TEAM SPOTLIGHT: Kathy Wishnew

Kathy WishnewThis month’s Spotlight is on Kathy Wishnew. Kathy joined ProAction in 2015 and immediately brought added depth to our front office lean and engineering process capabilities, particularly as they relate to our customers in the service and complex-engineered products industries. She has also been integral in expanding our proprietary 9-Box inventory optimization and customer pricing tool, an innovative process that has helped many of our clients drive meaningful improvements to their EBITDA. Kathy makes transformative change happen. Her skills in lean manufacturing, global business operations, process improvement, program management, quality assurance, Six Sigma, and goal deployment have helped her significantly improve bottom-line performance for companies. Kathy uses a top-down strategy of aligning systems, processes, and people to help those changes stick.

Kathy has led many projects for our clients and below are a couple that highlight the depth and breadth of the positive results she brings to an organization:

One midsized medical services firm was turning down new business due to its inability to meet current demand and the extensive learning curve for onboarding new employees. Kathy worked with their leadership team to restructure responsibilities by centralizing like-work content, creating standardized processes, and instituting metrics that provided transparency when the process was not going as expected. The company has not only started accepting new clients and marketing the offering, their sales have grown significantly without the need to hire additional manpower.

Another example involved a midsized manufacturer of large material handling platforms. The company was struggling to meet critical multi-phased customer on-time-delivery dates and a growing list of backorders. Once one phase ran behind schedule, the later scheduled deliveries would not only require re-scheduling, but many times would incur fines and penalties by the end-users and / or installers. Kathy worked with the cross-functional technical team, that operated independently of each other, to standardize internal deliverables between departments. Many non-value added steps were eliminated, rework was reduced and flow was created between internal suppliers and customers. The list of backorders was reduced by 60% and the company is back on track to meet annual growth targets.

Prior to ProAction, as Vice President at Jarden Safety & Security, Kathy established a lean and continuous improvement program that reduced costs by nearly $9 million its inaugural year. The program created transparency and linked operations to strategic plan initiatives, leading to a record number of new product launches and a centralized quality management system.

Kathy served in many executive positions in her 17 years at Panduit Corporation. One she is particularly fond of was as a General Manager and turning a chronic loss leader in to a profitable Business Unit.

After receiving her bachelor’s degree in Industrial Systems Engineering from The Ohio State University, where she became a member of the Alpha Pi Mu Industrial Engineering Society, Kathy received several certifications. She is trained as a Six Sigma Black Belt, ASQ Engineer, Lean Leader, and Shainin Red X Problem Solver. Kathy is also certified as a Franklin Covey facilitator in the Great Leaders, Great Teams, Great Results and the 4 Disciplines of Execution.

Past Due Backlog!

How four companies went from crisis management to demand-driven systems

Most of our clients’ headaches are indicators of systemic problems. One such issue that we are seeing a lot these days is a growing past-due backlog. Sales are increasing!! The client is now seeing more demand than they can handle. It is a classy problem; but it is a problem. If we don’t address the constraint and fulfill all the demand on time, we will start losing sales… and losing customers.

Backlog improvement is one of our specialties. We find and eliminate the contributing causes of the problem. Four recent examples spring to mind, and each had different pain points – from manual inventory systems to lack of communication with suppliers. In every case, sales and customer relationships were in jeopardy.

Background:

  • Past due backlogs led to missed deadlines, damaged reputations.
  • Performance fell short of demand by as much as 30%.
  • Long lead times and poor communication led to customer attrition with potential losses of up to 20% of total sales.

ProAction conducted assessments, provided diagnoses, and even took on interim leadership roles where necessary to stabilize operations. Here are four different manufacturing clients we’ve stabilized in the past six months:

