2017
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was told, the resulting cost cuts had generated “significant
double-digit savings”—a massive breakthrough that none
of the staff had thought possible. The DfX process was
more holistic than Philips’ earlier cost-saving efforts in
Lighting, which had focused on whether individual aspects
of the product delivered value to the market. DfX took into
account whether the supply chain for a product was optimal, whether the design was optimized for manufacturing,
and a host of other factors. Ultimately, the aim of a DfX
exercise is to arrive at a “total cost of ownership” over the
lifecycle of the product, for each element in the product.
With that information, Philips can plan at what premium
price the product will hit the market, how quickly it will
drop to a lower one (very quickly, in the competitive LED
environment), and how to maximize return on investment.
Based on the positive results of the DfX system implemented in the Lighting division, Spalcke gave Jeeninga the
go-ahead to do the same thing with juicers.
The starting point of the DfX process is to quantify both
the value and the cost of every element in the product. For
instance, when marketing claims that a particular feature is
important to customers, they should be able to substantiate
the claim with consumer data. The point is to get to the
optimal balance of cost versus value for a given product.
“We started out by benchmarking the products,” Jeeninga
says. It was his first experience working as a procurement
engineer under the DfX system; today that is his full-time
job. “You take certain juicers, strip them technically, [and
then] compare every part in the Philips juicer to a com-
petitor. You check the cost base—are we cheaper at the
component level?”
More important, the team determined which aspects of
Philips’ juicers were delivering real value for customers
compared to the competition. Many of the more efficient
competitors were focusing on only one or two key points
per product, such as juice output or the quality of the finish,
while Philips focused on five or six. Such selectivity is “not
the strongest point of Philips,” Jeeninga says. “We usually
focus on everything. That’s nice, but it brings a certain
price.”
When the team identified an element in the juicers where
efficiencies could be wrung out, a few members would
break off in a working group for several days and come
back with a proposed fix. Some of the changes identified
in the process were simple. For example, it turned out that
the different juicer models used over 30 different kinds of
power cords. Engineering, procurement, and design agreed
that this could be reduced to just two. In a more complex
case, engineers found a cheaper way to make the “cat’s-eye”
reflective button surface that marketers said played a strong
role in customers’ sense of quality.
After six weeks, the team presented more than 40 ideas
to the senior management team of the category, in what is
known as a “convention.” At the end of these conventions,
binding decisions are made about how the product will be
designed, manufactured, and sourced. In the case of the juic-
ers, the ultimate savings would fall within the range of the
company’s target for the DfX process, though they would
prove less impressive than they had been in the LED unit.
Most important was that separate functions that previously
had different interests were now working collaboratively.
“Previously [research and development], marketing, pro-
curement, we were in a negotiation. ‘You want to have
this spray paint? It’ll cost this much’… It was more ‘them
versus us,’” says Jeeninga. “But in the DfX convention
you’re literally standing up to sell the ideas. Procurement,
R&D, the marketing teams, you all present as one team to
the senior manager: ‘This is what we propose.’” The infor-
mation exchange, worked into consistent DfX conventions
where each team must demonstrate its case and then come
to binding agreements on how to design and build the next
generation of products, “breaks down silos,” Kavanagh
says.
Three years later, Philips has completed more than 400
such DfX conventions, working through 130 percent of the
company’s annual spending. (That number exceeds 100 per-
cent due to high repeat rates and increased depth of analysis
based on the speed of the products’ lifecycles and changing
value propositions.) “There is not a single company known
to us that has tackled its spend so fast,” Spalcke says.
Spalcke is an intense fireplug of a man whose analyses tend
to end in forceful declarations, often delivered with a slight
smile. A true “citizen of the world,” he grew up in Singapore,
Hong Kong, Iraq, Bulgaria, and the United States, and has
spent his career in the U.S., China, Southeast Asia, and
Germany. Most of his business roles have been related to
large-scale corporate transformations, mergers, and perfor-
mance-improvement initiatives. He took the job at Philips,
he says, because he was intrigued by the challenge of helping
to turn around one of Europe’s great old companies.
“When I got there, I understood Philips had a burning
platform,” Spalcke says. “The first mission was to make sure
that everyone else in the company’s procurement structure
felt the same sense of urgency.”
Spalcke’s conviction that Philips needs to reform its procurement practices is driven by a recognition of how intense
the cost-containment drive is at Asian companies like
Huawei, and how great the competitive threat is. In each
of its three sectors, he says, the company needs to combine
innovation with cost leadership, and it must embrace that
