What is the highest ROI sideline

Issue 19 / March The customer newspaper of ROI Management Consulting AG. Inventory reduction. Production optimization


1 Issue 19 / March 2006 The customer newspaper of ROI Management Consulting AG. Inventory reduction RHI AG, a global technology group headquartered in Vienna, set itself the goal of reducing total inventories by 25 percent in 2005. ROI supported the implementation on site. Production optimization To further increase competitiveness, Amoena Medizin-Orthopädie-Technik GmbH, based in Raubling in Upper Bavaria, is holding so-called a better company (abc) events through insights into a highly effective workshop. Worldwide process integration The Miba Group, headquartered in Austria, relies on cross-border SAP implementation. The ROI AG and the ROI partner company HighQ IT place the business benefit in the foreground in the project work on site. Lean Administration The ROI method activity structure analysis (TSA) was successfully used at the BMW plant in Dingolfing to increase efficiency and performance in indirect corporate areas.

2 EDITORIAL Outsourcing A critical balance sheet Outsourcing has been practiced by top management consultants for over two decades as an essential contribution to profit optimization. It therefore seems right to take stock of the interim. In our mandates there have recently been an increasing number of cases of dubious and even company-endangering effects of outsourcing. It is worth looking at the origin of the word: Source means origin, source. Later, the meaning of source of supply, supplier developed in business language. Thus the term outsourcing could already represent a threatening indication of the abandonment of the original. Outsourcing is also touted as a panacea in our high-price and high-tech oriented societies. This has increasingly led to unreflected decisions. Originally, outsourcing was used to cover order peaks or in the case of special technologies that were poorly mastered or too expensive to use. The principle was always to retain or master the know-how in-house. Today, outsourcing is propagated for all non-core activities, so to speak. This critical development began with the outsourcing of maintenance, which, especially in the process industry, leads to the interruption of the necessary know-how control loop. If the system maintenance is carried out by third parties, the understanding of the context can be lost in the company. Creativity atrophies just like knowledge of the material or the important knowledge of material load-bearing capacity and much more. In Central Europe, an increasing, and in some cases hardly reversible, dependency on suppliers can be seen in central sectors in plant and mechanical engineering, the nuclear industry and, as is well known, in the automotive sector. Large automotive groups are completely dependent on the development skills of their suppliers. Plant operators in highly sensitive process sectors are already too little familiar with their own processes to take the necessary corrective measures themselves. The outsourcing of know-how-intensive work content is also problematic because the low-wage countries commissioned are known to be very good at copying and recreating. It turns out that outsourcing is a step in the wrong direction in many cases. Anyone who does not know their material, the processing techniques and options, cannot pursue product development. If creative work content wanders off, good employees say goodbye. In addition to the threat to the Central European business location, there are ecological aspects of which the general public is far too little aware: As a result of a lack of control over systems and processes, we must increasingly reckon with environmental risks or epidemics. The keywords here are the nuclear and pharmaceutical industries. The relationship between system and process control as well as environmental safety has been proven to be significant. Conclusion: In the sense of the old saying: Out of sight, out of mind, outsourcing always represents a form of alienation. Thomas Seidel page 2 DIALOG issue 19

3 PROJECT: RHI AG Photo RHI AG Effective inventory reduction RHI AG is a global technology leader with its headquarters in Vienna. With over employees, the group of companies has a turnover of over 1.3 billion euros per year. The core business is the manufacture, sale and delivery of non-substitutable refractory products for industrial high-temperature processes. The RHI Refractories umbrella brand includes VEITSCHER, DIDIER, RADEX, REFEL, Dolomite Franchi and INTERSTOP. Tradition, innovative technology and the highest quality standards characterize the brands that have all successfully established themselves on the world markets. The refractories division now accounts for 85 percent of total sales. The most important customers for products, systems and services from RHI Refractories are key industries such as iron and steel, cement, lime, glass, non-ferrous metals, the environment, energy and chemicals. Products in the areas of special ceramics, kiln furniture and raw materials complement the comprehensive range of services offered by the group. In order to create new scope for investment projects, RHI had set the corporate goal of reducing total inventories by 25 percent in 2005. ROI successfully supported the implementation on site. DIALOG briefly summarizes the procedure and the most important results. Martin Bartmann Head of Group Logistics in the Operations division at RHI AG, Vienna Optimal transfer of know-how When working with ROI, we were concerned with factual input for the many questions that arose in the local factories in the implementation of our group goal. We wanted individual and tailor-made solutions for each individual location. ROI turned out to be the right sparring partner to play through new thoughts and topics. The implementation of this ambitious goal in the plants on site took place in different projects. The TP1 roll-out project dealt with the inventory groups work in process and finished products. The execution took place in 2005 in the RHI plants in Duisburg, Niederdollendorf, Trieben, Veitsch, Urmitz and Mainzlar. It was important to develop our concrete procedural concept at a pilot location, emphasizes Martin Bartmann, Head of Group Logistics in the Operations division at RHI. This gave us a basis for the TP1 roll-out activities in the other plants. All six plants have set themselves very ambitious goals for 2006. ROI was commissioned to support RHI in an advisory capacity. The following division of labor proved to be effective: An employee from RHI headquarters and a consultant from ROI jointly took over the technical and methodological orientation of the project. The RHI employee from the corporate headquarters supported the project managers at the locations in the operational implementation of the defined measures, from the preparation of the necessary reports to the preparation of the project steering groups. The role of ROI included the evaluation of the data, methodological support and critical questioning. The help of ROI proved to be particularly important in determining the existing potential, in determining the detailed inventory targets and in deriving the necessary optimization measures. The composition of the teams with the project management from the respective plant and one experienced ROI consultant and one junior employee from the group headquarters was ideal: This resulted in a transfer of know-how from which RHI will benefit in the long term. We have achieved visible effects in our works. They are already anchored in the local teams in such a way that their sustainability is not endangered. This is ensured by our controlling system, which we have systematically built up from the start. I am satisfied with the result in every way. Page 3 DIALOG Issue 19

