Cutting Costs of Custom Engineered Products by Three Times the Target

Situation

A global supplier of engineered cooling systems for the power generation industry needed to become more price competitive. Their goal was to reduce Cost of Goods Sold (COGS) by 5% across three product groups. ARGO-EFESO evaluated and redesigned existing products for the client’s three major product systems, delivering a proposed total savings of $30 million against an $11 million target.

The client was losing global market share due to price non-competitiveness across the three product systems. Typically, those products were priced 10-20% higher than the competition. With a reputation as a technology leader, the client had long found that customers were willing to pay a premium for a highly engineered, customized product. But in the face of more competition — and with customers increasingly more sophisticated and cost-conscious —the market was no longer willing to pay that premium.

As part of the cost reduction efforts, ARGO-EFESO was tasked to improve cross-product knowledge sharing to leverage global organization. Historically, the client’s different offices around the world — in Europe, the U.S. and Asia — operated rather independent of each other. The goal was to establish a single approach to engineering across all regions.

Actions

Using our structured Value Engineering approach, ARGO-EFESO led 11 workshops over 10 months with interdisciplinary client teams from three continents and six offices. Bringing those teams together to systematically challenge all aspects of design, large and small, made it possible to find commonalities across product groups. From there, the teams could identify solutions and achieve some degree of standardization. We also helped the client develop an implementation infrastructure to manage the design changes and deliver improvement.

Results

In the end, the ARGO-EFESO team delivered more than 200 cost-reduction proposals across the client’s three product groups. Product cost savings ranged from 10% to 30% depending on product and the geographic market, resulting in proposed savings of $30 million — three times more than the $11 million target.