Lean Operational Improvements

Background

Battery Systems Manufacturing

  • In need of cash flow improvements
  • Lacking operational disciplines
  • No metrics

A manufacturer and supplier of custom batteries for medical, commercial, and military needed rapid and measurable improvements in cash flow and performance for customers. They were lacking management processes and disciplines for key operational processes, creating instability.

The company engaged The ProAction Group to develop and implement plans to sustain and continuously improve specific gains, develop an overall operational strategy to drive ongoing systemic improvements, and introduce to management best practices in Lean, supply chain, engineering, and other areas.


Actions Taken

  • Standard Work
  • 5S training
  • Re-balanced work cells

The ProAction Group worked with the client to create Leader Standard Work and Standard Work Instructions for their manufacturing lines. Employees completed 5S training and 5S was implemented in all manufacturing work cells. A process to complete Day by Hour boards was established and they measured items

that included Safety, Quality, Delivery, Cost, and Morale. Rebalancing of all the manufacturing lines was also accomplished.


Implementation Impact

  • Work cell WIP from 6hrs to 2.46hrs
  • Cycle time reduction 7-21 seconds
  • $/labor hour reduced 17%-58%

Creating stability using Lean Manufacturing processes allowed the company to reduce Work in Process (WIP) from 6 hours to 2.46 hours and improve labor hours per unit for all manufacturing work cells. Re-balancing the work stations allowed for product cycle time reductions that were between 7-21 seconds or 3%-28%. Utilizing Lean processes, Standard Work, 5S, A3 problem solving, visual factory aides, and line balancing increased units per labor hour 17%-35% and reduced labor hour per unit by 17%-58%. Work cell employees were reallocated to new lines that improved overall capacity for the facility.

About The ProAction Group

The ProAction Group helps private equity firms increase investment returns by providing variable operating resources. Pre-acquisition, we quantify risks and opportunities, helping clients refine valuations, avoid bad deals, and prepare post-deal value creation plans. For portfolio companies, we work with management to identify and implement high-impact revenue growth and profit improvement initiatives. We focus on four sectors: consumer products, manufacturing, distribution, and business services. We have experts in marketing, sales, manufacturing, supply chain, and human capital development. We were founded in 1995 and are headquartered in Chicago.

For Further Information

Timothy Van Mieghem tvm@proactiongroup.com 312.371.8323

Lean Transformation Enables Smooth Product Launches and Drives EBITDA Improvement

Background

Equipment Manufacturing

  • New Product Launches
  • Plant Layout Change

There would be no “snow days” in the forecast for a leading manufacturer of plowing and spreading equipment. The company was preparing to integrate a new acquisition and to launch two new products. To accommodate this growth, a major layout change and freeing up floor space was required at one of its facilities. Despite a lean effort for over a year, the plant’s performance was lagging behind the company’s other sites.


Actions Taken

  • Led Lean Transformation
  • Guided Product & Production Preparation Process
  • Supported Strategic Planning

The ProAction Group reinvigorated the Lean transformation effort at the client’s plant with a hands-on application of Lean tools. We employed Value Stream Mapping to assess the opportunity and then began eliminating waste in the facility. The team used 5S, Visual Management, and Takt Time Management to streamline operations. Quick Changeover and Total Productive Maintenance were implemented to minimize downtime. We introduced metrics which allowed the plant to manage for daily improvement in its processes, including first-pass Standards of Work which eliminated costly re-work.

We led the Product & Production Preparation Process which ensured a timely and successful launch of the new products. The team employed a Design for Value approach with a focus on quality. We optimized the arrangement of people, machines, materials, and methods to maximize work-flow and minimize waste.

ProAction also supported the client in constructing their strategic plans. We
guided the roll-out of Lean practices across the entire enterprise. We conducted organizational capabilities assessments and recommended staffing changes. We also recommended sourcing activities to support the company’s expected growth.


Measurable Results

  • 14% Labor reduction
  • 25% Free floor space
  • Successful New Product Launch

The Lean transformation put the plant back on track to meet performance expectations. We reduced the labor cost by 14%. Changing the plant’s layout improved the work-flow by 32% and reduced the occupied manufacturing area by 25%, freeing up space for the production of its new products.

About The ProAction Group

The ProAction Group helps private equity firms increase investment returns by providing variable operating resources. Pre-acquisition, we quantify risks and opportunities, helping clients refine valuations, avoid bad deals, and prepare post-deal value creation plans. For portfolio companies, we work with management to identify and implement high-impact revenue growth and profit improvement initiatives. We focus on four sectors: consumer products, manufacturing, distribution, and business services. We have experts in marketing, sales, manufacturing, supply chain, and human capital development. We were founded in 1995 and are headquartered in Chicago.

