Business process outsourcing , operational

excellence and value-innovation

The missing link defined for European office-furniture

manufacturersDr.ir. Marcel van Assen

massen@rsm.nlmqa@berenschot.com

Facts and figures Berenschot

– Largest, independent Dutch management consulting firm

– Providing solutions for complex issues in the areas of strategy, management, policy and human resources

– 2004: 66 years of experience– 425 employees– € 60 million turnover

Dr.ir. Marcel van Assenmassen@rsm.nl

mqa@berenschot.com

Agenda

• Situation of (global) manufacturing – and its impact on outsourcing from a Dutch

perspective

• What to do with European manufacturing activities: Outsourcing?•Know exactly why:– What is the impact of contemporary business

models to enable value-innovation?– What is the possible performance improvement

of operational excellence here?– How to become a world-class manufacturer

there?

• Managerial implications

World production2005

Expectation

Europe Stagnation

Asia Growth

USA

Latin America Small growth

Other partsThe competitive position of Western manufacturers (in general) is determined by: Labor cost Design, branding, marketing and alignment of demand changes Economic climate Position as the value-chain’s orchestrator Differences in national and law and regulations (and maintenance thereof)

Little growth of consumption

Effects of depression/recession

Displacement to low wage countries

Stagnation

Magnitude and growth of displacement (outsourcing & off-

shoring)High growth of displacement

Average growth of displacement

low growth of displacement

Small magnitude of the displacements

Average magnitude of the displacements

High magnitude of the displacements

> 150.000 > 75.000< 150.000 < 50.000

Present magnitude of employment in f.t.e

Oil/Chemical

BanksInsurance

Wood /paper

ICT-/engineering firms

Basicmetals

Furniture

Post /telecom

Textile

TransportationPublishers /printing

Food

Machine /Electric

& Transportation equipment

A

B

C

D

Source: Industriebrief/Berenschot ©

84% of the Dutch firms have not been displacing primary activities, but

increasingly more firms intent to do so.

Cumulative displacement (in % van aantal bedrijven)

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Yes, we

off-shored

in the past

10 years

No, we do

no have any

intentions

Yes, we

off-shored

in the past

3 years

Yes, we off-shored recently (i.e. in the previous year)

Yes, we

have

intentions

to off-shore

activities Source: Industriebrief/Berenschot ©

Companies that have been off-shoring are generally satisfied with the results (although, so they say)

Level of satisfaction (in % of the number of respondents)

0

0,1

0,2

0,3

0,4

0,5

helemaal niettevreden

niet tevreden niet tevredenen niet

ontevreden

tevreden zeer tevredenVery dissatisfie

d

Very satisfied

Dissatisfied

SatisfiedNot dissatisfie

dNor

satisfies Source: Industriebrief/Berenschot ©

However, in particular low-skilled labor is off-shored

Welke activiteiten zijn verplaatst naar het buitenland?

0%

10%

20%

30%

40%

50%

ICT

hoo

gges

choo

ld

Kla

nten

serv

ice/

Cal

lcen

ter

ICT

laag

gesc

hool

d

Alle

bedr

ijfsa

ctiv

iteite

n

Gee

n an

twoo

rd

Res

earc

h en

Dev

elop

men

t

Inko

op/A

dmin

istr

atie

/S

hare

d se

rvic

es

Pro

duct

ieho

ogge

scho

old

Ver

koop

/Mar

ketin

g

And

ere

activ

iteite

n

Pro

duct

iela

agge

scho

old

What type of activities are outsourced/off shored?

Source: Industriebrief/Berenschot ©

Worldwide trends into World Class Competitive

Requirements

The Right Productsor Services

TimelinessQuality and

Customer Satisfaction

VALUE

3

Operations Strategy

Customer Needs Corporate Strategy

Operations Strategy

Alignment

CoreCompetencies

Processes, Infrastructure, and Capabilities

Decisions OUTSOURCING?

