Restructuring A Large Manufacturing And Distribution Operation
In today’s manufacturing world speed and focus are the driving forces behind successful businesses. In the majority of non-defense related industries, customers have a myriad of options to choose from and they are quick to make changes when their profitability suffers from a poor performing supplier. This is especially true in consumer-based products where every category of product has multiple vendors located around the world. It might take a few months for a product cycle to move to a new vendor, but once the decision has been made, the cost of reentry is prohibitive on both the top and bottom line. For the vendor and its executive team, when customers are mulling over vendor replacement, the amount of time left to deal with the issues is very short and quick decisive action is required: Restructuring, Business Transformation, Cost Takeout are all considerations.
The customer’s needs are easily defined: provide high quality product when needed in the store/DC at the right cost. The satisfaction of that need for a supplier can be very complex, especially in seasonal businesses. The role of the management team is to understand the customer’s needs and to be proactive in addressing the supply chain issues that are affecting customer service and satisfaction. In some cases, the solution to customer service might affect one or two processes in the business, but in other cases, the solution might require major process re-engineering.
A division of a multi-billion dollar consumer products company, a Bar-B-Que Grille manufacturer was experiencing poor customer service levels and high call rates on quality issues. The big box retailers were threatening to stop buying product unless the problems were solved. The challenge facing management was to implement short term fixes to improve deliveries and quality for the current season while simultaneously implementing a longer-term solution. In this example, the facility was in trouble. Lines were running at less than 45% uptime and service levels were in the upper 40% range. After several attempts to deal with the issues, the executive team pulled together a group of Sr. manufacturing people to review the operations and to identify solutions. This team was challenged on two fronts. The first challenge was immediate improvement in output and quality. The second challenge was to convince both the executive team and customers that a viable long-term solution was available to the business.
The very first step was to pull together as many metrics as possible to understand what the issues were. The plant’s management team had some data but hadn’t implemented a balanced scorecard that provided an immediate look at the key performance indicators. Analysis indicated the following:
- The supply chain wasn’t capable of providing components at a high rate of change of forecast.
- The management team didn’t have the programs and systems in place to provide production and supply chain flexibility.
- Serious issues were found with the implementation of the ERP system to support a high-volume continuous flow operation. It had been implemented for batch processing.
- Product and packaging design didn’t support poke-yoke techniques and didn’t protect components from shipping and handling damage.
- Inventory control systems were severely lacking with product in the wrong place with wrong quantities.
Given that the business was already halfway through its busy season, short term solutions were required to improve service levels. Initial steps were taken to improve material flow and availability by building raw material stocks at vendor locations. The factory and suppliers were rescheduled to make-to-build. Additional staff was put in place to improve inventory reliability. Operational analysis revealed four bottlenecks in the operation that were fixed in a few weeks, increasing throughput over 20%. Although happier with the increase in product, the customers were as focused on the long-term solution; the basis of their decision making for the next season. The Grille business is unique in many ways, but has the same set of business processes that need to be managed effectively. Some unique characteristics include:
- Seven months build cycle typically starting with product placements in October and manufacturing running from January to July
- Very high-volume pick and pack operations with many bulky items
- Make to stock from January to May and make to order from May to July
- Small skilled work force that grew by a factor of four during the busy season
- The operations had to pack 3.5 million parts per day during the peak of its season
- A complete product offering change over every season
- Different SKU’s at every vendor
While a team was focusing on the short-term solutions, another team was focused on long term activities that would provide the customer base with reliable high-quality supply. The team had four months to define and implement targeted solutions before the next busy season. A bottoms-up strategic review was initiated which included product design, quality, packaging systems, supply chain management, organization structure and operations. Major issues identified included:
- Product packaging was insufficient for safe shipping and part count.
- Operational design didn’t support continuous flow pick & pack operations.
- ERP system wasn’t implemented for continuous flow.
- Material planners and inventory specialists didn’t know how to properly utilize the ERP system.
- Inventory systems and strategies needed to be redefined.
- Vendors weren’t capable of significant shifts in demand during the season.
- No balanced scorecard existed.
In this type of situation, it is important to recognize the inter-dependencies of the design of the product, the supply chain and the factory. The team recognized that without taking a holistic approach to the issues identified, implemented solutions would fall short of lasting improvement. As a result, a considerable amount of time was spent with a clean slate. Because the grille business refreshes its product design each year, the team had the ability to make packaging design changes that would address the root cause of the quality issues. Recognizing the need to implement concurrent solutions, the team identified the new manufacturing and supply strategy involving people from every functional operation including the shop floor.
