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The Upside of a Teardown

A pump manufacturer based in Europe enjoyed an enviable position: It had a worldwide presence and more than €20 billion in annual revenue. But deregulation of the client’s industries had created pricing pressure, and the client realized it had to find significant cost savings in order to remain competitive and profitable.

Procurement costs made up a majority (nearly 70%) of the client’s cost structure. The company worked with BCG to reduce overall product costs by 15% and implement a plan to reduce annual costs by 10% each year.

One of the projects’ cost reduction strategies involved teardowns on 18 products, including 8 from the pump manufacturer and 10 from its competitors. The process generated 150 cost-saving ideas and helped the company surpass its overall cost reduction goal.

BCG also worked with the manufacturer to reduce the complexity of its overall portfolio and uncover potential cost savings. BCG conducted a review across the client’s engineering, purchasing, and manufacturing sectors, and then began redesigning organizational and operating procedures.

A comprehensive metrics program was implemented, and client teams were trained to ensure internal ownership, ongoing results, and sustained cultural change. The results? The client saved €180 million on procurement costs on a budget of €1.8 billion in the first 18 months of its cost reduction program.

Procurement
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