Sustainable competitive advantage from Western-Europe is (only) possible in value chains in which:

1. Innovation determines the value of ownership

2. Technology clusters flourish because of sufficient scale and quality

3. Process performance out-balance labor costs

Embryonic Growing Mature Aging

Key value driver: performance

Engineering, integrating, testing

Low volume, much diversity

Key value driver: cost down

transfer of manufact. possible

Standards set, higher volume

Outsourcing, global supply networks

R&D

Sustainable competitive advantage from Western-Europe is (only) possible in value chains in which:

1. Innovation determines the value of ownership

2. Technology clusters flourish because of sufficient scale and quality

3. Process performance out-balance labor costs

Embryonic Growing Mature Aging

Key value driver: performance

Engineering, integrating, testing

Low volume, much diversity

R&D

Alliance with a low cost

contract manufacturer

abroad

Sustainable competitive advantage from Western-Europe is (only) possible in value chains in which:

1. Innovation determines the value of ownership

2. Technology clusters flourish because of sufficient scale and quality

3. Process performance out-balance labor costs

Embryonic Growing Mature Aging

Key value driver: performance

Engineering, integrating, testing

Low volume, much diversity

R&D

Alliance with a low cost

contract manufacturer

abroad

Alliance with knowledge

institutes and high-tech partners

The relation between Value-innovation and Operational

excellence

Operational Excellence (operational improvements)

Industrial management:

Value-innovation (strategic renewal)

I II

III IV

effi

cie

ncy

effectiveness

To be profitable

NOW

FUTURE

OUTSOURCING

OUTSOURCING

Operational Excellence in Western Europe can only be

achieved by realistic companies (NOT by

complacent companies:)

The realistic versus the complacent company

Schroeder & Flynn, 2001: High-performance manufacturing

The complacent company• has no view of key

strengths and weaknesses

• Is Inward looking

• Is unaware of best practice

• has random improvement programs -- no coherent improvement strategy

• has goals based on historical performance

The realistic company• understands own

strengths and weaknesses• looks outside for new

knowledge and benchmarks performance

• Knows content of industry practice

• Has improvement strategy tailored to strengths and weaknesses

• Sets stretch goals based on world’s best

The five starting points for improvement

Low High

High

Low

Practice

Perf

orm

an

ce

Improving

World Class

Laggards Failure to

realize

perform

ance

Perform

ance

without p

ractice

I

II

III

IV

Improvement agendas for different starting points

Low

High

High

Low

Practice

Perf

orm

an

ce

Staying in front:value-innovation and developing tomorrow’s practice

Overcome co

mplacency

:

Generate corporate

understanding of p

osition

Implementatio

n and directi

on:

Limite

d, coherent s

et of

improvement in

itiativ

esMaintaining the m

omentum

Selecting th

e vital fe

w each

year Starting point:Choosing from a wide range of things that must be done

OUTSOURCIN

GOUTSOURCING

Analysis of the value chain: develop and use industry- and

firm specific roadmaps• Trends and SWOT in the value chain

– Social developments– Market- en economic developments– SWOT-analysis of the players in the chain:

Strengths, Weaknesses, Opportunities and Threats

• Porter-analysis of the value chain from a manufacturing perspective

• Management dilemma’s in the value chain

• Demands on the value chain• Distribution/relocation of tasks and

roles in the value chain

Analysis of the value chain (an example from the CBM

roadmap)

Innovatietempo +25%

Leverbetrouwbaarheid +20% / +25%

Afleverkwaliteit +15% / +20%

TW per medewerker +15% / +20%

Omzet per detaillist +10% / +15%

Omzet per medewerker +10% / +15%

Volumeflexibiliteit ± 10%

Marge detaillist +10% / +15%

Omzet per productiebedrijf +10% / +15%

Marktprijs +0% / +5%

Kostprijs -0% / -5%

Levertijd -5% / -10%

Time-to-market -30%

•Markt- / klantgerichtheid•Ketendenken / samenwerkingWeinig specialisatie / focus kernactiviteitenMarktaandeel thuismarktWeinig winstgevendProductontwikkeling (materialen / technologie / ontwerp)Leverbetrouwbaarheid / levertijdAssortimentsbreedteautomatisering (administratie / productie) MeubelopleidingenRendementsdenkenLage productiviteit ExportgerichtheidNiet aankunnen grote volumes

Variëteit van productenDicht op thuismarkt Kleine seriesKlantspecifieke producten Opleidingsinfrastructuur Ontwerpers (goed internat. imago)Kennisinstituut

Elektronisch bestellen Internet Verandering consumenten-vraag / -profiel Kop-staart filosofie Export markten Robotisering / productieautomatisering Nieuwe materialen Sterk imago Ned. Ontwerpers Nieuwe technologieën Uitbreiding EU Productie buitenland / import

