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Cost reduction to maintain market share
R&D manager, Marketing manager, R&D director, Industrial director, France Sales representatives, Purchasing manager
1 mission director and 2 consultants
Faced with competition from similar products – in particular the fact that these less expensive products are 100% refunded – the new R&D and Innovation manager (for whom we successfully completed a mission to reduce the cost of skis when he was R&D director at Rossignol) wished to launch a project to reduce costs across the entire medical range.
Two cost optimisation approaches were deployed.
The first was aimed at adapting range width to respond to the strict minimum of customer needs. This was based on functional analysis of customer needs and the construction of a diversity “tree”, integrating differentiation parameters (compression level, size, sex, colour, etc.) and linking the volumes sold to each node and branch. This tree evidenced diversity which did not respond to a priority need.
Parallel to this, a scale of the additional costs of diversity – for the creation and management of an item – enabled us to recalculate the true profitability of each item. This showed that more than 50% of the items posted a negative margin. This analysis, together with the diversity tree, resulted in the removal of 30% of items and a reduction in the cost of the major items.
The second was a design-to-cost approach. Value engineering of 3 representative products with high-volume sales (socks, stockings and tights) evidenced a large sales potential of 20%-50% depending on the model if design choices were reviewed (weave, positioning of compression at useful points, fixing and hold-up systems, etc.).
The mission resulted in a 30% reduction in the number of items and a review of design choices, which in turn greatly reduced recurrent costs. The products are now once again well-positioned in relation to competitors and sales have grown.
Mentalities have greatly developed, rules have been implemented on the creation of new items which limit the number of items to the strict minimum from the moment a new range is launched. Thanks to these structured exchanges better collaboration has been established between Marketing and R&D, and R&D has introduced an optimisation drive based on a review of design choices, as well as on changes in the choice of materials or a reduction of production costs, as previously.