall cost reduction target existed, there was no precise allocation of these targets across specific cost areas, trades, or organizational units.
The project team therefore had to quickly gain clarity on two key questions: Which cost reduction measures are already in place—and how reliable are their results? And what gap remains after accounting for these measures? Based on this remaining gap, the team then needed to determine which areas of the plant could contribute to the level of cost reduction.
The objective: to identify and activate significant cost-saving potential across three plants within nine months.
Four cost categories in focus
The project began with an assessment of the three plants to clearly identify “pain points” and cost drivers within each facility (see section “EFESO Success Model”). The focus was on answering key questions: Where does each plant stand? What are the KPIs for productivity, quality, Right First Time, and direct run rate? How do these metrics compare across the internal benchmark? In which areas have best-practice solutions already been implemented that can be transferred to other areas and plants to multiply cost-saving effects?
A catalog of measures was developed across four cost categories, comprising more than 100 levers for cost reduction.
For each plant, every function, from the press shop to final vehicle completion, was required to contribute to cost reduction (see figure 1 for an example of a functional cost reduction scope in the automotive industry). This formed the overarching framework for a cost analysis focusing on four key cost categories:
- Direct labor costs: costs of shop floor employees (“blue-collar”) across all production areas.
- Indirect labor costs: salaried functions such as supervisors, foremen, team leaders, and administrative roles.
- Overhead costs: external services and purchased services such as maintenance, facility management, or repair services.
- Logistics costs: costs for external logistics and supply chain services, such as freight forwarders, external warehouses, picking operations, or on-site logistics providers.
The project team was structured according to these cost categories. For each category, EFESO appointed a dedicated workstream lead, paired with a counterpart from the company. Together, they focused on four key work packages: analyzing existing initiatives, identifying new cost-saving potential, forming cross-functional working groups, and developing concrete measures. As a result, the OEM quickly gained more than 100 actionable levers to achieve significant cost reductions. Examples include:
- Direct labor costs: to increase efficiency in production processes and improve productivity across the entire value chain, the project team defined specific measures such as cycle time optimization, improvements in OEE (Overall Equipment Effectiveness), reduction of rework, quality enhancements, and process stabilization in manufacturing.
- Indirect labor costs: the focus here was on organizational and digital improvements, such as process automation, digitization of work steps, consolidation of functions, and improvements in quality and maintenance processes. One key cost driver identified was the reactive mode of operation in certain areas, for example, repairs being carried out only after disruptions occurred. As a countermeasure, the project team proposed specific preventive and data-driven tools and methods.
- Overhead and logistics costs: particularly impactful measures included bundling external service providers, leveraging economies of scale in procurement, and reducing supplier complexity. In addition, significant cost-saving potential was identified through the optimization and digitization of logistics and supply chain processes.
Clarity and best practices drive results
During the implementation of the project, the following lessons learned proved to be particularly critical to success:
Ensure a clear target breakdown!
Cost-saving targets must be broken down into cost categories, functional areas, and cost centers. It is essential to identify all savings opportunities directly at the shop floor and cost center level. After this, translate them immediately into concrete measures and concepts, and bring them into execution to close gaps between targets and the status quo at the plants as quickly as possible.
Establish shared ownership of targets!
“Consultant-driven measures” and “company-driven measures” cannot be treated separately. Ideally, consultants and functional leaders work together as “tandem partners” within each workstream. Joint accountability for closing the performance gap is essential, regardless of who contributes which measures.
Create transparency through benchmarks and best practices!
When assessing potential, a “triad” approach has proven effective, combining internal best practices, external industry benchmarks, and the experience of EFESO consultants from comparable projects.
From “Identifying” to “Implementing” at speed
For this project, the EFESO team developed a four-stage approach, implemented in a synchronized manner across all three plants to achieve the maximum possible impact in closing the cost gap (see figure 2). A key objective was to continuously share existing and newly identified best practices across the plants. This enables individual departments, plants, and ultimately the entire plant network to benefit from increased connectivity, and to achieve cost-saving targets more effectively through a shared approach. The stages essentially comprised the following elements:
Starting point: assessment (“See & Collect”)
This phase creates transparency regarding the current status at the plants, the progress of existing measures, and defines data requirements. It includes expert walks along the value stream as well as meetings with expert teams in each functional area. As a result, a clear on-site understanding of the maturity level and existing measures at each location is established, and initial expert insights can be systematically collected.
In this case, the assessment lasted one week, providing a rapid analysis across all cost categories. This enabled the project team to develop an initial quantification and assess how the cost gap could be closed.
Phase 2: structuring (“Check & Sort”)
A rigorous validation of the existing measures at the plant establishes the project baseline and reveals the actual target gap. The project team follows a structured approach: all measures are reviewed for compliance with defined standards, non-compliant measures and potential savings are filtered out, and the target gap is adjusted accordingly. The remaining measures are then prioritized, and initial concept packages are handed over to the coordinators of the next phase, “Push & Drive.”
Phase 3: measure development (“Search & Dive”)
Expert teams identify new ideas and concepts on the shop floor as well as within indirect functions, differentiated across the four cost categories outlined above. These measures are evaluated using a maturity model (“HG”), with a focus on two early stages: “HG 1,” representing an initial conceptual description, and “HG 2,” consisting of quantified business cases.
The objective is to develop measures rapidly to at least “HG 3,” meaning they are approved for implementation. Another key principle is an 80:20 approach, focusing on measures that can be implemented within one and a half years.
Phase 4: implementation (“Push & Drive”)
To transition HG 1 and HG 2 measures into HG 3, EFESO establishes a comprehensive tracking system for all measures and a strict escalation management process within the plant and corporate organization. The consultants lead project coordination and orchestrate the overall “drumbeat” of the program. They identify measures that require acceleration or prioritization and take responsibility for stakeholder management, including the involvement of senior leadership and workers’ councils.
To ensure effective escalation management and continuous transparency of results, the PMO team provides ongoing updates on the status of measures, remaining gaps, and target achievement.
To implement these phases, EFESO assembled a team of automotive experts, data analytics specialists, and PMO professionals, tailored precisely to the OEM’s needs and situation. Accordingly, analytical and concept development experts were deployed during the “Search & Dive” phase, while experienced facilitators with strong implementation expertise were engaged during “Push & Drive.”
With an increasingly deep understanding of processes and challenges at the plants from phase to phase, the project team also adopted a top-down perspective on future steps. Together with the plant teams, EFESO defined cost reduction initiatives spanning the full one-and-a-half-year timeline. These initiatives were structured into clusters, evaluated, and prioritized, resulting in a clear roadmap for implementing further effective measures.