Applying Lean Six Sigma To Reduce Selling, General, and Administrative Expenses
Client: A leading international provider of fuel and water systems
Industry: Other
Service: SG&A
Challenge:
- Grew through increased market share and full/part acquisition of several companies over the past 5 years which made its service sector disjointed
- Lean was applied to manufacturing, but the Selling, General, and Administrative (SG&A) functions were still inefficient
Solutions:
- Conducted a holistic review of work processes
- Rectified areas of waste generation through streamlining, cross-functionality, spending review, and other actions
Results:
- Increased over department efficiency
- Decreased hand-offs and organizational complexity
- Potential yearly savings of $1.3 to 1.5 million in Functional Improvement, $970,000 to $4.1 million in Spend Reduction, $1 to 1.4 million in Cross-Functional Improvement, $2 to 3 million in Shared Services and Service Delivery, and $3 to 4.6 million in Span of Control
A combination of favorable market factors, increased international presence, and strategic acquisitions positioned this fuel and water system manufacturer as a fast-growth player. While the company was well-versed in Lean principles from a manufacturing perspective, the service aspects – categorized as Selling, General, and Administrative (SG&A) – of the business were not as waste-free.
Fast growth—plus the cultural integration of eight other firms over five years— meant the company was somewhat disjointed in its service sector. As a result, the Guidon team was contracted and began with a holistic approach to efficiency and throughout the entire engagement focused on five key areas of focus:
Functional Improvement: By looking at departments such as legal, finance, and information technology and challenging basic assumptions, Guidon helped the company realize $1.3 to 1.5 million in savings each year. Changes included renegotiating contracts, automating functions, and eliminating unnecessary software and hand-offs, among other improvements.
Spend Reduction: The company had not been rigorously reviewing spending in various sectors including travel, trade show, and marketing expenses, among others. Careful review of spending and adoption of and adherence to spending policies, supply controls, reduction in telecommunications and facilities costs, and other efficiencies could save the company as much as $970,000 to $2.1 million per year.
Cross-Functional Improvement: While improvements were suggested for individual functions, there were also opportunities for waste reduction in the way departments and functions interact and work together. By streamlining and automating these inter-sector functions, productivity was increased, errors reduced, and potential annual cost-savings of nearly $1 to 1.4 million identified.
Shared Services and Service Delivery Model: These two areas were closely aligned. Since virtually every business has areas that can share costs, finding opportunities to split services or integrate service delivery can offer significant savings. In the case of this company, reorganization and streamlining of departments and splitting the costs of services led to potential cost savings of nearly $2 to 3 million annually.
Span of Control: By expanding areas of autonomy and reducing the number of inter-sector hand-offs and touch points, delays were decreased, productivity increased, and the most significant savings opportunities—between $3 to 4.6 million identified.
The areas examined ranged from the very basic to the very sophisticated. However, the result was a seamless integration of a number of lingering cultural differences from various acquired units and outdated processes into one cohesive and well-operating approach to business. And while the potential for savings could top $13 million annually if all of the changes are put in place, the company now has the options and road map necessary to adopt those changes it feels are appropriate—on its own timetable.
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