Macht detailhandel/inkoopcombinatie groeit Macht consument groeitKortere PLCArbo- en milieuwetgevingToenemend belang van en aantal merken / conceptenHoge investeringen apparatuurKwaliteit personeel Concurrentie (buitenland)Import uit lage lonen landenUitbreiding EUInternet (prijsvergelijkingen)Industrieklimaat

STRENGTH

OPPORTUNITIES THREATS

WEAKNESS

SWOT-analysis

6

9

18

22

17

18

6

33

26

12

17

17

10

14

6

6

3

4

23

26

68

64

46

40

27

19

2

15

18

7

24

19

8

6

2

3

0

0

20

12

1

2

3

2

10

7

10

9

10

8

10

8

17

15

1

3

11

12

17

18

18

14

14

18

39

39

69

32

28

58

32

40

42

44

67

56

78

64

27

26

1

1

2

2

6

7

9

3

3

12

3

3

6

7

20

28

8

19

0

0

3

4

6

4

0

3

2

2

8

2

3

2

3

3

1

1

0

0

4

3

5

8

12

11

1

7

2

6

7

1

11

11

14

11

3

3

0

2

10

15

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Conceptueel ontwerp 2005

Conceptueel ontwerp 2010

Functioneel specificeren 2005

Functioneel specificeren 2010

Technisch specificeren 2005

Technisch specificeren 2010

Productieproces specificeren 2005

Productieproces specificeren 2010

Projectregie/management 2005

Projectregie/management 2010

Leveranciersselectie 2005

Leveranciersselectie 2010

Inkopen 2005

Inkopen 2010

Aanmaak onderdelen 2005

Aanmaak onderdelen 2010

Monteren op locatie 2005

Monteren op locatie 2010

Afname/opleveren 2005

Afname/opleveren 2010

Bouw(advies)bureau Architect Aannemer Interierbouw Toeleverancier Projectontwikkelaar Eigenaar/gebruiker

• Markt vraagt om kortere levensyclus, kleinere series, en flexibeler leveren

• De meeste fabrikanten zijn te klein en te weinig winstgevend om te blijven innoveren

• Kiezen voor productiegericht of merkgericht

• Gaan meer uitbesteden• Gaan de detaillist steeds meer

helpen of eigen kanaal opbouwen

• Sterke toename van tweede handsgebruik meubilair (zowel trendy als goedkoop) beperkte impact

• Consument kiest op een “hoger niveau” een mooie reis of een nieuwe bank?

• Schaalvergroting van bedrijven, met kansen voor service gerichte kleintjes

• Branchevreemde nieuwe afzetkanalen (tuincentra, bouwmarkten)

• Te veel aanbod in m• Service en leverbetrouwbaarheid belangrijker• Toenemende behoefte aan samenwerking in

de keten (o.a. automatisering)• “Te veel van hetzelfde” en steeds meer

discount aanbod• Internet is een marketingkanaal en geen

saleskanaal

• Buitenlandse bedrijven treden toe, NL heeft een makkelijk toe te treden markt met relatief aantrekkelijke marges

• Retailers die zelf gaan (laten) maken

• Maatwerkproducten door interieurbouwer

• Toeleveranciers worden steeds meer internationaal

• Specialiseren zich steeds meer om meer TW te leveren en kunnen steeds kleinere series bedrijfeconomisch aan

• Blijven innoveren in technologie

• Arbeidsintensief werk verdwijnt naar lage lonen landen

Afzetkanalen

Potentiële toetreders

Concurrentie

Substituten

Leveranciers

• Vraag naar lifestyle en gevoel (topsegment)• Bezoek- en koopmoment gaan uit elkaar• Wil steeds meer kiezen en prijsvergelijken• De Aldi-sering van de consument• Minder (merk)trouw maar in voor nieuw• Meer/nieuwe soorten consumenten o.a. 50+,• Single-huishoudens, …

Consument

Porteranalysis

Wholesaler

Head quarters

Manufacturing

Site abroad

Retail chains

Dutch manufacturing

site

agent

Mail order

Interior designers

Consu-

mers

Internet / Showroom

Own shop / out;et

Purchase

combinatation

Position (role) of various players in the value chain

Designers &

engineers

Retail chain

/ chain storesPurchasing

comb

Component

Supplier

Process

Supplier

(OEM)

Manufacturers

Growth scenarios

Specialized application manufacturer by advanced

product innovation (product design and engineering)

(OEM)