  • Machining and Tooling: This company had past due backlogs in three different product families, demonstrating a widespread issue. There were no formal sales or operations planning tools in place. Inventory was out of control, and processes were both inefficient and entrenched. A two-day assessment helped us pinpoint root causes. We then carried out a short two-month initiative where we created a lean processes and eliminated the past due backlog. In the months since, they have not missed a customer commitment.
  • Building Infrastructure: Another client was suffering from the best of all possible problems– increased demand. This highlighted weaknesses in their existing production systems, as their lead times expanded by four weeks. They risked losing as much as 30% of their sales as their largest client threatened to take its business elsewhere. We took a detailed look at their operations during a two-week assessment, then conducted a “quick kill” project designed to take care of the most pressing problems directly and with immediacy. A more detailed, three-month implementation project ensured that the new model was institutionalized, a crucial component to ensuring sustainment of such a monumental shift.
  • Injection Molding/Sheet Metal Fabrication: This manufacturer came to us out of concern over expanding lead times and a growing past-due backlog. Now they are a classic success story. In this case, after our diagnosis we actually took on an interim leadership role to get the ship on an even keel. The result? In less than 8 weeks, we increased output by more than 300%. Yes, you read that correctly – 300%! This allowed them to substantially increase their monthly sales (see the Quantified Impact sidebar for details.) What’s more, we did this without any increase in labor hours. CapEx? Zero.
  • Plastic Disposables: One of this client’s key plants was a standout for all the wrong reasons. It was losing $2 million a year and inefficiency was the inevitable culprit. The client was also losing new sales because they couldn’t count on the plant’s actual throughput capabilities. This is another example of where we’ve played an interim management role to enable urgent issues to be triaged and symptoms to be quickly relieved – all prior to so that we can relieve the symptoms straight away, even before teaching the organization to sustain the new approach. By implementing production scheduling and lean principles, we were able to demonstrate an 18% increase in throughput within the first 2 1/2 weeks of our 3 month assignment.

Actions Taken:

  • Performed customized assessments tailored to the needs of each client.
  • Applied lean principles to production lines, production scheduling, and inventory management.
  • Participated in one client’s top customer to lay out the changes being implemented and allay fears.
  • Took on temporary leadership roles where necessary to usher in change and create the path to sustainment.

Quantified Impact of Recommendations:

  • Increased one client’s monthly sales by $1,500,000 monthly, a 22% increase.
  • Increased another’s production throughput from 69% to 102.5%, a $27 million annual increase – a company record.
  • Reduced all clients’ backlogs to near zero.

About The ProAction Group

ProAction is an operational consulting firm that works with Private Equity to do three things:

  1. Help you win good deals (and avoid bad ones!) through our pre-close “QofOps”.
  2. Help your management teams as they transition from an entrepreneurial approach to a scalable, process driven leadership path.
  3. Help you maximize the value of your portfolio companies through the implementation of operational excellence.

We focus on three sectors: consumer products, manufacturing and distribution. We have experts in Lean Manufacturing, Six Sigma, Sales and Operations Planning, Inventory Strategy, Sourcing, Logistics and Human Capital Development. We were founded in 1995 and are headquartered in Chicago.

For Further Information:
Timothy Van Mieghem
tvm@proactiongroup.com
The ProAction Group, LLC
445 North Wells St. Suite 404
Chicago, IL 60654
Tel: (312) 371-8323
www.proactiongroup.com

The Competition is Fierce. Change the Rules. ™

Brand and Operations: Two Sides of the Same Coin – Monogram + ProAction Presentation

Many businesses may view operations and branding as processes continually at odds with each other. We believe this is not the case. We recently collaborated on a presentation designed to show businesses how they can use operations and branding in harmony to promote success.

In this presentation, The ProAction Group and The Monogram Group each use case studies to explain their process for helping businesses grow. The ProAction Group, focusing on operations, first assesses opportunities to increase EBITDA and a client’s competitive position while reducing working capital. Then, we prepare a 100-day strategy addressing supply chain, manufacturing, distribution, and sourcing strategies. The Monogram Group highlights branding strategies. A differentiated brand involves successful audience mapping, market research, competitive audits, and development of a brand idea and positioning. Synching these branding and operational strategies can lead to more opportunities and a competitive advantage.

Contact us for more information about how to maximize your operational and branding strategies. The ProAction Group serves consumer product, manufacturing, and distribution companies, while The Monogram Group works with clients in the financial, professional services, manufacturing, and not-for-profit sectors to reposition brands and develop individualized marketing strategies.

Contact Us to Get Started

ISO 9001:2015 What’s In It For You?

