Foto: Bax Lindhardt

Fewer product numbers equal stronger revenues at Rockwool

onsdag 22 jan 20
|
af Morten Andersen

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Lars Hvam
Professor
DTU Management
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About complexity management

The basis for the industrial PhD project at ROCKWOOL is complexity management, which is a method of analysing and reducing complexity in companies. More specifically, the company’s entire product range—including the number and diversity of products and components—is compared to how well the different elements are performing in terms of cost, time consumption, reliability with respect to delivery, etc.

Increased complexity leads, among other things, to higher costs, poorer delivery capacity, and poorer profitability in general. In other words, there is money to be made from reducing complexity. At DTU, research in complexity management is carried out by Professor Lars Hvam from the Operations Management department at DTU Management.

Collaborative research has helped ROCKWOOL halve the number of products in their range. This will help the company to significantly increase its revenue in the coming years.

In relation to a newly completed industrial PhD project, the ROCKWOOL Group has more than halved its product numbers.

With such a radical reorganization of the range, the company ensures that every product on its shelves creates value for both customers and the company itself. Naturally, the costs are also brought down simply by not producing so many different products.

“There are big hidden costs associated with having many different products. In particular, production lines must be frequently adjusted. Every time you adjust, there is a start-up period before the new production runs optimally. There may also be losses in the form of wrongly manufactured products,” explains Alexandria Trattner, who is now employed as the operational excellence specialist in ROCKWOOL after completing her industrial PhD.

Overall, the many eliminated production changes mean that the company is going to significantly increase its production capacity. According to the project, there is a potential of a 3-5 per cent increase, and part of the improvement has already been achieved. For a company with a revenue that runs into billions, it can mean a much-improved bottom line.

Difficult to phase out products

Alexandria Trattner is American and arrived in Denmark with a bachelor’s degree in production technology. At DTU, she finished her Master of Science in Engineering before she began her PhD project with Professor Lars Hvam, DTU Management, as her principal advisor.

The research field is called ‘complexity management’ – which turned out to be an apt name. When Alexandria Trattner started the project, the ROCKWOOL Group had about 80,000 different products on its shelves.

Part of the complexity is due to the fact that the company markets a wide range of specialty products, in addition to the classic insulation material known to most consumers. Examples include special insulation for façades, acoustic ceilings, fibres for brake discs, insulation for various industrial purposes, as well as products for greenhouses where you choose to grow plants in stone wool rather than mould in order to better control the nutrient supply, use less water and achieve higher yields. On top of this, the Group has four regional organizations – Europe, Russia, North America and Asia – each with its own range. Finally, a product can also occur in a large number of variants, where dimensions, packaging, or labels may differ, e.g., because different countries have different building traditions and different legislation.

“In itself, it is not unnatural that the company is manufacturing such a high number of products. Every time a new product was added, it was because there was a demand for that particular product. But in industry in general, it is problematic that companies only have procedures for how to initiate a new type of production—similar procedures for phasing those products out again are seriously lacking,” says Alexandria Trattner.

The researcher as ambassador

Alexandria Trattner began by developing an analysis tool that could quantify the situation of each individual product. The tool shows net sales, gross profit, and gross profit per production hour.

The analyses should help provide a basis for deciding which products the company should continue the production of, and which should be phased out. For this purpose, Alexandria Trattner held Skype meetings with ROCKWOOL’s business units every three months. In some cases, she had a mandate from the company’s senior management to push a phaseout of a specific product, but most of the time she worked as an ambassador for complexity management. This meant that the individual business units took charge of the situations themselves and suggested possible actions to take.

Among the many product numbers that have now been discontinued, a large part were not selling at all. In addition, a large part sold too badly considering the cost of producing them.

“If the company loses money on a product, it doesn’t necessarily mean that the product should be discontinued. Perhaps it’s possible to sell more of the product and achieve profitability, or perhaps it can be added to another production line. This is a local decision. But the important thing is not to ignore the situation,” explains Tina Rytter Nørregaard, Director of Operational Excellence in ROCKWOOL.

Wise to reorganize in good times

The number of products has now been brought down to about 39,000. Bjørn Rici Andersen, Senior Vice President of Group Operations and Technology, has functioned as ROCKWOOL’s PhD supervisor for Alexandria Trattner. To the question of whether other companies could achieve similar results, he replies:

“There is certainly a potential for complexity management in many other companies. My advice will be to make sure you reduce the number of products at a time when things are going well. That’s what we have done. If we had tried to reorganize right away, e.g. in 2009 where our sales reps were on the hunt for even the smallest order, it would have hurt more than helped to cut the number of products.”

Sales and production now have a common language

Before engaging in something like this, it is important to realize that internal conflicts may develop. While the company’s production staff is in favour of simplicity—thus eliminating the many costly changes—the sales departments are focused on offering the customers exactly the desired product.

“But in reality, complexity management is also a very good tool for the sales department. The individual seller will be able to see how he or she creates value for the company by selling the products that are most profitable from a holistic point of view. It’s always difficult to agree on anything if your communication is based on very different assumptions,” says Bjørn Rici Andersen. “Therefore, it can be argued that the most important result of the project is that we now have a common language for discussing complexity management in the future.”

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