4 PROJECT: RHI AG EXPERT STATEMENT In the six selected plants, the analysis of all relevant types of inventory was on the program. It is crucial here to determine the theoretical minimum inventory in advance and to discuss the causes of excess inventory in depth, according to ROI consultant Werner Bick. This is the only way to achieve long-term success in inventory reduction. All six plants are now in the implementation phase. Implementation is progressing rapidly. A large part of the agreed measures has already been carried out. The results so far are impressive. Photo RHI AG In some cases, the stocks that can be influenced have already been reduced by up to 50 percent. As part of the TP1 roll-out activities, the RHI employees developed a sophisticated analysis toolbox together with ROI. The analysis target box enables precise inventory analyzes within a very short time. A regular review of the sustainability of the inventory reduction projects carried out in the six plants under consideration can be carried out without any problems using the analysis target box. At the same time, it is planned to use it as a highly efficient tool for further inventory reduction projects in other RHI plants. Inventories have a significant impact on the economic success of a company. In many cases, they are indispensable due to disparities in terms of time and quantity. In operational practice, however, the actual stocks often deviate from the ideal stocks, both upwards and downwards. If the inventory level is too high, this leads directly to a deterioration in one of the most important parameters of the company's success, the return on investment (ROI). On the one hand, stocks reduce the yield and, on the other hand, the capital employed increases, which has a double negative impact on the ROI. If the stock level is too low, this has a variety of consequences, depending on the stock type. Too little starting material and working stocks lead, for example, to an insecure supply of workplaces and operating resources, which is reflected in both falling productivity and poorer adherence to deadlines. Insufficient stocks of finished goods reduce, among other things, security and flexibility in customer deliveries. Experience has shown that the total stocks in the companies are too high. The reasons for this often lie in a strong sense of security and a one-sided focus on maximum utilization of the operating resources. A blanket reduction in stocks using the lawnmower method is generally unsuccessful, as this also affects items with stocks that are too low, with the corresponding consequences. It is crucial to find the right levers and to move them in a targeted manner with a view to a sustainable reduction in the overall inventory level with at least the same delivery reliability. ROI can have a number of successful projects here. A standardized methodology with a large number of modules and templates is used in the implementation, which is individually adapted to the specific framework conditions on site. Prof. Dr. Werner Bick is the general representative of ROI AG. He accompanied the project at RHI as an external consultant. Use the economic advantages of the inventory reduction STEP 1: Define the project team and the responsibilities as well as record and classify the current inventory situation. To optimize effort, it is important to separate the essential from the insignificant inventory drivers. At the same time, a controlling instrument will be established to check the success of the measures introduced. STEP 2: Identify the ideal inventory levels for the key inventory drivers and establish inventory goals. A basic distinction must be made between the three most important stock areas: starting material, circulating stock (WIP) and finished product stocks. An ABC-XYZ analysis in combination with the specific procurement risk is the basis for determining the target stock of primary materials. In the WIP area, the ideal manufacturing process specifies the stocks that are still required. When it comes to finished products, the main focus is on the stocking strategy and customer-related considerations. The determination of the optimal procurement and production lot sizes plays a decisive role in all three areas. STEP 3: Determine the measures for the positions with the greatest inventory reduction potential. These can be specific individual measures as well as higher-level activities, such as converting a production area from pushing to pulling production. The advantages of external advice on inventory reduction projects are neutrality, objectivity as well as experience and methodological competence. Neutrality and objectivity are essential, especially in discussions that are shaped by departmental thinking. Experience and methodological competence lead to an efficient approach that conserves internal resources and leads to the desired goal more quickly. Page 4 DIALOG Issue 19

5 A better company Highly effective production optimization to give women back quality of life that is the aim of Amoena Medizin-Orthopädie- Technik GmbH, based in Raubling in Upper Bavaria, when company founder Cornelius Rechenberg, an engineer for plastics technology, succeeded in manufacturing the first film-covered silicone breast prosthesis. Since those beginnings, the company has continuously developed and is today the international market leader in the field of breast prosthetics. In addition to the large selection of breast prostheses, Amoena offers special lingerie and swimwear for women who have undergone breast surgery. In order to get even better from this strong position and to further expand its market leadership, in 2005 Amoena and ROI launched a program to increase competitiveness in production. An important tool here are implementation workshops, the so-called a better company (abc) events. Two abc events took place last year with great success and led to concrete measurable results. In the first phase, the starting points for improvement and the potential levers had to be identified quickly and efficiently. A quick scan in production was used for this purpose: together with the on-site employees responsible for the various production areas, the ROI consultants recorded the entire process from goods receipt to dispatch and created detailed documentation. Phase 1 Phase 2 Phase 3 Quick Scan Planning and structuring Identifying fields of action Future State Definition and discussion of a possible target state Identifying potential levers Action points, target values ​​abc events Implementation workshops Focus on employees and rapid implementation Figure 1: Procedure in the project. Page 5 DIALOG Edition 19

