Profitability, the second main branch of the program, gives the company greater opportunity to develop since it is the main source to generate additional liquidity. To improve profitability, four areas were analyzed in a first step: material costs, work processes, non-personnel costs, and contractual issues.
Owing to ElringKlinger’s high degree of vertical integration, material expenses amount to over 40% of its revenue. Any percentage decrease in this cost item thus has a significantly positive impact on earnings. It can be adjusted by pulling two levers – quantity and price – and both were scrutinized as part of the program. The degree of influence that could be exerted on individual groups of materials was investigated in more detail. Corresponding starting points for action were identified and followed up. This produced two areas for targeting improvements: first, procurement and, second, operating processes and systems that had an impact on quantities.
The Purchasing team focused its strategy more clearly on a total cost of ownership (TCO) approach. In other words, the total costs of a material, i.e., its unit price, transportation costs, and other ancillary procurement costs, were incorporated into the relevant purchasing decision. The origin of materials was also analyzed in detail, allowing more use to be made of regional sources and transportation costs to be reduced. In addition, special circumstances that had generated additional sorting and transportation costs in the past were tackled intensively. The project managers developed stable solutions and standards for issues caused by system-related errors. The various measures have had a positive impact on both a large and a small scale. However, what might sound “small” is not necessarily so. For example, the reject rate has decreased by 0.8% over the past three years. If one considers that it is calculated as a percentage of total production costs, the scale of the improvement becomes clear. Taken together, the effect is considerable: the Group’s materials ratio fell to 42% in 2020 compared with 46% in the 2019 financial year. The savings made also had an effect in the 2021 financial year just ended. However, the headwind on the markets caused by price rises and supply bottlenecks had a disproportionately large impact, pushing the ratio up again to 44%.
More savings were also made by optimizing processes, particularly in Production. In Administration, too, workflows were further improved and tasks made more efficient with the help of improved software.
The staff responsible devised an ideal cost structure for non-personnel costs. This was used to produce targets at Group, plant, and cost type level that were reviewed on an ongoing basis and adjusted if required.