For Further Information

Timothy Van Mieghem tvm@proactiongroup.com 312.371.8323

Space Utilization and Line Balancing

Background

Point-of-Purchase Display Manufacturing

  • Grown from $5M to over $20M in 4 years
  • Pursing acquisitions, but had limited space
  • Lacked line balance and unable to fill orders on time

A stock and custom Point-of-Purchase displays manufacturer had labor and work flow inefficiencies, could not fill demand in the current facility, and was also pursuing near term acquisitions. Their actual labor hours per part were much higher than
their quoted labor hours per part. Based on current operating practices, the existing facility was over capacity and could not support additional volumes.

The company engaged The ProAction Group to demonstrate how line balancing would increase production per labor hour and throughput, develop a Future State Facility Layout to achieve the improved throughput, and free up space for acquisition work.


Actions Taken

  • Process maps, Gap analysis, 9-Box Inventory Analysis
  • Line Balancing

The ProAction Group worked with the client to demonstrate how a line could
be balanced and what an improved flow throughout the plant could achieve. Process maps, a Gap Analysis, and 9-Box inventory analysis were conducted. Line balancing allowed WIP inventory to be eliminated in the production line as well as increased production per labor hour and plant throughput. A model outlining space requirements at various growth levels was created to quantify the space/facility they currently need (based on the new processes/flows) as well as what they will need in the future.


Implementation Impact

  • Improved labor hour/part 11-74%
  • Production per labor hour improved 30%
  • 200% improvement in production per sq ft/ labor hour
  • 3X growth in capacity
  • Production area reduced from 4,200 to 1,600 sq ft

The project demonstrated the ability to improve the level of performance on the plant floor. The specific SKU’s that were rebalanced achieved an 11% to 74% labor hour per part improvement and production per labor hour increased by more than 30%.

By sustaining these efforts and expanding them throughout the facility, we modeled a 200% improvement in production per sq ft per labor hour. In the end, the improvements allowed the company to avoid moving to a larger facility (in essence we freed up capacity in their current facility that they didn’t know they had).

The new plant layout showed a reduction of the Production area from 4,200 sq ft to 1,600 sq ft, allowing 2,600 sq ft for ongoing growth. With continued line balancing and adding minimal equipment (i.e. tables), the client could now handle 3 times the production on 1 shift in 2,500 sq ft.

This was all completed in 30 days.

About The ProAction Group

The ProAction Group helps private equity firms increase investment returns by providing variable operating resources. Pre-acquisition, we quantify risks and opportunities, helping clients refine valuations, avoid bad deals, and prepare post-deal value creation plans. For portfolio companies, we work with management to identify and implement high-impact revenue growth and profit improvement initiatives. We focus on four sectors: consumer products, manufacturing, distribution, and business services. We have experts in marketing, sales, manufacturing, supply chain, and human capital development. We were founded in 1995 and are headquartered in Chicago.

For Further Information

Timothy Van Mieghem tvm@proactiongroup.com 312.371.8323

Increase Throughput

Metal / Plastics Manufacturer

Background

Sheet metal and plastic molding manufacturing

  • Needed throughput increase
  • Quality suffering
  • Customers threatening to leave

A sheet metal and plastic injection molding manufacturer was missing customer delivery dates and could not keep up with demand. Elongated lead times and defects were testing customer loyalty. They needed stabilization fast or would lose their customer base. Lines were consistently waiting on material and the wide range of builds completed (100 to 225 per week) was not cutting it. Morale suffered with the stress and this was coupled with dissatisfied customers. The second shift focused on cleaning / counting parts and was not able to build sub-assemblies.

The company engaged The ProAction Group to determine the current state of supply availability and drive the internal schedule and external sourcing plan to ensure consistent material flow.


Actions Taken

  • Developed processes
  • Visual aids for material flow
  • “Available to Build” modeling

The ProAction Group worked with the client to develop processes, standard work and tools to manage material flow. Process improvements allowed the second shift to re-focus their efforts on production (rather than sorting / cleaning) and to complete inspections in-line as part of each operation. Visuals around the assembly lines were utilized so employees could see when lines were “open to build” and material was delivered on-time.

Schedule attainment was focused on a weekly basis and then by shift and by day. The use of an “Available to Build” model allowed the client to manage fabricated and sub assembly parts more efficiently.