6 PROJECT: AMOENA Photos: ROI workshop in action: practical relevance is capitalized. The representation took place with the help of the value stream mapping. Value Stream Mapping is a pragmatic and clear method for visualizing and analyzing production areas, according to ROI consultant Jörn Tegtmeyer. In addition to the processes, the essential key figures, such as capacities or the cycle, downtime and set-up times, are recorded and visually displayed. The graphic representation is the basis to show concrete starting points and improvement possibilities. The way to the future target state Every trip needs a goal: In the second phase, a team consisting of employees from Amoena and consultants from ROI determined the future state of the goal towards which the production areas should move in a two-day workshop. Adjusted framework conditions that cannot be changed in the long term The future state developed in this way for the individual production areas thus combines the ambitious, visionary goal setting with a high degree of pragmatism and feasibility. At the end of this second phase, objectives for the most important key performance indicators (KPIs) are defined. This includes inventory optimization and lead time reductions as well as productivity increases and quality improvements. It is crucial to lay down the path to the future state that has been developed in the form of action plans and a time schedule. Actual State Actual state Figure 2: Future state as a target 1 Future state Target state optimum, taking existing restrictions into account 2 Ideal State Optimal state Detached from restrictions The procedure is shown graphically in Figure 2. First, the team defined a theoretical optimal state, the ideal state. In the first stage, this is completely deliberately detached from the existing restrictions of today's production, i.e. the restrictions of everyday business, emphasizes ROI consultant Tegtmeyer. Only in the next stage is the target state gradually adjusted to the given and medium-sized events with great effect A better company At Amoena, this is the heading above all improvement measures. Of particular importance is the implementation of implementation workshops, the abc events, which are supported by ROI. The guidelines of the abc events are the integration of employees from the management level to the shop floor level as well as an absolutely pragmatic practical relevance. According to the motto Talk is silver, deeds are gold, the immediate implementation of the measures is of particular importance. Page 6 DIALOG Edition 19

7 PROJECT: AMOENA Photo: Stock.Xchng The participants primarily develop the results themselves. A decisive success factor is therefore the composition of the implementation workshops with executives, department heads and employees at the shop floor level.In this way, detailed knowledge of processes and problems is combined with cross-departmental experience, explains Robert Neiderhell, abc specialist at Amoena, and this is the only way to tackle problems quickly and efficiently, store appropriate solutions and then immediately and together with the entire team in practice implemented. The first two abc events took place at Amoena in the past quarter. The subject of the first implementation workshop was the shipping areas. Just one week after the workshop, the employees in the dispatch area were working according to the newly developed picking process. Further concrete results were: The conversion of the storage and dispatch areas A new, route-optimized arrangement of the items The dismantling of storage levels for accessories The integration of the new packaging machine into the processes The second workshop focused on improving a production area. The basic idea of ​​the immediate implementation of abc events is even clearer here: the machines and workplaces were relocated to the new layout on the third day of the workshop. The other results are also impressive: A new, flow-oriented production process The integration of all work steps in the center Significant reduction in unproductive processes The first conclusion of the program that began in 2005 can be made: The current rate of improvement at Amoena is very high. The implementation-oriented course we have chosen has proven to be the right one. The company has already come a great deal closer to its ambitious first sub-goal of systematically optimizing all areas of production. A better company At Amoena, this designation stands for permanent and implementation-oriented striving for ever better solutions. Further information and contact: Rainer Pfeffermann VP Operations at Amoena. Fast implementation is a top priority The abc events were something new for everyone involved. After initial skepticism, it was easy to convince our employees of this innovative concept. The motivation comes naturally when the participants see how their suggestions for improvement are implemented immediately. During the event week, existing demarcations fell, long-standing processes were changed, machines were converted and many other changes were made. The responsibility lies with the group that is the principle of the abc events and it is consistently implemented. That took some employees by surprise. When presenting the results, the speakers represented their suggestions with full commitment and, if necessary, defended them against critical comments from their colleagues. The changes and action plans developed in the abc event are posted on the shop floor level for everyone to view. Together with the defined key performance indicators, this ensures the sustainability of the measures. The cooperation with ROI went smoothly. All those involved have learned something new at the previous abc events. We continue. Page 7 DIALOG Edition 19

