Kärcher reduce costs by up to 1% of sales to offset Brexit impact
By John Callender, Owner of GreenSkye
The combination of a post-Brexit devaluation of the pound and a change in shopping behaviour had seen import and return costs at Kärcher, the leading manufacturer of pressure washers and window cleaners, to rise significantly. As a result, the leadership team embarked on a comprehensive cost reduction plan.
One of the biggest concerns was the rapidly expanding stock of returns awaiting processing, with a low financial asset recovery rate.
As a result, John Callender was brought into the business on a short-term basis, with a brief to understand the true cost of returns and warranty repairs, and to implement a plan to increase efficiency of stock handling, reduce unnecessary costs and protect the Kärcher brand.
Data analysis identified key financial costs of failure, with loss of profit on sales, returns processing, scrapping machines beyond economic repair, warranty services and spares, being the main contributors.
Working closely with the Kärcher team, a plan was developed to take out costs equating up to 1% of sales over a 3 year period. Forty per cent of savings will come through the introduction of a new asset recovery provider to drive up financial returns & reduce stock holding costs, through more cost effective processing and improved e-tailing of outlet stock.
Most of the balance will come through improved product specification and using after sales service to reduce return rates, by both bringing in better customer machine awareness, usage and storage. The final source of lowering costs is the introduction of “Swapit’s” instead of a traditional repair service. By sending out a replacement machine, and bringing back the old, the cost of repairs can be reduced whilst speeding up the repair.
To date, the savings plan is on track with a 35% reduction in returns stock awaiting repair and the asset recovery rate up by +50% from the new provider. In addition, return rates have at last stabilised after two successive years of increases.
With new performance measures in place, along with clearer accountability, there is the prospect that savings and improvements in customer service will be sustained. Mark Venner, COO at Kärcher says, “Thanks to John, we now understand our costs & data of our reverse logistics and are delivering a plan to transform our P&L & service to our customers. Bringing in external expertise has definitely challenged us to work differently within our business, and with our major retail partners. It has been invaluable”.