The Challenge: This was a $60M business that had good earnings history, but due to economic factors and some management disciplines, spending and overhead structure costs had lead to diminished profitability and cash generation. Labor productivity was low contributing to margin losses. The efforts to meet customer service and lead-time expectations led to high inventory levels representing about two inventory turns per year. Complicating all of these issues was the need to add more discipline in the supervision of all materials management processes which included master scheduling, purchasing, production planning and inventory control processes.
The Fix: A thorough analysis was performed on all administrative and manufacturing overhead costs. The management staff was rationalized and restructured from the top to the bottom. Lean Manufacturing and Just-in time (JIT) concepts were introduced and implemented on the production floor resulting in the addition of many manufacturing cells. Supporting these efforts, time studies were performed and an hourly measurement system was implemented in all assembly cells to drive improved productivity. A reimplementation of the ERP system was performed to dramatically improve their master scheduling, purchasing, production planning and inventory management processes. Finally, material storage and handling processes were improved with the use of RF (Radio Frequency) and bar coding equipment for performing inventory transactions and cycle counting.
The Results: The manufacturing plant and office staff was restructured to support the reduced business volume, saving over $3.0M annually. These changes were driven by both restructuring the office staff as well as through implementing productivity improvements in the plant. An additional $750K in reductions was found in administrative and manufacturing overhead. Finally, the newly restructured Materials group was able to identify and implement savings of over $1.25M in whole goods, components, raw material and freight purchases. The total annual savings resulting from the project totaled over $5.0M. A complete ERP reimplementation was finished, establishing a credible master scheduling, inventory control and production control process. With these new disciplines in place, total inventories were reduced from $16.0M to $10.0M in nine months.
Upon follow up nine months after the project was completed, it was found that the business had generated profits of $5M over the last six months due to the results of all the process discipline and management leadership improvements. This was a an annualized profit improvement of $8M over the performance of the business before OMC’s project efforts.