Implementation Impact

  • 300%+ increase in throughput
  • Builds increased from 100 to 360 per week
  • Defects decreased over 50%
  • On-time delivery issues were addressed
  • Inspection 5 days to 2.5 days

In less than 2 months, we increased throughput by over 300% and eliminated the backlog, correcting on time delivery and slashing quality defects by 50%.

As part of addressing throughput, the process improvements also led to the following:

  • Reduced the time require to inspect finished good from 5 days to 2.5 days
  • Second shift’s main job was cleaning and counting parts but the process improvements and rearrangement of the assembly lines freed up time so they could now also build sub-assemblies
  • Morale on the shop floor increased

About The ProAction Group

The ProAction Group helps private equity firms increase investment returns by providing variable operating resources. Pre-acquisition, we quantify risks and opportunities, helping clients refine valuations, avoid bad deals, and prepare post-deal value creation plans. For portfolio companies, we work with management to identify and implement high-impact revenue growth and profit improvement initiatives. We focus on four sectors: consumer products, manufacturing, distribution, and business services. We have experts in marketing, sales, manufacturing, supply chain, and human capital development. We were founded in 1995 and are headquartered in Chicago.

For Further Information

Timothy Van Mieghem tvm@proactiongroup.com 312.371.8323

Find the “Hidden” EBITDA and Win the Bid Capture It and Recover Invested Capital Early

“Hidden” Operational Improvements Drive 50% Increase in EBITDA In 6 Months…

Background

Pharmaceutical Packaging and Equipment Company

  • Long production Lead Times; Significant Past Due Back Log
  • Complacent, Uncompetitive Suppliers

The company, a leading international provider of pharmaceutical packaging solutions, focused on the long term care, retail and nutraceutical markets.

ProAction conducted the operational due diligence pre-close for its Private Equity client who was engaged in a competitive bidding process for the business.

Our tasks:

  • Uncover and quantify any EBITDA improvement opportunities beyond those identified by management and the PE client
  • Identify any hidden risks that would prevent the company from realizing their stated plans We were successful on both counts.

• The “Hidden” Improvements in EBITDA and Working Capital Improvements: We quantified just over $1.4 million in EBITDA improvements, and $1.25 million in inventory reduction.
o These improvements primarily stemmed from 2 opportunities. The first related

to lean manufacturing and scheduling opportunities in the plant. Their current approach to running the plant resulted in a significant past due backlog, high overtime costs, and late deliveries. The second related to their sourcing strategy and supply base. We found that they had no clear sourcing strategy and were laden with long term and untested suppliers.

• The Risk: The company’s IT system was stable, but not scalable. It was built on a set of 5 connected legacy systems and would likely need to be upgraded or replaced prior to a sale to a financial buyer.
o Given company plans for organic growth, the system would be fine for 3-5 years.

We estimated the cost to implement a new system and the sponsor incorporated this into their financial model.

Our client used our information to update their model and our presentation to educate the lenders on the assumptions and evidence of the opportunities. With these enhancements incorporated into their offer, our client won the auction and acquired the company.


Actions Taken

  • Led Lean Transformation
  • Developed the Inventory Strategy
  • Created and Implemented production scheduling tool and approach
  • Developed and implemented sourcing strategies for 6 key commodities

Post close, the company retained ProAction to work with management to implement the improvements identified during diligence. We led the company through the value stream mapping process and, together, created the road map. Key parts of the implementation phase included:

  • Developing and implementing actionable sourcing strategies for six (6) different commodities.
  • Creating a lean scheduling methodology/process for strategic stocking levels and delivery improvement.
  • Running kaizen and other improvement events, teaching the plant personnel to conduct root cause analysis and take corrective action (we taught the organization how to improve habitually on their own)
  • Providing training on Lean Methods Tools to management and operators.

Measurable Results

  • $3 million increase in EBITDA
  • Gross Margin increased 4.8%
  • Product Margin increased 7.2%
  • 53% Reduction in Overtime
  • 20% increase in Capacity
  • On Time Shipments improved to 95%
  • Net Improvement – 50% Increase in EBITDA

As a result of these actions, annual EBITDA increased by $2 million, or 50%, in six months. Management, continuing the processes we taught them, added a 3rd million in EBITDA improvement by the end of year 1. The better news, however, is that this financial improvement was accompanied by increased service levels, reduced stress in the plant and a 20% increase in effective capacity. During this period, the top line remained steady.

