Expert article · Lean & cost · 2 min read
Competitive despite high labour costs: think lean and make-or-buy in parallel
Dr. Klaus-Jürgen Wolf, Founder & Managing Partner
German equipment can cost 15 to 20 per cent more if product, service and sales are right. The rest comes from costs, and it has to come quickly.
In mechanical and plant engineering you have to compete globally with higher labour costs. In Germany they are above those in Portugal or China. Add a technically simpler foreign variant and the competitor's price drops further. How do you compete when most customers buy on price?
It can be done. A German product is still preferred on the world market despite a price around 15 to 20 per cent higher, provided product, service and sales are convincing.
Two levers at once
This is made possible by rigorous lean manufacturing, partial outsourcing, or both. The basis is value stream analysis and consistent implementation of lean measures. As variable production costs fall, so do overhead surcharges. Total cost reductions of 10 to 15 per cent are not unusual, and higher volume brings further savings.
Outsourcing alternatives should still be assessed at the same time. Lean promises a lot on paper but often delivers less in practice. And mid-sized companies rarely have 12 to 18 months to become more competitive.
For a plant engineering company, this parallel approach identified a cost reduction potential of 15 per cent, plus or minus 2 per cent, within six months.