Manufacturers

Full service/concept manufacturer by means of

value-innovation and contemporary business models

Value-chain orchestrator by means of outsourcing and

insourcing

The office of the future

The office of the future

The office of the future

• Full integration of systems, equipment and furniture– 3D-video conferencing– Wireless workplaces– Digitalization & miniaturization (and related advanced

technologies)– Light-projection & the creation of atmosphere and ambience

• The office becomes more and more a meeting place

• Furnishings and interiors– are adapted to create inspiring working environments– are reduced to the only necessity instead of fully

tuned to office activities– are made ultimately flexible for time- and task

varying needs

Growth scenarios

(OEM)

Manufacturers

Threats by the entrance of high-tech electronics

companies (possibly in joint ventures with direct

competitors)

Designers &

engineers

Contemporary business model – high-tech product design and

contract manufacturing in a strategic alliance

Process

Supplier

Component

Supplier

Outsourcing (backwards innovation) versus Automation & value-innovation

(product and process innovation)

(OEM)

Manufacturers

AutomationProcess and product

innovationValue-innovation

Collaboration and alliancesDigitization and miniaturization

AutomationSpecialized technology

(productivity)Outsourcing

Analyze en adopt alliance and collaboration scenarios in the

value chain1. One for all manufacturing site

• Cooperation with other home office manufacturers

2. Innovation scenario• Close cooperation between manufacturer, designer,

knowledge institute (partners from the same industry)

3. Brand & lifestyle alliance• Cooperation with brands from outside the industry (e.g.

Heineken)

4. Domotics scenario• Cooperation with high-tech manufacturers (Steelcase & IBM)

5. SUV (common platforms & modularity)– Joint development of platforms, modules and standardization

6. Collaborated low cost scenario• Home furniture manufacturers jointly start-up a low-cost

manufacturing site together

The costs in the value chain

Optimalization by

(entering) new markets

Enormous cost savings potential

by outsourcing

Redesign of the value chain

1. streamlining: (OE, value innovation and orchestration in Western Europe

2. Start-up in low wage countries like China

High risk factor when supply chains are complex

(network design)

Forgotten profit potential?

Knowledge and process

costs

Overhead costs

Labor costs

Purchasing costs

Excellence abroad – controlled start-up of purchasing, production and/or sales

Value chain concept Value chain model Vision about product and supply in the long run Orientation on possible scenarios Finance and subsidy planning

Verkenning en shortlist• Choice of specific region• Sales and/or production and/or …• List possible partners• Protect know-how and other rights• Realistic business case

ContractingPilot project

• Choose contract partner• Choose location and facilities• Recruit management• Pilot: Can and will it work?• Verification of the supply chain

Upscaling • Installation of equipment • Recruit and train personnel• Increase production and sales• Ramp-up supply chain

Evaluation, next fase • Working system• Experiences workforce• Performance in process• Profitable operations• New plans

Process

control

• Choice of the region: Location study, market study

• Sales and/or production: Purchasing search

• Shortlist of partners: partnersearch

• Protection of know-how en rights

• Realistic business case

World class excellence (Here and Abroad)

Strategisc dialogue over value chains

Activities

Process

Klant

I II III

Value-innovation in Western Europe

Use of opportunities abroad

Conclusion and managerial implications

• Value-innovation can outweigh specific arguments to offshore/outsource

• The same holds for Operational Excellence here

• Outsourcing suits risk avoiding behavior

Tailor-made Experience

For hands-on consultancy on outsourcing, value-innovation, and strategic roadmaps please contact me at (mqa@berenschot.com)::

For action-research and knowledge-based mirroring and as a ‘sparring-partner’, please feel free to contact me at (massen@rsm.nl):

Impact

Professional

Side by side

• Reliable

• Sound

• Knowledgeable

• Experienced

• Total solution

• Result-oriented

• Made to measure

• Effective• Internally & externally

• Inspiring

• Involved

• Takes responsibility

Berenschot: Recommendations with impact, inspiring and working

on solutions together with the client

• E-business

• Supply Chain Mgt.

• Corporate Strategy

• Marketing

• Performance Imp.

• Change Mgt.

• Quality Mgt.

• Reorganisations

• Production Org.

• Leadership & MD

• Concern Mgt.

• Communication

• Purchasing

• Financial Mgt.

• Corporate Finance

• Mergers & Acquisitions

• Project Mgt.

