Complexity Optimization in the Dairy Industry

Client Context

• A leading manufacturer of fresh dairy products facing a low operational profit level (2% versus N°1:14%) despite turnover growth, and a loss of market share to the third player in the market. The objective was to establish a complexity reduction strategy and increase operating profit.

Key Challenges

• This was mainly due to the impact of a growing complexity: internationalization, market volatility, fragmenting consumer demand, multi-sourcing
• A global performance program was needed to eradicate value-destroying complexity that does not add any competitive advantage and differentiation and to manage value-creating / adding complexity reducing negative impact on direct and indirect costs.

Approach & Key Success Factors

ARGO-EFESO deployed a complexity optimization process:

• Assessment of current complexity cost and real profitability by product and client (simplified ABC costing)
• Identification, evaluation and prioritization of causes of complexity
• Definition of solutions for complexity optimization (eradication of value losses and monetization of value enhancers: e.g. portfolio rationalization, late differentiation manufacturing process deployment, redesign to cost activities, pricing optimization…)
• Implementation of a pilot on complexity optimization
• Expansion to the entire organization
• Roll-out of a complexity management process and development of complexity management capabilities

Results

• Within 3 years, the business achieved a 5 point increase in operating profit and significant improvement of ROCE
• New stockholder entry in the company after overall improved attractiveness of the company