Saves Over One Million Dollars
Published in Synergizer, a publication of Advanced Energy
"The finance game Teams Identify Significant Cost Savings"
by Elaine LeMay, Training and Development Director
How can Advanced Energy save a million dollars? Ask the members of the finance game project teams. These teams demonstrated their financial expertise in November when they presented the results of three months of work on projects designed to reduce costs and increase revenue for Advanced Energy. The total potential cost savings for all of the projects added up to approximately one million dollars.
Thirteen project teams began their work after completing the finance game classes in August. The teams from five different business units initiated a variety of projects that included:
Increasing revenue by implementing flat rate billing within Global Support
Reducing RF manufacturing floor space
Reducing the costs of distributing customer manuals
Reducing utility/HVAC costs
Reducing hiring costs by improving the selection process
Improving the reliability of failure data entered on the production floor
Improving the accuracy of forecasting for customers of dc and 2K2V
Reducing HAAS test time per unit
Reducing benefit costs
Reducing the cost of goods sold (COGS) for production of power supplies
The teams presented their accomplishments and demonstrated impressive results. According to Fred Weaver (Vice President of Operations), the presentations were “a great representation of learning in action. The teams did an excellent job of providing accountability to an educational opportunity. The presentations offered real consideration for costs savings.” Jim Gentilcore (Executive Vice President) commented, “Not only did people get a lot of knowledge about finance, but they were able to turn that knowledge into tangible saving and costs avoidance for AE: a winner all the way around.”
Each team began by identifying a project and establishing costs or revenue objectives for the project. Five of the projects, their goals, and processes are described below.
The objective of the COGS team was to reduce costs by five percent, with a 10 percent reduction as a stretch goal. The team implemented savings by reducing labor costs through process improvements and shortened test time, as well as by reducing space costs and materials.
The team quantified a total cost savings of $250,872 per year, which is a nine percent cost reduction. The cost savings came from the following: $90,214 from process improvements and test reduction, $128,934 from material savings, and $25,440 from space reduction. The cross-functional team comprised people from operations, purchasing, and accounting.
Flat Rate Billing
The flat rate repair challenge team set objectives for its project, and created a flow chart depicting the current process as well as what the process would look like using a flat rate repair costs structure. The team’s measurable objectives included reducing repair cycle time, reducing days spent waiting for costs, and reducing the number of units on the shipping dock. After analyzing the impact of a flat rate cost structure on different product lines, and considering age-of-unit concerns, average repair cost, and other issues, the team determined that for the five product lines they evaluated, the potential profit potential is $27,000 per year.
Utility/ HVAC Costs
The team from the facilities department researched a projected utility cost savings by reducing heating, air conditioning, and electrical lighting costs. The heating and air conditioning savings would come from adjusting the thermostats in the buildings and the electrical cost savings would come from installing lighting system controls. The group projects a potential $10,000 per year savings by implementing these ideas.
RM Manufacturing Floor Space
This team established a goal to reduce the floor space used in the manufacturing of RF products by at least 10 percent. The team worked with process and test engineering, MGG and materials managers, facilities, and production line leads, and was able to reduce the floor space by 535 square feet. This represents a cost reduction of $13,000 and a 6.4 percent increase in revenue per square foot. The additional floor space provided room for the AZX line that moved from Austin to Fort Collins in November.
One of the human resource teams investigated ways to reduce hiring costs by improving the screening process before candidates are invited to an on-site interview. The team established a more rigorous screening process to ensure that out-of-town applicants more closely meet the job criteria before they are invited to on-site interviews. The team estimates the new process will save the company $85,000 to $100,000 in travel and interview costs during a ramp year.
The finance game class provided the knowledge and tools that people needed to understand how they can impact the bottom line financials at AE. While some projects were easier to quantify than others, each project provided value in the research they conducted, the problems they analyzed, and the recommendations they made.
We hope to offer more finance classes, creating more finance experts and innovative approaches to improve AE’s profitability. Kevin Thomas comments, “It is imperative that we provide an environment and tools that encourage all employees to continuously improve their processes, bringing increased effectiveness and cost reductions to our business operations.”