8 TOPIC: CHINA Photos: Stock.Xchng Mastering the challenges in the growth market of China Few countries currently offer such interesting economic prospects as China. But only companies that know the business rules of this large country exactly and apply them correctly can be successful in the long term. ROI worked with China Management Network Ltd. in 2002. (CMN) has gained an exclusive partner who is available to western investors on site in all matters relating to business in China. Based on decades of experience, CMN offers effective support to companies that manufacture in China or want to expand or restructure their investments. China has been achieving above-average growth rates for two decades. Since 1997 the growth of the gross national product has been continuously above seven percent and in 2005 the economic growth was above nine percent. Around million this figure corresponds roughly to the total German population of the 1.3 billion Chinese have a purchasing power that is comparable to that in the western industrialized countries. The country has enormous US dollar reserves (650 billion US dollars at the end of March 2005). Of the $ 2 billion in foreign capital that the American economy required every day in 2004 and 2005, most of it came from China and Japan. At the same time, China's external debt is relatively low and has a long-term focus. Accordingly, the country is well armed against external economic shocks. The 2008 Olympic Games in Beijing and the 2010 World Exhibition in Shanghai will further accelerate growth and lead to a further boom in many industries. The currently most important economic regions are the Yangtze Delta, the Pearl River Delta, as well as the cities of Beijing, Tianjin and Shanghai with their surrounding areas. Page 8 DIALOG Edition 19

9 TOPIC: CHINA Business in China as part of the international supply chains The interest of investors is correspondingly high. By working with CMN, ROI AG can offer its range of services and know-how in this exciting market. The strength of CMN is extensive China-specific expertise, according to ROI board member Hans-Georg Scheibe. This makes it possible to adapt our consulting tools to the conditions on the Chinese market and to develop tailor-made concepts. Multinational companies, especially from the electronics, automotive and their supplier industries, want to flexibly network their production locations around the world. The individual locations are to be included in a global supply chain in such a way that the advantages of a location are optimally used and disadvantages are minimized. For strategic and cost reasons, China is one of the most important procurement markets in the world. The evaluation of suppliers through to their integration and development into system development partners requires a lot of professionalism and experience. Special cost discipline is necessary in inventory management, transfer price policy and in material flow and warehouse planning. They are the main cost drivers in the China business, according to the managing director of CMN, Engelbert Boos. In addition, quality assurance and stable production processes repeatedly prove to be Achilles verse, Boos continues. China is of increasing importance not only as a low-cost production location for export, but also as a large domestic market. For example, many companies set up production facilities on site, but do not make sufficient use of the opportunities offered by supply chain management. The result: potential cost savings of up to 30 percent of the total logistics and procurement costs as well as valuable time are wasted. To prevent this, CMN, together with ROI, offers overall concepts for optimizing the value chain and the global manufacturing network. Short profile Engelbert Boos, managing director of CMN Engelbert Boos is managing director of China Management Network Ltd. The studied mechanical engineer with an MBA and a Chinese language diploma has gained over fifteen years of entrepreneurial experience in China. Engelbert Boos ran a representative office in Beijing. For many years he was the managing director of a joint venture for refrigeration compressors and has taken overall responsibility for 18 local companies in China with a total of over 4000 employees for Mannesmann. For many years he moderated the joint venture working group in Beijing and has been involved in journalism with various international specialist articles and specialist books on investments and business development in China. Details can be found under Contact: Page 9 DIALOG Issue 19

10 TOPIC: CHINA Dealing with pitfalls Successfully doing business in China costs time, money and nerves. It is certainly not a lifeline for companies that have problems at home, warns CMN managing director Boos. Rather, what is needed is long-term commitment and the willingness to deal with the specific features and problems on site. At the same time, Chinese economic culture can block the success of investments with a host of pitfalls. Those who do not know enough about this have poor starting conditions. The important questions that keep cropping up include: What should be considered when negotiating with Chinese business partners? How do you find suitable staff? Which legal form is best? How do you get reliable market data? And how is it possible to operate successfully and economically in a country without a reliable legal system in the long term? Many of the problems that arise cannot be solved without the help of experienced experts on site. CMN supports and accompanies its customers from new planning to implementation. For projects that have already started, experienced consultants are available who recognize undesirable developments and correct them successfully within the framework of restructuring measures. The success speaks for itself: CMN currently oversees between eight to ten turnkey projects every year and develops a large number of individual customer solutions. References include GEA Energietechnik GmbH / Bochum, Metabowerke GmbH / Nürtingen, Leica Geosystems AG / Heerbruck in Switzerland, MAN Nutzfahrzeuge AG / Munich, BMW AG / Munich and Getrag-Ford Transmissions GmbH / Cologne . For these and many other customers of CMN, the engagement in China, the gateway to the Asian market, has become a worthwhile investment. CMN MEMBER OF THE -GROUP Strategy workshops Location analyzes Support in the establishment of subsidiaries Restructuring of existing joint ventures Support in the liquidation of unprofitable joint ventures Optimization of production sites Support in mergers and the improved realignment of the various overall activities on site Development of supplier systems (supplier due diligence) Creation of Feasibility studies and business plans Photo: Stock.Xchng Photos: CMN / ROI range of services CMN has successfully completed the following activities for its customers: market research, analysis of market potentials, search for a developer to provide financing support for new commercial properties and production buildings, assumption of construction coordination and selection of qualified construction companies included the necessary political lobbying negotiation support to optimize the conditions for required articles of association and bank guarantees Expertise, Industri Ebenchmarks, commercial due diligences of potential partners, participation models (M&A) Reports on the localization policy of the Chinese government Management assessments for the selection and qualification of executives Coaching and troubleshooting Page 10 DIALOG Issue 19