Tight Rope WalkerIn our last blog, we addressed some of the risks a company faces if they let their ISO 9001:2008 certification lapse.  This is likely not an issue for 90% of your portfolio companies.  Those companies have already taken the steps to comply with the new, ISO 9001:2015 standard.  For those portfolio companies that have not, losing their certification certainly offers the risk of lost competitiveness in the marketplace as well as the credibility the certification brings to their customer base. Avoiding the risk is certainly a strong motivator, but what about the business benefits the portfolio company can realize when an effective and efficient quality management system is in place?

We will answer the following 3 questions in this article:

  1. Why should I care?
  2. Ok, I hear you, but what’s the business impact?
  3. What should I do now?

In a Harvard Business School study comparing 916 adopter versus Quality Quote17,849 non-adopters of ISO 9001, they found that the adopters of ISO 9001 had the following business benefits:
“Quality is when the customer returns and the product does not”

  • Higher rates of survival, sales and employment growth
  • Increased wages
  • Reduction in waste generation
  • Enhanced worker productivity and ability to pay closer attention to detail

Why are organizations who have adopted ISO 9001 able to achieve these benefits versus their counterparts? The ISO 9001 standard provides a framework to maintain focus on key business elements. Why do customers buy our product? Who are our key partners? Why keep our team engaged? What does it take to create an “even better if” culture that is constantly focused on delivering value?

The American Society for Quality (ASQ) estimates that for every $1 spent on quality management, the organization can expect the following return:

  • $6 in revenue
  • $16 in cost reduction
  • $3 in profit

What are some things I should look for to see if my portfolio company has aligned their quality system with their business system?

Are there monthly management reviews where you can obtain a copy of the presentation package? How often are customers, suppliers, standards committees mentioned? How are employees kept engaged and is there an active development program? Are successes celebrated? How often is the leadership team on the floor or in departments? Upon your next visit, observe when / if this happens.

ASQ, in the same study mentioned above, found that:

  • Quality management reduces costs an average of 4.8%
  • Quality management was a significant driver of success for 93% of the organizations surveyed
  • Without quality management, 83% of organizations agree that they could not justify their pricing to their customers

All businesses have a quality management system that should be contributing to the business. If you are not seeing or experiencing some of the benefits highlighted in this article, a good place to start is by asking why. In asking this simple question, you will be drawing attention and initiating action which can be the spark you need to breathe life into that portfolio company that tends to keep you up at night.

Quality Quote 2

Ready or Not: ISO 9001:2015

The Deadline

Is your portfolio company ready for the ISO 9001:2015 QMS? We’re less than six months away from the deadline to comply with this revised standard, which was rolled out in 2015. While we’d like to assume that everyone’s preparations are well underway (if not completed), we also know that many companies have put this on the back burner while attending to more pressing tasks. As our Private Equity clients have begun to escalate this issue with management, they’ve encountered a trio of challenges. One or more may sound familiar to you.

The Pain Points

The first and most obvious is deadline stress. At this point, any unexpected monkey wrench while you’re moving toward compliance could lead to missing the deadline. ISO certifications are one of the ways we build trust with clients, so you could risk your position as a market leader, or even damage specific client relationships.

Another common complaint is that the sheer scope of what needs to be done seems overwhelming, especially in light of the resources you’ve already invested in compliance. How is it possible, you may find yourself asking, that we’re not closer to the finish line than this? When you find that quality and efficiency issues still persist, despite your best efforts to have sound processes, the recertification process can leave leadership feeling demoralized and frustrated.

Clients often raise a separate but related concern – the cost of maintaining a quality system can be high. But for many companies there isn’t a single system, there are two. One is the system your quality management team designed, which meets the highest quality standards. The other is the way things are actually done. This is particularly common when a team was rushing to meet a deadline. Rather than doing a deep assessment, then redesigning processes to meet best practices, the team designed a castle in the air that didn’t match the existing foundation. The disconnect between these two realities is often hiding potential EBITDA and a myriad of headaches.

The Possibilities

While the actual compliance process is frequently viewed as a headache, the new standard offers many benefits. Organizations that adopt ISO 9001:2015 will move toward a much leaner, process-based approach. This new quality standard is also designed to be tailored to your specific product or service, doing away with a more one-size-fits-all approach. We’re also very happy to see a push toward data-driven decision making.

