How we helped optimize a wind power OEM’s operations balancing growth, production costs, R&D needs, and supply chain setup
The client is a key supplier of electrical and electronic wind turbine components with about four decades of industry experience and a multinational presence. They aspire to optimize the setup of their global operations to maximize efficiencies and minimize costs.
MEC has been regularly engaging with the client for strategic support over a diverse range of topics, spanning from product roadmaps, doing cost-outs to supporting acquisitions.
The wind market is growing globally and competitively with every passing day, leading to the building of cost pressure on the developers. As the developers undergo this expansion under stress, they are likely to pass some of the cost pressure to wind turbine and component OEMs. In this situation, the client perceives the ability to optimize operations cost as the key to be able to stay competitive in the market. Hence, the management started contemplating on ways to optimize and if required, restructure the setup of their global operations to minimize their costs.
This is where the client reached out to MEC with two key questions in their mind:
- What would be the ideal geographical footprint for their R&D, engineering and manufacturing facilities in 2025?
- What should be the structure of activities within these areas?
To begin with, we suggested that the client embrace separate locations for R&D, engineering, and manufacturing operations towards 2025. The rationale behind this was that the supply of talent pools, availability of markets and grants for technology are spread across different countries. To hoist the same, we developed explicit frameworks for each of the three operations based on where the cost optimization can be achieved. As we progressed, we defined a set-up for each of those in a global context:
Research & Development setup
For R&D setup optimization, there were two choices: 1. Looking at the low-cost geographies with talent. 2. Stay close to the customers’ R&D hubs.
We took a hybrid approach in order to marry the highlights of both the models.
To actualize our approach, we proceeded by using empirical evidence to identify global R&D hubs for components in the key wind markets. Next, we prepared a framework of analysis for a levelled comparison of each of these hubs. Each hub was put through this analytical framework with a focus on key pre-requisites such as resource availability, economic viability and certain general factors for ease of doing business. After a thorough assessment of all the hubs, definitive options were shortlisted as part of the new setup under neutral, cost and talent focus scenarios.
Furthermore, MEC facilitated the client in choosing the right hub by opening discussions around the goals of their customers. Workshops were conducted with local and headquarter stakeholders to assess the options. MEC put forward facts and raised questions to clarify the shared goal among the BUs. After carefully listening to all the points, MEC presented the following conclusion –
The best strategy for the company is to focus on increasing the market share through close development with clients while using the cost advantage as a lever to retain clients.
Hence, a lean structure for R&D was created in selected hubs.
For manufacturing, there were ~8 major cost pockets that could be attuned to attain cost savings in future. In this analysis, we established that the optimization of procurement of components and supply of products to overseas markets for each type of product could have a much higher influence on the overall supply economics, over other cost factors such as labour cost, land cost, overheads, etc.
MEC carried out a product-wise procurement and supply cost analysis from each of the hubs to their addressable markets. Further, we clubbed this with the economics of manufacturing and the volume expected to be supplied through each of these hubs.
This was used to create the lowest cost setup for manufacturing facilities. The overall ROI on all investments in cost-saving initiatives was less than 1 year. MEC created a detailed milestone and KPI map for the organization stakeholders. All product initiatives were categorized into Must-Win and Bolt-on initiatives. This allowed mapping stakeholders and ensured value realization.
Engineering operations setup
In engineering operations, we learnt that the proximity to manufacturing can play a pivotal role in deciding its location. Hence, all the manufacturing hubs were put into a framework, analysing the key pre-requisites, ranging from availability of the experienced talent to the presence of relevant certification agencies in the geography.
Putting together the analysis of manufacturing hubs and filters for engineering activities in those, we narrowed down to the most relevant options, creating an optimized and co-located engineering set-up.
The conclusion drawn was that leveraging IT and AI, several processes can be centralized and automated. Hence, a hybrid structure was created. A full list of KPI and organization structure was shared with the client to enable them to execute and reap the benefits from our findings.
The suggestions on a new optimized set-up for R&D, engineering and manufacturing operations were presented and discussed in an on-site workshop with the client. Together, in these meetings, we finalized a new and optimized global operations set-up for the client that was further taken up for discussion and approval from the board.