11 PROJECT: FEX Photos: Austrian Federal Ministry of Justice EU award for ROI project At the end of October 2005, the European Prize for the Crystal Scales of Justice was awarded for the first time in Edinburgh as part of the European Civil Justice Day. One of the three nominated initiatives was the project of the Austrian Federal Ministry of Justice to reform judicial systems in Austria. ROI supported and accompanied the project called FEX. DIALOG summarizes the essential points of the comprehensive project to reorganize and increase efficiency on the occasion of the award ceremony. In 2005, the European Commission and the Council of Europe launched the Crystal Scales of Justice, a prize that honors innovative practices in the organization of civil courts and civil proceedings. This prize was awarded for the first time on October 25, 2005 during the European Civil Justice Day in Edinburgh. A jury made up of high-ranking European lawyers selected seven out of 22 projects submitted by judicial authorities from 15 European countries. The FEX project of the Austrian Federal Ministry of Justice, together with initiatives from Finland and Slovenia, was nominated for the crystal scales. Driver execution as a modern service of the judiciary The aim of the project was to make the area of ​​driver execution, the enforcement of monetary claims through the execution of movable objects, a service of the judiciary based on modern criteria. This area comprised around 15 percent of all employees in the courts, which corresponds to around 900 people. The implementation of the FEX (driving license) project was carried out in two stages: 1st stage: Potential analysis of the court system and concept development 2nd stage: Implementation of the reorganization and measures to increase efficiency The comprehensive task required the cooperation of the ministry (head office), courts ( decentralized units) and the staff representatives. The involvement of the staff representatives was ensured from the beginning, said Mag. Peter Hadler, the project manager in the Ministry of Justice. The active participation of selected bailiffs and judicial officers was also a matter of course for us. Only in this way On the subject cited showcase project in the ministerial area Above all, the high implementation orientation of ROI has been confirmed again and again in the mandates I have commissioned. With the increase in efficiency in driving driver execution, the projected savings potentials were quantified and implemented in a measure-oriented manner as the first project in the Austrian judiciary. A potential increase of up to 20 percent became possible. It was also possible to verify model calculations for redesigning the bailiffs' remuneration in the current situation after implementation. I found this area to be particularly difficult and risky. Ultimately, however, ROI turned the project into a showcase project that other ministries are looking at with envy. Dieter Böhmdorfer, former Federal Minister of Justice and now a member of the National Council in Vienna, in the anniversary edition of DIALOGUE 25 Years of ROI. Page 11 DIALOG Issue 19

12 PROJECT: FEX Photos: Austrian Federal Ministry of Justice Statement by Mag. Peter Hadler, head of the Fex project in the ministry. Cooperation based on trust The implementation of this extensive project was demanding. That presupposes trust. That is why we were happy to have a competent and experienced partner in ROI whom we can rely on one hundred percent. We have not only implemented the principle of lean administration internally together with the staff representatives and won the trust of the bailiffs: At the same time, we have set a sign to the public on how to intelligently identify and realize potential savings. With the award ceremony in Edinburgh in October 2005, such an ambitious and comprehensive project can be successfully implemented. Potential analysis as a solid basis Since there was no reliable information about the economic success, the "earnings situation" and the work behavior of the bailiffs on site at the beginning of the project, corresponding surveys had to be carried out. Process analyzes, quantity and frequency records as well as the ROI activity structure analysis (TSA) were used here. The TSA has also proven itself in several projects in the judiciary, according to ROI consultant Elmar Hubner. No other method creates such a high level of transparency in administrative areas, continues Hubner. The evaluation of a sample of execution files proved to be of particular value. Building on the analyzes, the project managers formulated the following key areas of action: Redesign of the organizational structure through internal outsourcing The proposals were brought together and evaluated in a master plan. Result-oriented management through redesign of the organizational structure Before the project, the management of the bailiffs was largely limited to the legality of the execution and aspects of service law. A results-oriented management of the court enforcement service was only given to a very limited extent. This was a consequence of the organizational assignment of the bailiffs to the individual courts: the bailiff acted as an appendage to the case law. A better solution had to be found here. The proposal: An internal outsourcing in the form of a total of four regional FEX planning and management units summarized the function of the bailiffs at the higher regional courts (OLG). This reorganization made possible: a decoupling of the financial services of the judicial system from the case law an increase in the personal responsibility of the bailiffs the installation of a management structure and personnel deployment at OLG level the promotion of qualification and professionalisation (training program) an order-related control of the workforce page 12 DIALOG Edition 19