• Logistics Mgt.Telecom ….

Knowledge of sectorExpertiseExpertise

For example: CPG

Tailor-made solutions through combining expertise and sector knowledge in multidisciplinary

teams

Berenschot Turnover

Private sectorPrivate sector42%42%

Public sectorPublic sector20%20%

Hybrid organisationHybrid organisation(social security, (social security,

utilities, telecom, etc.)utilities, telecom, etc.)18%18%

AbroadAbroad20%20%

E-I Consulting Group

BSI & PartnersBSI & Partners

Kienbaum Consultants InternationalKienbaum Consultants International

PraxiPraxiDevelopment SystemsDevelopment Systems

OrgaConsultantsOrgaConsultants

BerenschotBerenschot

HypodomiHypodomi

E-I Consulting Group S.A.E-I Consulting Group S.A.

Impact PlusImpact Plus

Human Resources

Public Sector

Business Sector

• Aims to be the best management consulting firm in the Benelux for both clients and employees

• Provides recommendations with impact, inspires and works on solutions together with clients

• Binds employees through team spirit, professionalism and highly demanding assignments

• turnover 60 million €

• Over 400 employees

Berenschot in business: Tailor-made experience

Consulting experience

Line experience

Sector knowledge & expertise

Employees

Research

Information

Documentation

l

Optimal service to a wide range of clients through broadly experienced consultants

ERICSSON

Approach Result

Client Assignment• High-tech business in defence industry

• Dutch subsidiary of French multinational

Defence industry

• New organisational structure

• Successful cultural change

• Improved operational performance

• Cost reduction

• Improved customer orientation of staff

• Implementation of performancemeasurement system

• Implementation of governance structure

• Improved relations with French parentcompany

• Integration into process of functionalareas

“Develop a suitable process for restructuring and change, which focuses on improving market position

and operational excellence”

• Side-by-side design of a new organisation(business units and process-orientedoperational units), followed byimplementation

• Increased involvement of the organisationwith regard to both business and culturalaspects

• Team of 15 people:•Corporate Strategy•Change Mgt.•Operations Mgt.•Service Mgt.•Supply Chain Mgt.

Reference case: Restructuring of a high-tech manufacturer

Approach Result

Client Assignment

• Development of main organisational structure together with the Board of

Directors,and detailed organisational structure

together with upper level management • Made an inventory of current activities

together with subsidiaries• Team of 15 people:

• Change Mgt.• Logistics• Strategy • Reward Mgt.

• Large Dutch publishing house “Unravel the logistical activities of the various

subsidiaries and establish a new distribution-logistics unit within two years”

Publishers

• Establishment of the main organisational structure of the new distribution logisticsunit

• Naming of the top tier of management

• Business plan for the new unit

• Implementation plan for further realisation

• Operational new unit

Reference case: Restructuring of logistical activities for a

publisher

Approach Results

Client Assignment• Provider of logistical services

• Medium-sized Dutch organisation

Logistical Services

• Clear process descriptions

• Essential improvements by bringing forward the merger of physical and information flows • Successful streamlining of process through an

improved co-operation with customers (automatic data exchange)

• Rapid development and implementation of requisite ICT systems, enabling above

improvements and making them visible

“Develop and put into place a new organisational structure that will streamline not only the

organisation, but also the service we provide”

• Develop and implement a blueprint for thenew structure, together with the client, on thebasis of a BPR study:- Define the standardised service package- Determine which activities should be carried out in-house and which should be outsourced- Standardise procedures

• Team:•Reorganisation•Supply Chain Mgt.•Communications•E-business

Reference case: Streamlining the organisation of logistics service

provider

• Large Dutch brewery

Breweries

• An independently operating supply chainunit, firmly embedded within theorganisation, in the space of nine months

• Transparent processes, management, organisation and information flows that are

understood by all (including the client) • Successful SAP implementation

• Employees, customers and suppliers whoknow what they can expect as well as what

is expected of them

“Develop and put into place a central unit to handle the purchasing and logistics of promotional materials”

• Develop a central purchasing unit, in closeco-operation with client::- Determine mission and aims- Define Performance Indicators by means of customer interviews - Develop structure - Assess financial consequences- Formulate a business plan

• Implement the plan together with the client• Team of 11:

•Strategy•Purchasing Mgt.•Communications•Logistics•IT

Approach Results

Client Assignment

Reference case: Establishment of a new unit within a large brewery