Our operating-oriented PE clients are always looking for value levers: areas where focused improvements can create large performance gains. Some firms focus mainly on researching best practices. We are practitioners. We take proven ideas and implement them. In the course of our recent work, we’ve identified six areas where we have recently been finding untapped opportunities to help well-run companies reach new performance levels.
The focus here is on Product Value Improvement, or PVI.
What Is PVI? PVI is a systematic approach to increase the success of new product introductions and take cost out of existing products. This structured process incorporates methods including Target Costing, Value Analysis, Value Engineering, Design for Manufacturability, and Design for Assembly.
Why Should Private Equity-Led Boards Care?
Here are some results from recent projects:
- $3.2 million EBITDA gain for a consumer products manufacturer
- $2.7 million EBITDA gain for a consumer products manufacturer
- $3.0 million EBITDA gain for an equipment manufacturer
Note that we conducted these projects with companies that have sophisticated product engineers and substantial Lean practices. This was medium to high hanging fruit.
Benefits related to these results include:
Defect reduction
Minimizing assembly tools
Trimming product weight
Faster cycle times
Decreasing labor cost
Better parts handling
Smooth assembly operations
Cutting assembly cost
Cutting product & parts costs
Shrinking assembly time
Decreasing part counts
Time to market
Product reliability(warranty)
Product performance
Incorporates easily into existing Six Sigma or Lean operating strategies (doesn’t require a new philosophy or retooling)
Improves collaboration among functional areas
Why There Is Opportunity
PVI is one of the most under-utilized yet powerful levers to improve profits. We suspect there are several reasons.
When manufacturers look for cost reductions, they frequently focus on things like productivity, offshoring, SKU rationalization, plant consolidation, etc. While all of these can be valuable, they tend to assume product design as fixed. Yet, for many products, 70% of costs are determined by their design.
Another reason PVI is underused is that most companies are using some elements of PVI, and fail to recognize what they are missing. They will point to initiatives like Target Costing or redesign projects as evidence that they are “already doing” PVI.
A third reason is that many companies lack the tools to find and prioritize opportunities. They lack the capability to analyze the total cost inputs, as well as what value customers place on various elements and performance features. Individual functions-marketing, engineering, manufacturing, supply chain, etc.-may have pieces of the puzzle. Yet, they lack a structured process to integrate the information and make effective business decisions.
- Companies with a frequent flow of new products.
- Companies with short product life cycles.
- Products with complex designs.
- Products with complex manufacturing processes.
- Mature products ready for a fresh look (markets and customer preferences may be changing faster than the product).
- Companies with weak collaboration between key functional silos.
The ProAction Group Difference
Our PVI approach is distinctive because it is highly focused on practical application. We have a structured process that has been proven and refined in multiple applications. We work with project teams to rapidly identify key opportunities, evaluate and quantify them, and move quickly to execution. We apply PVI as a “bolt-on” tool to a company’s existing operational strategy, rather than as a “new philosophy” requiring a retooling of your company. This approach consistently yields measurable improvements in EBITDA, driven by cost reductions and improved new product introductions.
To explore the benefits of PVI initiatives within one of your portfolio companies, or to evaluate PVI potential in target acquisitions, contact Jeff Temple, 312-726-6111 x314, jtemple@proactiongroup.com.