13 EXPERTS ASKED Dr. Elmar Hubner, managing director of ROI in Vienna, is the ROI specialist for projects to increase efficiency in indirect areas. Together with the founder of ROI and chairman of the supervisory board Dr. Thomas Seidel and Dr. He accompanied Rudolf Mosnik on the project. The modernization of the administration is gaining in importance across Europe. ROI has made a name for itself in the public sector, particularly in Switzerland and Austria, through a large number of projects in the fields of justice, culture, agriculture and forestry, research and development facilities / laboratories and in the social sector.Contact: PROJECT: FEX In order to set up the new FEX management units, it was necessary, among other things, to formulate detailed function diagrams, dimension the personnel, draft job descriptions and draw up a time and budget plan for the implementation measures. Newly developed controlling tools created the basis for results-oriented management of the bailiffs. Simplification of the enforcement fees and the remuneration of the bailiffs The enforcement and road fees law that existed at the beginning of the project required complex calculations to determine the fees and was associated with a high administrative effort for all those involved in the proceedings. The solution: the introduction of flat-rate fees to the outside world, a simplification of the performance-based remuneration for the bailiffs and IT-supported billing. With these measures, we have succeeded in significantly reducing the administrative burden, says project manager Hadler. The redesign of the fee system was a great challenge: The tariffs had to be set in such a way that, taking into account (desired) changes in behavior, the fee and remuneration volume for all creditors, obliged entities, bailiffs and ministry involved corresponded to the level formulated at the start of the project. For this purpose, the project managers from ROI and the ministry carried out extensive model calculations for the changes in the law. After implementation, the model calculations could be checked and verified with the actual data. At the same time, these model calculations formed the basis for negotiations with interest representatives and made an important contribution to justifying the change in the law in parliament. Increased efficiency through process simplifications The savings approaches identified in the potential analysis were concretised in practical workshops with the employees concerned. The collected quantity structures as well as the time values ​​determined via the TSA enable an objective evaluation of the individual measures, according to ROI consultant Hubner. This gave us detailed, action-related evidence of the possible savings and thus the appropriate basis for an objective discussion of the savings targets. To implement the measures, the relevant laws had to be changed and the IT systems adapted. A quarterly personnel monitoring followed the changes in the workforce. With the FEX project, the Austrian judiciary successfully implemented a comprehensive reorganization and efficiency improvement project. From the point of view of ROI, it has also been possible to prove the objective quantification / making measurable of performance in an area in the transition between mental and physical activities. The result-oriented cooperation of all organizational units involved was essential for the success of the project. The award received is a confirmation of this success and a sign of the sustainability of the results achieved. Specialist press cited The previous, now replaced, system of enforcement fee accounting showed considerable deficiencies both in the administration of justice and in the area of ​​law firms, in particular due to an administrative burden that exceeded the level of the respective enforcement fees, which was now caused by the new regulation in the traffic between the procedural parties and the enforcement court ceases to exist. Much has been said and promised about administrative simplification, also in favor of the parties to the proceedings, but the reorganization of the enforcement fees is in any case an exemplary administrative simplification for both the courts and the parties to the proceedings. Extract from the AnwaltsBlatt 2003 Manz Verlag, Vienna Title: Reorganization of the enforcement fees from 2004 Author Prof. Dr. Kurt Dellisch page 13 DIALOGUE issue 19

14 Innovation in Motion PROJECT: Miba Photos: Miba Return on SAP worldwide In eight locations in five countries, the Miba Group not only realigned its information technology as part of a global SAP introduction: the cross-border roll-out based on a standardized process and system landscape led to a significant optimization of the organization and to new, efficient responsibility structures. The long-term success and continuous further development of the overall solution is ensured through the targeted development of Miba's internal, globally active SAP and process specialists. ROI and the ROI partner company HighQ IT have placed the business benefit in the foreground during the entire duration of the project. Miba is one of the leading strategic partners in the international engine and vehicle industry. Miba products Sintered molded parts, slide bearings and friction linings are used worldwide in vehicles, trains, ships, aircraft and power plants. The investment in high-performance, safe and environmentally friendly technology has led the group of companies, headquartered in Austria, to international success. Miba continues to focus on global expansion: ten of the production companies as well as sales and trading companies from Slovakia to Singapore alone have been established in the last 17 years through start-ups or acquisitions. Clear business goals for SAP In order to be able to optimally master and utilize the challenges and potentials from this steady growth and success course in the future, the Miba Group decided in 2002 to push ahead with the integration of the individual locations as part of an SAP implementation. Right from the start, the focus was on clear business objectives for the introduction of a new information technology: Sustainable implementation of clear group standards for processes and structures in all production sites worldwide Identification and group-wide use of local best practices Uniform controlling / income statement Page 14 DIALOG Edition 19

15 PROJECT: Miba Standardization of the IT system landscape with the aim of more efficient maintenance Standardization of the database for the implementation of fully automated intercompany processes For us, the SAP project was of enormous strategic importance, said Thomas Meixner, the Group's Chief Information Officer (CIO). With the ROI and HighQ IT approach, we were convinced that we would be able to meet our high standards from start to finish, Meixner continued. The peculiarity of the project approach of ROI / HighQ IT is the consistent question of the economic benefit of every organizational and IT-technical decision in the current project. The decisive factor for such a demanding project is the integration of management consultants with practical and industry experience in the SAP consultant teams, said ROI consultant and SAP project manager Sören Appenzeller. This ensures that both the process and the IT solution design support the company's business objectives in the best possible way, Appenzeller added. The clear cost-benefit orientation ensures that project costs remain as low as possible. The targeted development of knowledge carriers in the customer company at the IT and process level ensures sustainable support and continuous improvement of the overall solution beyond the duration of the project. Benefit-oriented SAP project approach of ROI and HighQ-IT The partner companies ROI and HighQ IT have been offering a special approach for SAP projects for many years, with which companies maximize the return on investment of complex IT projects. Together with the company, ROI and HighQ IT are committed to a number of key points from the outset: The focus is on realizing measurable benefits throughout the SAP project. The potential benefits are ascertained and identified in a preliminary phase. Right from the start, process consultants with industry experience work together with SAP consultants in closely interlinked teams. Questions in the project are always checked and discussed both in terms of the process and IT. The orientation of all content-related project decisions from process design, through process responsibilities, SAP solution design, to master data concepts is based on the actual benefit. The targeted development of both SAP and process specialists in the company enables sustainable and cost-optimized maintenance and further development of the overall solution even beyond the end of the project. Potential of cross-location process and system standards One of the strategically most important goals for Miba was the development and introduction of group-wide process and system standards. The first step towards achieving this goal was to set up cross-location teams of experts. Then the development of a best practice process landscape began under the leadership of ROI. The early involvement of SAP consultants from HighQ IT ensured from the start that process design and SAP solution design would harmonize optimally in the future. A governance level concept determines the binding nature of the process specifications within the Miba Group. Processes that are not subject to any local legal or social restrictions are resolved identically at all Miba locations. Site-specific features and change requests are first discussed in the cross-border expert teams and must ultimately be approved by the Miba Executive Board. For example, the organization and processing of toolmaking are mapped in the same way at all Miba production sites. The abolition of a large number of different processes and IT systems not only created more transparency. The quality of the tool cost allocation, both between Miba locations and with external partners, has improved measurably. In addition, toolmaking was consistently integrated into the production planning processes and IT processes. Conversely, this standardization process can also lead to new, advantageous process approaches and best practices being discovered at the local level. After checking by the cross-border expert teams, such processes can flow back into the group-wide standard and be adopted worldwide. Page 15 DIALOG Edition 19

