One of the biggest challenges for growing enterprises is cash management. Careful management of fixed costs and cash outflows along 3 dimensions is essential for lasting competitiveness.
Leaders in cost & cash competitiveness address three financial dimensions: working capital, fixed costs, and variable costs, while leveraging business controlling practices.
While working capital optimization pulls levers such as lead time reduction, inventory reduction, financing and debt management, fixed cost reduction looks at resources (mainly overhead) and assets. Variable cost reduction considers product costs (purchasing and labor) as main contributors of cost of goods sold (COGS).
Good business controlling practices include a level of connection to operations (business case modelling and linking between figures and operational drivers) and seamless traceability (gap-to-target monitoring, plan-to-plan, and year-on-year evolutions) allowing to activate optimization levers in a structured and efficient way.
Our strong ability to understand business drivers enables us to activate the appropriate levers for an inclusive approach.
Our proximity to the business and deep expertise in specific industries uniquely positions us to make the connection between financial concepts such as CAPEX, OPEX, EBIT, and NPV and technical content on the shop floor.
We support our clients with proven approaches:
"CYLAD did a great job, very good return on investment; we have €10 million savings while in February we had nothing."
Head of Quality of an Aerospace Manufacturer
Reallocation and centralization of costs: perfect is the enemy of the good
Read the point of view of Olivier Paget, Partner and Arnaud Guerin, Principal
Covid19 : CFOs, in a strategic position to support their companies and teams to overcome this crisis.
Facing the Covid-19 crisis, CFOs need to make urgent decisions to manage cash and liquidities, control and even reduce their breakeven and prepare for a progressive recovery. Although it is hardly impossible to anticipate to what extent the business world and the civil society would be affected and change, CFOs are in a strategic position to support their companies and their teams to overcome this crisis.
CYLAD Consulting shares good practices and recommendations from Best-in-class companies, recovery and turn-around projects.
Adapting fixed costs to production ramp down
Cost reduction plan for a large production organization
Design and implementation of an international Supply Chain Finance (SCF) program in the automotive industry
Managing a full program transformation for a European manufacturer to maintain sustainability at a lower production rate.
Maintaining program profitability in the context of a production decline.
A large European aircraft manufacturer faced a significant decline in the production rate for one of its aircraft programs. The nature of aircraft construction and assembly requires the use of an extensive (and expensive) industrial set up including customized buildings and tools, transportation between sites, and precise skills which require time to develop. Underutilization of such tailored resources leads to degradation of the program margin.
Such production changes impact thousands of internal employees, not to mention the effect on subcontractors which must also adapt. Within this context, the client wanted to launch a transformation plan targeting to maintain the program’s profitability and sustainability while also preserving a homogeneous product policy to ensure competitiveness.
Secure operational actions with production and engineering teams to facilitate cost reduction.
CYLAD approached the project in three distinct phases:
In the first phase, we consolidated a detailed cost reference which was shared with all stakeholders. This reference of financial information was then connected with operational drivers in order to quickly assess the impact of the decisions made in the following phases.
In the second phase, the CYLAD team helped the program management to identify the cost reduction target based on the available market information, program cost structure, and therefore a deep understanding of all operational activities and its flexibility with production rate.
The third and most important phase consisted of identifying the cost reduction levers to be implemented. A tracking mechanism was established to monitor the execution and manage all necessary actions to reach the agreed target. The major identified levers were divided into the following categories:
A fine knowledge of all the operations as well as a strong support from top management were key factors in the success of this project.
RESULTS / FINDINGS
Reduction of fixed and non-recurring costs by a factor of 3.
The cost structure was been adapted to ensure an EBIT level compatible with the survival of the aircraft program. Tangibly, this resulted in a reduction of fixed and non-recurring costs by a factor of 3, closely in line with the preceding production decline.
Removing dead weight in the program allowed the organization to improve commercial competitiveness and win orders which preserved the program even at a lower production rate. In parallel, an investment in human resources was also realized, making it possible to work at a low production rate.
