Proof in practice: more than 11 percent savings realized
In a high-profile example from the machinery industry, a cost-out program delivered more than eleven percent savings on total factory cost, including a 19 percent reduction in indirect personnel expenses. The decisive factor was not a groundbreaking concept, but consistent implementation and derivative scaling. Each manager received concrete targets linked to personal performance reviews, and rapid pilot-to-rollout cycles accelerated learning while avoiding stagnation. The team focused on a handful of high-leverage levers rather than dispersing effort across numerous minor initiatives. Every measure was tracked from idea to financial impact, and by institutionalizing transparency and accountability, the company not only met but exceeded its objectives. It also established a repeatable blueprint for future cost-out programs across its production network. To replicate such results, companies must first understand which parts of factory cost are controllable and how to balance savings with strategic priorities.
Understanding cost drivers and balancing strategic trade-offs
A thorough understanding of which parts of factory cost are controllable is essential for any effective cost-out program. Approximately 79 percent of factory costs can be influenced, with the largest categories being direct personnel, which account for 40 to 50 percent of costs and primarily include production wages; indirect personnel, representing 20 to 30 percent and covering support staff and supervision; and overhead, which also accounts for 20 to 30 percent and includes energy, facilities, maintenance, IT, and leasing. Smaller but still significant areas include incidental procurement, such as materials, consumables, and outsourced services, as well as miscellaneous costs, which account for five to 15 percent. Within overhead, energy and maintenance often provide actionable savings but historically receive less attention than labor. Metrics such as OEE, inventory days, typically 30 to 120 depending on the industrial segment, automation levels, and utilization highlight additional opportunities for operational improvement.
Yet identifying cost drivers is only half the challenge. Industrial manufacturers must also balance short-term savings with long-term strategic alignment. Workforce reductions should retain critical skills for automation, digitization, and new product introduction, while product simplification must preserve flexibility to respond to customer variation. Footprint adjustments should be planned with resilience in mind, ensuring plants can handle multi-client requirements and potential future volume recovery. Programs that embed such strategic guardrails allow companies to achieve meaningful cost reductions without compromising future competitiveness. Freed-up capital can then be reinvested in Industry 4.0 initiatives, digital supply chain ecosystems, or energy-efficient production redesigns, turning efficiency gains into a foundation for sustainable growth.
Unconventional levers for next-level performance
Three unconventional approaches distinguish top-tier cost-out initiatives by going beyond conventional lean deployments and combining technology, behavioral redesign, and advanced analytics.
- Dynamic labor models (e.g. “dark factories”): explore shifts toward nighttime or weekend production using a skeleton crew, cutting indirect labor and increasing overall utilization. Such models require reimagining scheduling, shift structure, and ergonomics.
- AI-driven predictive maintenance paired with shared sensor platforms across plants: Using cross-site data-sharing to detect and pre-empt breakdowns delivers cost savings through reduced downtime and maintenance cost avoidance.
- Value-based design simplification: Rather than eliminating variants through cost-center mandates, align product variation decisions with value creation. This includes evaluating SKU profit contribution, re-order frequency, and overall defect costs to guide simplification decisions.
Turning cost-out into lasting transformation
Even the most sophisticated cost-out programs face risks. If savings targets dominate the narrative without sufficient engagement, morale can suffer and resistance can grow. If execution speed outpaces quality assurance, defect rates and rework can erode the very gains achieved. And if indirect roles are reduced too aggressively, the company may inadvertently weaken its innovation pipeline.
Effective governance mitigates these risks through structured change management, clear communication of purpose, and retention of strategic skill sets. Pilot phases and continuous quality monitoring create an evidence base for scaling, ensuring that ambition is matched by capability.
Industrial manufacturers stand before a generational opportunity. By activating targeted operational, organizational, and digital levers, they can unlock between 20 and 35 percent of total factory cost savings. The decisive difference lies not in the framework itself, but in the discipline of its execution.
Programs that align cost-out initiatives with strategic goals, embed transparent performance tracking, and scale through fast learning loops create not only leaner operations – but also more resilient and future-ready organizations.
Key Takeaways