16 PROJECT: Miba The standardization of processes, structures and control concepts has opened up a wide range of potential for Miba. In this way, employees can be exchanged between locations. With subsequent SAP roll-outs to the locations in Spain, Slovakia and Italy, experienced SAP users from the Austrian parent plants were therefore able to make a significant contribution to training and starting the new processes. In addition, the standard processes and structures can be rolled out quickly and efficiently in new locations, which in particular significantly reduces the migration costs for newly acquired and newly founded companies. As a result, a complete SAP roll-out at a production site at Miba currently takes less than 6 months. Uniform controlling and a uniform profit and loss account accelerate the process of mutual benchmarking of the individual locations. Location decisions for new product launches can be made faster and more objectively. Photos: Miba The introduction of the group-wide process and system standards also had a positive effect on the identification of the individual locations with the group of companies. Further advantages are the fully automated and consistent use of intercompany processes as well as significantly lower maintenance costs. Sustainability through the establishment of competence teams In order to be able to further develop the extensive process and IT landscape independently in the future, the establishment of Miba internal competence teams was a prerequisite. For the elaboration and further development of group-wide processes, structures and control systems, an international, cross-location competence team of process experts from the various departments is being set up at Miba. Due to the close involvement in all questions of the process redesign and all site-specific deviations, this international team guarantees a high level of sustainability and prevents local wild growth. At the same time, the members' strong sense of responsibility for the group-wide process landscape leads to close, cross-location contacts at specialist level. Problems that arise at a specific location can thus be discussed in an uncomplicated way across locations and solved faster and better by the large number of experts. In addition to the process-oriented teams of experts, an internal SAP consulting team, the Miba Customer Competence Center (CCC), was set up. The CCC employees are responsible for supporting SAP users and for group-wide maintenance of the SAP system. In contrast to normal external SAP IT support, Miba's internal SAP competence team knows the group-wide processes and local features of the individual locations. Continuous involvement of the CCC members in all SAP implementations at the individual locations means that all deviations from the Miba group standard are known and can be efficiently maintained. Personal contacts between the CCC members and the SAP users in the locations also promote communication and guarantee fast, efficient problem solving. Previous balance of the global SAP rollout Together with Miba, ROI and HighQ IT successfully introduced SAP in a total of eight production locations in Austria, Slovakia, Spain, the USA and Italy during the course of the project. By consistently focusing on the benefit goals defined in advance, the Miba Group has so far achieved all goals as expected. In addition to the group-wide standardization of processes, structures and control systems, there is now a uniform profitability analysis and uniform controlling. Further joint projects in planning: Thomas Meixner, CIO at Miba, and ROI consultant Sören Appenzeller The processes and solutions developed represent an excellent solution in terms of economic benefit and are valid worldwide. All production sites have been integrated into the Miba Group. The know-how built up in the company guarantees efficient and effective maintenance and further development of the process and system landscape in the long term. The implementation of SAP in the new location in Shanghai (China) is planned for 2006. Page 16 DIALOG Edition 19

