MENU

MANUFACTURING

Clear and lasting advice and a 15% saving

Clear and lasting advice and a 15% saving

The brief

Assess whether we should shift production from Belgium to the Netherlands.

A large international producer of livestock feed sought to cut costs by reducing Opex. One way was to optimize premix production. Premix is the part of mixed feed containing vitamins, minerals, and trace elements, etc. The company produced premix at one location in the Netherlands and another in Belgium. The location in the Netherlands was bigger. What they wanted to know was: ‘Would it make sense to shift premix production from Belgium to the Netherlands?’ Our aim was to evaluate the consequences of this shift and outline the pros and cons.

Approach

Going through the books and getting on the floor for nine weeks

In a period of nine weeks, we and the management teams at the two plants performed a comparative analysis. Both management teams met once every two weeks to discuss progress and flesh out what steps to take. The first four weeks took us deep into the accounts at both plants. That was followed by an active search on the shop floor to find the necessary data that could not be derived from the different information systems.

Determining comparative cost

To make a proper comparison of the two locations, the cost of premix production at both sites needed to be determined on an equal basis. So we determined the exact direct and indirect costs of making the premixes at both plants. Conclusion: the per-tonne Opex in Belgium was lower than in the Netherlands. This was due to the higher average wage costs in the Netherlands and because an increase in premix volume at both locations would have fewer scale advantages in the Netherlands than in Belgium.

Defining possible production shift variants

After these figures were presented, the management came up with four scenarios for how to shift production, and we had a better look at ‘shifting from Belgium to the Netherlands’. We also considered the kinds of premixes made in Belgium. On this basis, we came up with seven different variants, running from a low to a high percentage of the kinds of premixes included in the shift of production.

Computing the extra costs and savings per variant

For each of these variants, we then considered which extra costs and savings would arise from the shift. This had to do then with changes in the directly and indirectly allocable cost components of Opex, the necessary and avoidable investments, the portfolio of raw materials, and the transport costs. Conclusion: no single variant was good for the company’s bottom line. Although the plant in the Netherlands was busy with a new packaging line (which would make it cheaper to produce any extra volume from Belgium), there was the extra cost of transport to consider. And that completely outweighed the benefits.

Result

Clear advice on substantial cost reduction

We advised the producer against shifting premix production from Belgium to the Netherlands within the next two years. The reason being that the plant in the Netherlands was not equipped to produce extra volume at any significantly lower cost. At the same time, we could see from our analytical reviews and additional studies on the shop floor that there was room in both the Netherlands and Belgium to cut costs. We therefore advised the management to take two steps to make the company more competitive in the consolidated European market: cost reduction via further optimization and generation of higher volume by the sales department in the domestic and export markets with all margins intact.

We also showed our client that it would be wise to start sooner rather than later. The earlier they started, the earlier they would start cutting costs. And the time was ripe, now that everyone had the same goals in mind. We then achieved the cost reduction by rolling out a performance optimization programme at both plants.

This programme led to the targeted higher productivity in less than half a year, reducing the total operating costs by some 15 per cent.

We were asked to work out the details of this programme with the local management teams and see it through. This programme led to the targeted higher productivity in less than half a year, reducing the total operating costs by some 15 per cent. Since then, one of the scenarios for the shift in production was re-examined after our initial analysis. Due to changing circumstances (concentration of more volume and reduction of transport costs), this resulted in shifting premix production to the Netherlands.

Related articles