How to Boost Efficiency in Asset-Intensive Industries

How to Boost Efficiency in Asset-Intensive Industries

          
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How to Boost Efficiency in Asset-Intensive Industries

Flex in Operations
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  • Continued sluggishness in the global economy is putting special pressure on companies in asset-intensive industries. These companies are operating well below capacity, and the weak demand has prevented them from passing on the full costs of raw materials and energy, for which prices remain stubbornly high.

    Many producers of steel, aluminum, and other metals have seen their margins fall into negative territory—especially in Europe. (See Exhibit 1.) With no end to this difficulty in sight, companies have responded with a variety of cost-cutting meas­ures. Yet these steps usually fail to reduce expenses beyond the short term. To truly meet this challenge, companies need to think holistically by addressing strategic and operational questions at the same time.

    exhibit

    Such an approach does not mean companies should simply reduce their size by permanently closing weaker factories and other assets. Instead, BCG has found ways for companies to stay profitable when market demand is low while retaining the ability to serve customers when demand eventually returns. The key is to focus not on cost cutting per se but on using expensive assets with a more flexible approach. By building flexibility deep into its operations, a manufacturer can move more confidently into the future.

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