17 TOPIC: EASTERN EUROPE Photos: Stock.Xchng Trade Tower, Warsaw Process optimization at the production sites in Eastern Europe Neptun-Brunnen, Gdansk Dr. Frank Lugert is a consultant at ROI and focuses on restructuring and reorganization. The graduate industrial engineer has many years of professional experience in the internationalization and development of foreign locations. In the recent past in particular, he has been able to gain valuable experience for German companies working with Eastern European companies and is very familiar with the local framework. For DIALOG he writes about the potential for process optimization at the production sites in Eastern Europe and describes the current trends with regard to the personnel situation and the level of wage costs. The wave of outsourcing is ebbing and the location Germany has a [...] good future, writes the VDI at the beginning of the year make, attributed. In addition, the availability of qualified skilled workers in Germany is comparatively significantly higher and the level of training is still unbeaten. Hourly wage differences between Germany and Eastern Europe of 80 to 90 percent are still powerful arguments for relocating production facilities. It has been shown, however, that a low level of wage costs will firstly be limited in time and secondly alone will not lead to sustainable competitive advantages. Furthermore, the rapid staff expansion measures at the Eastern European locations while neglecting the adaptation of process landscapes have led to inefficiencies. Optimizations that have already been carried out at the home location over the past ten years have mostly been neglected when setting up the new locations in Eastern Europe. Today, in connection with the significantly faster rise in wage costs there compared to Western Europe, there is an urgent need for action. Changed local wage cost level In 2004, the average wage cost level for industrial employees at a company in Germany was between 36 and 43 euros per hour, in Hungary around 4 euros per hour, in the Czech Republic around 3.50 euros per hour and in Poland around 3 EURO per hour. At first glance, this difference appeared to be tempting in order to be able to achieve significant cost reductions. In addition, individual regions subsidize newly created jobs with wage costs for one year. Such wage cost advantages led the local management to build up personnel capacities quickly. Often, however, the simultaneous adjustment of processes and structures, organizational structures and procedures was neglected at the same time. In the meantime, the level of wage costs in the new Eastern European EU member states has changed significantly. A look at the graphic shows that. Country Germany Hungary Poland Czech Republic Slovakia Source: Eurostat hourly wage costs according to Eurostat for .22 EUR / h 5.54 EUR / h 4.74 EUR / h 5.85 EUR / h 4.41 EUR / h The wage cost advantage is still clear , however, it can be assumed that this will be limited in time and that a further approximation to the Western European level will follow in the medium to long term.A major cause of inefficient and ineffective processes at the Eastern European production sites was the increase in staff, which could hardly be slowed down due to the low level of wage costs and which was mostly in no relation to the required capacity. Page 17 DIALOG Edition 19

18 TOPIC: EASTERN EUROPE Photos: Stock.Xchng Florianska Street, Krakow Skyline of Warsaw Athenaeum, Bucharest The pain threshold of the required capacity was set to practically zero due to the barely comparable level of wage costs. This connection has now been recognized. The result of the performance measurement were quality problems in the form of high material scrap rates, an above-average number of reworking hours and, compared to Germany, poor productivity per capita. In addition, the short-term personnel available on the labor market mostly lacked the necessary professional qualifications. High employee turnover The inhibition threshold for changing employers at short notice was correspondingly low. In Eastern European countries, such as Romania, you can calculate with a natural fluctuation with a seasonal average of percent per year. This is due to the fact that Dr. Frank Lugert Consultant at ROI mainly in the area of ​​restructuring and reorganization roi-international.com leads many Western European, especially German companies, to a competition for the workforce and slightly higher wages are paid for new settlements than the already resident companies pay. Another reason for the high fluctuation is the mostly still very popular sideline activity of the population in agriculture. The continuously high employee turnover makes it difficult to reach and maintain a high level of productivity and quality. It requires continuous training of employees and, in extreme cases, significantly increased controlling of compliance with procedural and work instructions. When designing management spans, the number of management levels and the allocation of responsibility and competencies in the organizational chart, new perspectives and innovative approaches in organizational design are required. Especially at production sites with more than 500 employees, new, functioning management structures have to be created. At the same time, the question arises as to whether the location should remain under the cultural management of the parent company or whether it should be in the hands of a locally based, locally born management. The still clear differences in productivity and quality levels compared to German companies are not least due to the cultural differences, above all due to the shaping of the earlier political framework conditions. As is known, these were characterized by centralized management and decision-making structures and only a small amount of delegation of responsibility. Corruption is still another problem. Many companies experience first-hand what corruption means both internally and externally. In many countries in Eastern Europe, the issue is far from over. The cultural differences and the consequences of the high staff turnover require specific forms of organization to manage employees. The comparison of the cost and performance levels of German and Eastern European production locations shows that the homework that companies in Germany have already successfully done must now be on the agenda in Eastern Europe. It also shows that relocation alone is not a short-term method of optimizing earnings, but rather represents a medium-term challenge for the company. The start-up difficulties that many companies in Eastern Europe had and still have mostly led to significantly higher investment and cost expenditure than originally planned. This was primarily true when the parent company is not in an economically stable position. In this case, relocation to Eastern Europe will not be a measure to stabilize the situation or even create a turnaround. Compared to relocation, the classic make-or-buy decision for individual processing steps and production stages is usually the better one, as it can be implemented at short notice and is far less expensive. In the case of a buy decision for product-specific value creation stages, for example for the production of semi-finished products, suppliers in low-wage countries are definitely interesting from a cost point of view. In addition, such measures make it possible to secure the home location. Cooperation with Eastern European consultants on site For organizational development, restructuring and business process optimization, the consultants from ROI Management Consulting AG are available with methodical and cultural experience in such projects in Eastern Europe. This also applies to the topics of location discussion, securing and relocation. In particular, through our office in Prague and our locally based cooperation partner, we can overcome cultural and linguistic barriers with Eastern European consultants. Of course, we also support the implementation of relocation projects; Starting with the establishment of contact with the authorities, the location search and selection, the phase-out and start-up management as well as the physical relocation of production lines and locations. The comparison of activities to secure the location is fundamentally the subject of such projects. The high proportion of over 80 percent in implementation projects with our clients proves the practicality and effectiveness of our consulting projects. Page 18 DIALOG Edition 19