Once the strategy and its inter-dependencies were identified, smaller teams were established to create detailed plans for each operational issue. The team implemented a design strategy that was focused on building a common grille platform that could be customized as late in the manufacturing process as possible. Many tactical solutions were defined. Product design was addressed through the implementation of as many common parts as possible, utilizing mass customization techniques to create a new or different look for each customer. This approach had significant impact to the supply chain because it reduced the number of sourced parts and increased the volume of the remaining ones. Previous product design had severe deficiencies from a quality perspective. Packing techniques were created that allowed parts to be fixed in the packaging while allowing the packing operators to clearly see when a part was missing. This solution addressed both missing parts and damage during shipping and handling.
Manufacturing 22,000 grilles per day fits the definition of a high-volume pick and pack operation. When viewed from that perspective, the design of the plant is significantly affected. The team redesigned the factory to support packing 3.5 million parts per day. This required a significantly different approach to staging material, customization and forecasting. Organizationally, the manufacturing team was broken up into 3 groups that focused on:
- Product being manufactured today.
- Product and components being staged for the next day.
- Product and component sourcing 1-2 weeks out.
This organizational approach provided a team that focused on the critical time horizons for the operations. The company had a very good ERP system that was implemented for batch processing. Over a 3-month period, the system was relaunched for continuous flow. This required reloading all of the item masters and training the team how to select appropriate fields and queuing mechanisms to support continuous flow. It also required that the material planners be reeducated on the fundamental strategies of continuous flow and how to work with their suppliers. The supply base was used to the batch processing mechanisms. The major challenge in the change in strategy was to work with each supplier to create their unique supply strategy. As a result, each supplier was asked to provide an operational roadmap that outlined how they were going to be able to flex their supply lines for a +/- 20% shift in demand within 1 lead time (flex fence).
Each strategy was dependent on location, quantity, set-up times at their locations, etc. In some instances, Vendor Managed Inventories were established and in others, the vendors had to make capital investments to significantly increase throughput and reduce set-up times. Lastly, the team needed to develop a balanced scorecard that reported how the operations were doing at a glance. This required a fundamental shift in how the operations were managed. A complete management strategy was developed including KPI’s, meeting schedules, the implementation of reaction teams and in some cases replacement and/or addition of key resources who understood how to manage in this type of environment. This project took 10 months to implement. It required rethinking the whole supply chain and instituting a new set of disciplines for the management team.
The project was successful generating the following results:
- Plant production increased from 7,500 Grilles/day to 22,000 Grilles/day.
- 60+ products were redesigned and implemented with an average 12% cost reduction per unit.
- Units/employee tripled.
- Incident rates per hundred grilles were reduced 85%.
- P&L saw a 15% improvement year over year.
A project of this type requires the complete support of the executive team, a well thought through change management plan and sufficient resources for implementation. Additional analysis such as make-vs-buy, strategic fit of the business and long-term forecasting was done prior to the implementation of this strategy. The depth and breadth of the strategic approach yielded a satisfactory solution in this case and was a critical part of understanding what the marketplace required and what tools, systems and processes the operations team needed to be successful.
Group50® has the ability to place a consultant with relevant experience into any function of a business. The company has expertise in Far East Sourcing, operational and business restructuring, Lean Manufacturing, Marketing/Sales, IT systems, Six Sigma, Kaizen and Finance. We have worked start-ups through Fortune 500 companies. Utilizing its Company Physical® our consultants have functional audit tools which quickly identify opportunities in a business. These tools are based on best practices our consultants have learned from world class companies.
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About the Author: Jim Gitney is the CEO and Founder of Group50® Consulting, and the author of “Strategy Realized – The Business Hierarchy of Needs®” which summarizes a framework for creating a business that leverages topics in this article. (You can find out more about the book and acquire a copy by clicking on the image to the right).
Founded in 2004, Group50®consulting is focused on working with middle market companies to significantly improve their productivity by leveraging people, process and technology as part of a company’s strategic plan. Group50® consists of consultants who have spent their careers in corporate America learning how to optimize businesses. We specialize in working with senior leaders to develop and implement strategies that accelerate top line and bottom line performance.
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