PVM Approach Improves a Client’s Competitive Position
With reduced activity in the oil and gas sector, key industry players have had to rethink their strategies and products in order to remain competitive and flourish. For example, a major player in the pumps market engaged Argo to rethink its product-related strategies as they face reduced sales in a depressed market. Argo employed a Product Value Management (PVM) approach to reduce Cost of Goods Sold (COGS) of existing product families, as well as to close product offering gaps.
Situation
The client is a market-leading provider of high-quality pumps and pump systems, with over 20 manufacturing sites worldwide and turnover of $3 billion.
For commodity products with a degree of specialist engineering, the client was experiencing a reduction in sales, margin and — most concerning — a reduction in market share. In a mature industry, breakthrough innovation is rare. Product development is done on an incremental improvement level, so that is where Argo focused.
Actions
Applying a PVM approach, Argo reviewed the client’s innovation/developmental funnel and found a sub-optimal focus in development caused by different departments working in different countries with misaligned objectives from a global perspective.
We also found experience-based designs, rather than analysis-based (FEA), and no systematic fundamental design reviews of existing mature products. For example, some products were designed to fit western country markets only, but current growth opportunities are in Asia-Pacific. Argo helped re-design to fit the new supply chain and transfer technology from current manufacturing location to Best Cost Country location.
Argo worked with a team to develop a coordinated global stage gate system of development that could work with minimum disruption of existing processes. Argo then embarked on an extensive review of the existing main product range (10 in all), zeroing in on those that were losing significant market share to competitors.
Results
After putting the 10 main product ranges through the PVM exercise, Argo identified savings equal to an average 25 percent COGS-reduction.
Savings were achieved by:
- Reducing weight through design by analysis
- Applying DFM, DFA and DFSC (Design For Manufacturing, Assembly and Supply Chain)
- Changing casting and manufacturing processes
- Downsizing through performance increase
- Developing best cost designs and sourcing
- Re-mapping the product range offerings for best fit in order to reduce the need for re-engineering, thus also dramatically reducing the order to delivery lead-time
In all, more than 100 design change proposals were created with every Value Engineering project, and they were evaluated on both a stand-alone and global business-case level. Argo also deployed a structured approach to manage execution of design changes globally across projects and the delivery of expected savings.
As a result of the outcome of this two-year assignment, the client has subsequently engaged Argo to identify high potential individuals in the company to train as PVM practitioners, in order to build a core team of skilled individuals with the knowledge needed to continue identifying and executing Value Engineering based savings long-term.