Lubricants Division; Global Cost-to-Serve® Implementation

Summary

LCP deployed its Cost-to-Serve® (CTS) tool & methodology to undertake a review of existing product/return costing approaches across the business. Following this initial review LCP developed four generic models using the CTS tool that were then successfully piloted in four operating countries. We then trained a client team in the use and implementation of the Cost-to-Serve® models. The client team has now successfully implemented the models in over 50 countries.

Project Background

This global oil company needed to understand the distribution costs associated with serving customers with bulk and packed lubricants around the world. There were a number of cost approaches already in operation but they all had different process scopes and had been developed with no common cost or process definitions. The objective of the project was to review the existing approaches before recommending the most appropriate model to roll out across 88 operating countries to enable distribution costs to be benchmarked.

Approach

The project process scope was the distribution of packed and bulked lubricants from the point of production through to delivery to the end customer. The geographical scope of the project was the 88 countries in which the business had a distribution operation.

LCP defined three main phases of work:
1. A review of the existing distribution costing approaches that were already in use across the business

2. The development of a set of generic Cost-to-Serve® models

3. The global implementation of the Cost-to-Serve® models as specific tools

The review of the existing costing approaches concluded that none was appropriate to meet the client's objectives. The review also concluded that there were four distinct distribution operations across the globe. Following on from the initial review LCP developed four generic Cost-to-Serve® models that fulfilled the requirements of all 88 operations around the world. Each of the four models was piloted in an appropriate test geography (UK, USA, Germany and Malaysia) and the results of the pilots were used to refine the four generic models and to develop a training programme. Following the successful piloting a client team was trained and tasked with implementing the models across the remaining 84 locations. This team has now delivered Cost-to-Serve® models in over 50 countries, with LCP providing ad hoc support as required.

Client Testimonials

LCP deployed a small team of experts to develop the initial generic models and train the client team as our standard way of working is to quickly transfer knowledge to the client team in order for them to take ownership of the solution. The client team now has considerable expertise in Cost-to-Serve® implementations and as this expertise has developed so our role has become one of providing 'spot' support & coaching as required.

Success Factors

The sheer scale of the implementation, across 88 countries, and the complexity of the client organisation presented significant challenges for delivery. It was important that the review of the existing models was thorough and involved people from across the client's organisation - this was necessary to get buy-in to the need to develop a standard set of models. It was also important that the pilot geographies were successful and that this success was communicated across the organisation. Finally, the calibre of the client's implementation team has been key to driving an aggressive implementation schedule around the world.

Results and Benefits

The first two phases of the project, review of existing models and development and implementation of four generic Cost-to-Serve® models, was undertaken on time and within budget over a nine month period. In an 18 month period the models have been successfully implemented in over 50 countries around the world by the client team.

The direct business benefits witnessed have been:
• A reduction in the overall distribution costs of ~ 15%
• An improvement in the profitability of new customers (as distribution costs can now be accurately assessed prior to signing new customers)
• Global / Regional consistency of planning processes and systems
• Common business performance measures represented on a standard dashboard.