Oil Equipment Manufacturer Adapts to Major Market Changes
A division of a downstream oil equipment manufacturer implements Product Value Management (PVM) resulting in savings of $23M annualized, and an average 29% in cost reduction.
THE SITUATION
Up until a few years ago, when crude oil was consistently $100 per barrel, the oil industry’s downhole equipment market focus had been on quality, reliability and lead time. In such a market, the engineer-to-order product strategy which was adopted by a major downhole equipment manufacturer worked very well.
However, when crude oil prices crashed from $140 per barrel during the peak in 2008 to the lowest point of $28 in 2016, the company had to become more cost conscious. Due to the inherently high costs of the engineer-to-order product strategy, the company lost its competitive edge.
ARGO-EFESO’S ACTIONS
To help the client with the challenges brought along by the market change, ARGO-EFESO engaged in Product Value Management. PVM looks to reduce costs across entire product families, not just product components as would be typical in VAVE (Value Analysis/Value Engineering). The traditional VAVE model and engineer-to-order strategy resulted in multiple thousands of SKUs, but the PVM process could now look at the entire portfolio holistically. ARGO-EFESO supported the client to:
- Develop a configure-to-order product strategy for the appropriate market segment
- Develop a process to create a Configured Product Portfolio, that would cover 80% of the target market segment needs, to maximize the benefit of the Value Engineering study
- Develop Value Engineering capabilities by establishing process, coaching and training client resources
- Conduct Value Engineering workshops with cross-functional teams from engineering, manufacturing, and supply chain
RESULTS
- Conducted Value Engineering workshops that led to design/engineering, manufacturing and sourcing/procurement change proposals for 17 product families.
- Generated change proposals have an estimated impact of $23M reduction in product cost, average 29% cost reduction per product family.