Framing an SG&A cost reduction plan for an international producer of industrial electric cables in a highly competitive market.
Deterioration of financial performance amid a high level of fixed costs.
Our team supported a client operating in the French market as a subsidiary of an industrial cable company. The organization employed 800 people locally and reported an annual turnover of 150 M EUR. Increasing competition and lower product prices contributed to the company’s deteriorating financial performance.
Internally, fixed costs gradually increased while processes and products have simultaneously become more complex. To deal with this situation, a cost-reduction plan was launched with a scope covering all of the subsidiary’s support functions.
Undertaking a cross functional process analysis to define and evaluate the impact of cost optimization actions.
The CYLAD team began by performing a diagnosis on the existing processes across all functions in order to identify levers for optimizing the fixed costs. Key stakeholders, including the subsidiary’s Executive Committee, were closely involved in the diagnosis stage to ensure exhaustiveness and buy-in. The CYLAD team coordinated with the directors of all relevant functions (incl. Strategy Sales, Marketing, Purchasing, Supply chain, Human Resources, IT, and factory directors) and teams to establish a comprehensive view of the situation and develop appropriate cost reduction targets.
An external benchmark was organized with subjects from the pharmaceutical industry, in order to collect and share best practices among industry leaders. This benchmark allowed the project team to calibrate the target objectives per function and leverage new solutions.
RESULTS / FINDINGS
Ambitious cost reduction objectives were secured with the buy in of both executive and middle management.
The work carried out resulted in a plan to reduce the fixed costs of support functions by 10%. 15 key processes across 7 departments have been re-engineered to reduce the costs (e.g., waste identification & reduction, merge of similar tasks, silos reduction, process digitalization, …). A detailed action plan to implement these savings was launched over a one-year period, with the support of the Executive committee. The project team delivered a description of the actions & a detailed roadmap, each owned and driven by a dedicated internal project manager.
Covering all phases of a complex Supply Chain Finance program in the automotive industry, from selection of financial & technical partners to on-boarding of suppliers.
Navigating a tense financial context with the ordering customer and a requirement to optimize cash flow and orient for growth.
Our customer is a major automotive supplier, with presence in more than 20 countries around the world. It faces a tense financial landscape, threatening to jeopardize its growth.
The company is experiencing a deterioration of its Working Capital Requirement (WCR) and its short-term cash flow, due to:
Our client therefore targeted to implement a supply chain finance program aimed at securing its growth through:
The supply chain Finance program would offer a financing solution for the ordering client, allowing the suppliers to benefit from an advance payment on their invoices.
Design and implementation of a SCF program in more than 15 countries.
Our approach was structured in four distinct phases:
The first step in this mission was to frame the SCF program. Our experience in this type of program allowed us to refine the objectives, perimeter by country, and suppliers’ typology. We then performed an as-is analysis of information systems and accounting processes to define the target processes of the program.
The second phase consisted of selecting technical and financial partners. A Request for Information (RFI) was initiated to enlist partners that could support such a wide SCF program. A Request for Proposal (RFP) was then launched to select a financial and technical partner.
The third phase consisted of deploying the SCF program across the involved countries. Each local deployment required an adaptation of the program to local requirements, training of stakeholders, deployment of target processes, and enrolment of first suppliers.
Finally, a massive recruitment phase of suppliers, involving finance and purchasing departments, allowed many of the largest suppliers to be integrated into the SCF program.
RESULTS / FINDINGS
Impact on the Working Capital Requirement to the effect of several hundred million Euros.
The supply chain finance program successfully reduced our client’s WCR by several hundred million euros. More than 50% of targeted suppliers were enrolled in the program, resulting in major benefits both for the client and the suppliers:
For our client:
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Point of view
Covid19 – CFOs in a strategic position
to support their companies and teams
to overcome this crisis.