Case
Studies
In any situation
where businesses are in trouble and are in need of help, business
leaders may desire some expectation of the improvement potentials
that exist in such areas as customer service, EBITDA, and ROA
performance. To assist you in visualizing the type of enhancements
that a business can achieve we have included a few of the success
stories that Ken W. Mikesell has accomplished in his career. The
case studies will each be broken down into three areas. The first
will define the business and its unique problems that it was experiencing
at the time. Next, the actions that were initiated will be described.
Finally, the results of the actions will be detailed showing the
level of improvements that were derived from the actions.
Case
One
Business Situation:
This was a reasonably profitable $80M manufacturing
segment of a business located in the Midwest. This manufacturing
segment was comprised of five manufacturing plants that were suppliers
to one final assembly plant. They were experiencing problems with
meeting customer service and lead-time expectations as well as
interplant quality and delivery problems. Over the years they
had developed a workforce of highly skilled specialists that by
its nature created in-house bottlenecks and inflexible production
schedules.
Action
Taken: A marketing analysis revealed
that a targeted price increase needed to be implemented on service
parts. The management staff was rationalized and restructured.
The Lean Manufacturing concepts of Just-in-Time and cellular manufacturing
were introduced and implemented in all plants. Team environments
were created along with a compensation system that rewarded crosstraining
and personnel flexibility. Kanban inventories were used to draw
key parts both within and between production plants. In addition,
some major purchased components were also managed in consigned
kanban inventories. A disciplined use of MRP was instituted that
improved master production planning and production floor scheduling.
In addition, long-term purchased part planning and supplier point-of-use
inventory programs were also implemented.
Results
Achieved: The entire production lead-time
was reduced from 94 to 40 days. Total inventories were reduced
from $15 million to $9.5 million while simultaneously supporting
improved customer service levels and a 35% increase in unit and
sales output. Through aggressive cost reduction programs and a
40% improvement in productivity over $10 million was added to
the bottom-line over a three year period. All these efforts supported
doubling of quarterly profit margins (from $1.4 million to $2.7
million) the last year of the program.
Case
Two
Business Situation: This was a $25M
machining and assembly division that was losing $5M a year, providing
poor customer service and suffering market share loss. It was
plagued with poor product quality, high scrap and warranty costs,
and poor manufacturing productivity.
Action
Taken: The organization was restructured
and training began on cellular and team concepts, implementation
of Just-In-Time (JIT), and the use of inventory kanbans. A Total
Quality Management (TQM) program was implemented, including process
refinement and documentation, as well as transitioning from batch
inspectors to an on-line, inprocess inspection by assemblers.
A Single Minute Setup (SMED) and tooling calibration program was
also instituted. Finally, the MRP planning system was integrated
with the JIT shopfloor environment allowing all floor production
to be managed by kanbans. The MRP system was then used mainly
for master production scheduling and long-range purchased component
planning.
Results
Achieved: Setup times were reduced from
8 hours to 5 minutes on machining centers allowing the cost-effective
reduction of lot sizes from 500 units to 1 unit. Total production
lead-times were reduced from 640 to 4 hours thus allowing orders
to be built on a make-to-order basis and eliminating the need
for finished goods inventories. In addition, on-time delivery
was improved from 85% to 99% while total business inventories
were dropped from $8M to $1M. Using TQM methods the quality yields
increased from 77% to 99.95% (50 parts per million) while production
scrap dropped from $600K to $30K per year. The COGS was reduced
15% ($3.75 million) in the first year and another 7% ($1.75 million)
in the second year of the program.
Case
Three
Business Situation: This business division
with 50 personnel and a 40,000 square foot facility was plagued
with poor financial performance, product quality problems, excessive
inventories, space constraints, and long production lead-times.
Action
Taken: A marketing study was performed
and targeted price increases were implemented on high-end products
and service parts. The personnel were trained in Lean Manufacturing
concepts. The facility was completely reorganized from a process-oriented
layout into a product-oriented design, with teams, production
cells, and kanban inventories. The product BOM structures were
flattened and the production planning system was simplified to
match these new planning system structures. Finally, a rigorous
cross-training program was put in place for all employees.
Results
Achieved:
The flattened BOM structures allowed reduction
of shop floor routings from 14 operations scattered throughout
the plant to only one set of operations within one of the two
new cells. Raw material inventory diminished by 25% while WIP
inventories were reduced by 80% with the total inventory of $1.25M
being reduced to $250K. The production lead-times were taken from
6 weeks to only 2 shifts and unplanned overtime was virtually
eliminated. In addition, the distance the parts traveled within
the building was reduced by 95% and the entire effort freed up
25% or 10,000 square feet of the facility for other uses. The
actions generated $500K of additional margins on sales of $6M.
Case
Four
Business Situation: A $50M distribution
and manufacturing business was capacity constrained because of
floor space, in-house truck body manufacturing, and the specialized
job skills of the employees. Customer service levels and inventories
were also unacceptable.
Action
Taken: Facility layouts were changed
to allow better space utilization and flow. Team concepts were
implemented to improve crosstraining and speed production throughput.
The truck body department changed production processes and added
the use of kanban inventory. Finally, master production scheduling,
purchasing, and other materials management disciplines were improved
to control inventory and reduce costs.
Results
Achieved: The materials management group
reduced inventories from $11M to $8.5M in under six months and
completed purchased material cost reductions of $500K. Production
lead-time was reduced by over 50% in final assembly because of
the team concepts. In spite of shrinking the floorspace of the
truck body department by 33%, monthly production output was doubled
from 20 to 40 bodies. This doubling of output came because of
process and fixture improvements, crosstraining, the use of kanban
inventories, and the resulting productivity improvements coming
from all of these actions.
Case
Five
Business Situation: This $30M distribution
business was in a down business cycle and having production capacity
issues and profitability problems in different segments of their
business.
Action Taken: A
segmented financial analysis, using activity-based costing concepts,
was performed to identify business segment profitability. A subsequent
marketing study provided additional information, which lead to
a market and product rationalization decision. One unique business
segment, with about one third of the total sales, was sold. A
new company of similar size was purchased that had much better
operational and marketing synergy with the other two segments
of the existing business. A targeted price increase program was
developed and implemented and purchasing actions were identified
to reduce material costs. In addition, a quality improvement program
was implemented to eliminate the quoting errors that also created
low product margins and rework costs of about $400K annually.
Results
Achieved: Within two months the purchasing
group delivered annualized cost savings of $300K. The net margins
of the new business segment were double that of the old business
while only requiring one-half of the working capital. In spite
of substantial reductions in sales volume due to the market slowdown,
these combined changes still increased the bottom line margins
of the business by over $600K that year.
