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Looxent provides clients with practical and implementable solutions, driving fundamental change that leads to significant improvements in business value. Through this approach, Looxent positions itself as the most trusted partner for clients, consistently proving its reliability and commitment.

Consumer Goods & ServicesCost Optimization for a Local Chinese Massage Chair OEM Manufacturer


Looxent successfully completed a comprehensive cost-reduction project for a local Chinese massage chair OEM manufacturer based in Shanghai on November 2, 2018. Commissioned by a South Korean massage chair manufacturer and distributor purchasing products from this OEM, the project aimed to reduce procurement costs while enhancing product quality to elevate brand value.

Project Overview

The initiative involved analyzing all cost components, including material costs and manufacturing overhead, to establish and achieve ambitious cost-reduction targets. The approach encompassed design optimization, standardization and shared components, procurement cost reduction, waste elimination, productivity enhancement, and logistics cost reduction. A company-wide kickoff event defined project objectives, while workshops with key managerial and frontline personnel generated actionable improvement ideas.

Through over 10 steering committee sessions, 190 ideas were approved, exceeding the initial target by 170%. These measures are expected to significantly improve the OEM's profitability and reduce the procurement costs for the client. Additionally, long-term cost competitiveness initiatives were identified, and implementation plans were established to ensure sustained improvement in cost and quality competitiveness.

Key Success Factors

  1. Establishing Trust and Information Sharing with the OEM Manufacturer

Collaborative supplier cost optimization projects typically yield substantial results under the leadership of a high-performing brand distributor or manufacturer. However, OEMs often hesitate to share critical operational data due to concerns over potential misuse by their clients, and worries that cost-reduction efforts may solely benefit the buyer through lower prices.

In this case, the OEM initially resisted providing detailed financial and operational data, fearing it might be disclosed to their Korean client. To address this, Looxent implemented clear agreements, ensuring shared data would only be disclosed to the Korean manufacturer with prior approval from the OEM. Additionally, for proposed cost-reduction ideas requiring client input, Looxent established a pre-approval process using categorized savings estimates. These steps ensured sufficient information sharing, facilitating decisions that previously stalled due to transparency concerns.

  1. Aligning Strategies with Cultural and Economic Contexts

China's cultural and economic environment influenced the project strategy. While individuals often exhibit strong individualism, decisions from senior management are usually followed without resistance. Furthermore, rising labor costs and a supplier-favored market underscored the importance of maintaining stable supply chains.

Given these dynamics, the project prioritized management-level engagement and design optimization to drive organization-wide change. Efforts were concentrated on empowering key managerial staff, with a focus on improvement idea generation and execution. A rewards program offering 10% of realized savings to contributors motivated stakeholders, significantly enhancing participation and outcomes.

Furthermore, cost-reduction efforts focused on design changes—such as material substitutions and specification adjustments—rather than procurement discounts to ensure supply chain stability. Other initiatives included automation for labor cost efficiency and identifying operational losses for cost reduction.

  1. Establishing Long-Term Cost Management Systems

While financial outcomes are essential in supplier cost-reduction projects, they are often viewed as one-off results that may lead to price reductions for the buyer. To sustain engagement, the project emphasized long-term operational improvements that the OEM could internalize for competitive advantage.

Beyond financial outcomes, the project identified and addressed key operational areas for improvement, including productivity management, quality failure cost reduction, and standardization of key components. A roadmap of mid- to long-term initiatives was developed, including lean manufacturing principles, enhanced shop-floor management, and cost-reduction metrics aligned with quality and user satisfaction.

Results and Next Steps

The OEM manufacturer has begun implementing the identified initiatives, with expected negotiations on procurement cost reductions with the Korean client forthcoming. The project delivered high satisfaction for both the OEM and the Korean manufacturer. The OEM recognized the initiative as a pivotal step in strengthening its product competitiveness, while the Korean manufacturer acknowledged the potential for long-term procurement benefits.

Looxent will continue supporting the OEM during the execution phase and is discussing follow-up projects with the Korean client, focusing on order processes and logistics optimization. This project highlights the effectiveness of collaborative approaches in driving both immediate financial outcomes and long-term strategic value for all stakeholders.



LOOXENT

A  21F. Parc.1 Tower2, 108, Yeoui-daero, Yeongdeungpo-gu, Seoul, Korea 07335

T  02-546-8222      F  02-546-8226      E  service@looxent.com 

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LOOXENT

A  21F. Parc.1 Tower2, 108, Yeoui-daero, Yeongdeungpo-gu, Seoul, Korea 07335

T  02-546-8222      F  02-546-8226

E  service@looxent.com 

© 2024 LOOXENT. ALL RIGHTS RESERVED.