Within 18 months of acquiring the company, our Private Equity client refinanced and took their money off the table. Within 36 months they monetized the investment and netted a strong return, all without a meaningful increase in the top line of the company.

About The ProAction Group

The ProAction Group helps private equity firms increase investment returns by providing variable operating resources. Pre-acquisition, we quantify risks and opportunities, helping clients refine valuations, avoid bad deals, and prepare post-deal value creation plans. For portfolio companies, we work with management to identify and implement high-impact revenue growth and profit improvement initiatives. We focus on four sectors: consumer products, manufacturing, distribution, and business services. We have experts in marketing, sales, manufacturing, supply chain, and human capital development. We were founded in 1995 and are headquartered in Chicago.

For Further Information

Timothy Van Mieghem tvm@proactiongroup.com 312.371.8323

“Hidden” EBITDA found in Due Diligence

Yields $4.5 million improvement in EBITDA and $3.5 million in Working Capital in Year 1

Background

Distribution

“Hidden” opportunities Identified during Diligence:

  • Sub-optimize labor staffing causing 20+% non- conformance in “on- time” order fulfillment.
  • Inventory $4 million higher than needed
  • Inefficient warehouse “footprint”. Too much space; inefficiently laid out.
  • Inefficient Warehouse management. Improvements could increase capacity 30% and reduce labor costs by over 20%
  • Freight and Sourcing negotiations would reduce inventory further and increase EBITDA by $1 million or more

The company, a leading national paint distributor, had expanded to 8 distribution centers in recent years. ProAction conducted the operational due diligence pre-close for its Private Equity client who was engaged in a competitive bidding process for the business.

Our client asked us to uncover and quantify any EBITDA improvement opportunities beyond those identified by management and the PE client. We found the following:

  • Current warehouse management and staffing issues limited the number of orders that could be filled on a daily basis, driving up overtime and staffing, and reducing on time delivery.
  • Inventory planning and sourcing inefficiencies further drove down order fulfillment and customer service levels.
  • With improvements in warehouse management, the company could close 2 facilities and shave over 140,000 square feet in a 3rd.
  • The current sourcing and freight strategies were developed much earlier in the company history and did not take advantage of current leverage and available resources.
  • In total, we identified $3 million in EBITDA improvements, $4 million in working capital reductions, and opportunities to increase customer service levels from 80% to over 95%. Our client used our information to update their model and our presentation to educate the lenders on the assumptions and evidence of the opportunities. With these enhancements incorporated into their offer, our client won the auction and acquired the company.

Actions Taken

  • Eliminated 2 DC’s and reduced a 3rd by 140,000 sq feet with improved service levels
  • Implemented Lean approaches in warehouse operations
  • Negotiated new contracts

Post close, the company retained ProAction to work with management to implement the improvements identified during diligence over a 6 month period. Key parts of the implementation phase included:

  • Implemented inventory planning and system improvements.
  • Implemented lean manufacturing process improvements in picking, material handling and quality control.
  • Led the process to consolidate 4 locations into 2, and to reduce space in a 3rd location by 140,000 square feet
  • Designed and implemented key metrics and taught plant personnel to perform root cause analysis and to take corrective action. This enabled management to implement a continuous improvement culture led by those directly involved in running the plant day to day.

Measurable Results

  • $4.5 million increase in EBITDA
  • On Time Delivery increased from 80% to over 95%
  • Reduced space utilized and leased by 250,000 sq feet

As a result of these actions, annual EBITDA increased at a $4.5 million run rate within 6 months ($1.5 million more than projected). These results emanated primarily from:

  • Facility and space consolidation
  • Lean manufacturing process improvements
  • New freight agreements and suppliers
  • Improved planning and inventory strategy
  • During this same period, inventory was reduced by $3.5 million Just as important, they also realized a dramatic increase in on time delivery, reaching 95% within 6 months of taking action.

About The ProAction Group

The ProAction Group helps private equity firms increase investment returns by providing variable operating resources. Pre-acquisition, we quantify risks and opportunities, helping clients refine valuations, avoid bad deals, and prepare post-deal value creation plans. For portfolio companies, we work with management to identify and implement high-impact revenue growth and profit improvement initiatives. We focus on four sectors: consumer products, manufacturing, distribution, and business services. We have experts in marketing, sales, manufacturing, supply chain, and human capital development. We were founded in 1995 and are headquartered in Chicago.

For Further Information

Timothy Van Mieghem tvm@proactiongroup.com 312.371.8323