Oil Equipment Manufacturer Adapts to Major Market Changes
A division of a downstream oil equipment manufacturer implements Product Value Management (PVM) resulting in savings of $23M annualized, and an average 29% in cost reduction.
Up until a few years ago, when crude oil was consistently $100 per barrel, the oil industry’s downhole equipment market focus had been on quality, reliability and lead time. In such a market, the engineer-to-order product strategy which was adopted by a major downhole equipment manufacturer worked very well.
However, when crude oil prices crashed from $140 per barrel during the peak in 2008 to the lowest point of $28 in 2016, the company had to become more cost conscious. Due to the inherently high costs of the engineer-to-order product strategy, the company lost its competitive edge.
To help the client with the challenges brought along by the market change, Argo engaged in Product Value Management. PVM looks to reduce costs across entire product families, not just product components as would be typical in VAVE (Value Analysis/Value Engineering). The traditional VAVE model and engineer-to-order strategy resulted in multiple thousands of SKUs, but the PVM process could now look at the entire portfolio holistically. Argo supported the client to:
- Develop a configure-to-order product strategy for the appropriate market segment
- Develop a process to create a Configured Product Portfolio, that would cover 80% of the target market segment needs, to maximize the benefit of the Value Engineering study
- Develop Value Engineering capabilities by establishing process, coaching and training client resources
- Conduct Value Engineering workshops with cross-functional teams from engineering, manufacturing, and supply chain
- Conducted Value Engineering workshops that led to design/engineering, manufacturing and sourcing/procurement change proposals for 17 product families.
- Generated change proposals have an estimated impact of $23M reduction in product cost, average 29% cost reduction per product family.