If you’ve been paying attention to our blog, hopefully you’re making a connection right now. The key components of ISO 9001:2015 align with the best practices we advocate every day. That’s not an accident. You can see why we’d be natural partners for companies on the path to compliance.

What we typically do for clients who are working on their renewal is perform one of two kinds of analyses, depending on your needs. In some cases, an all-areas Systems Audit is the right starting point. Or, if there are specific areas where you feel exposed, we can do a more targeted Surveillance Audit. At the same time, we’ll do a Gap Analysis to highlight opportunities for cost reduction and profit improvement.

This is what we love about this new revision: it aligns your business with your Quality System, which is exactly what we do already. Instead of hiring a consulting firm to help with compliance, then having another firm in later to find overlooked EBITDA, clients who work with The ProAction Group on this will kill two birds with one stone. As an additional benefit, you’ll be able to count our due diligence as an Internal Audit, which it just so happens is a requirement of your QMS. If you’re ready to turn your ISO certification journey into a victory lap, reach out to us.

Contact us today to get started:

For Further Information:
Timothy Van Mieghem
tvm@proactiongroup.com
The ProAction Group, LLC
445 North Wells St. Suite 404
Chicago, IL 60654
Tel: (312) 371-8323
www.proactiongroup.com

The Competition is Fierce. Change the Rules. ™

 

More Operations-Side Indicators of Opportunity

In our last blog, we discussed three critical indicators of opportunities to improve EBITDA within a company. Our goal was to highlight how seemingly innocuous issues can become major resource drains for your portfolio companies. We have identified the key indicators for each of the various functions of a company – all told there are over a hundred. Using them as a lens, we can examine every aspect of operations and illuminate issues that might have been previously obscured by inefficient processes and management tools. If our top three got you thinking, this chart of additional common pain points may also resonate with you.

IndicatorWhat it can mean
Sourced materials have not been competitively bid in the last three to five yearsPerhaps counter intuitively, we have found evergreen (ongoing) contracts to indicate that the company does not test the market and leverage their volume and position to their full advantage. Some companies do put specific and narrow needs out to bid. Either of these signals that there is potential to lower the total cost of goods purchased.
Inbound freight costs are buried in product costsA common answer to “Who pays freight on incoming shipments” is, “Oh, well, freight is free.” We often find that suppliers build profit into freight charges. Unbundling freight costs can lead to significant improvements.
Schedule attainment is not measuredOne of the first questions we ask a plant manager during a tour is, “How are things going?” If they respond, “Great, all the machines are running” or “Our efficiencies are well over 100 percent”, then we know they are likely scheduling the plant based on a “push” methodology. There is a good likelihood that they are building schedules to minimize changeovers and downtime. Measuring schedule attainment is most common among higher-performing companies that run the plant to fill customer orders or on some type of pull system.
Forecast is not measured or is low qualityOften, companies that do not have the discipline to forecast well put unnecessary burdens on operations. These burdens lead to E&O inventory, overtime, downtime, expediting costs, and chaos. If forecast accuracy is low or not measured, the company is likely not managing this area effectively.
Service levels are lowThere are rare instances that require a company to provide poor service and quality levels to their customers. If a company does not have an industry-leading perfect order level, has longer lead times than competitors, or has high scrap/warranty costs, then there is likely a significant opportunity to improve operations and EBITDA.
Service levels are buoyed by high inventory levelsOne easy method to lift service levels is to increase inventory. This approach, however, leads to many costs and problems. If a company has competitive service levels, but holds more inventory than others in their industry, there is opportunity.
Significant work in process (WIP) and overproductionWork in process may not be evil, but it is close. When we tour any factory or office, we look for WIP in front of machines, in warehouses, or in inboxes in the office. Any of these can indicate unbalanced lines and processes. Putting lines and processes into balance leads to cost, service level, inventory, and lead-time improvements.
The company has not conducted a value engineering exerciseWe know that lean manufacturing and process re-engineering can work to dramatically improve cycle times and lead times, and lower the costs to process paperwork, products, and services. The same mindset can be applied to the product design itself. Design for manufacturing, value engineering, or similar methodologies can dramatically improve the landed cost for an item.
VariationIf anything is worse than WIP, variation might be the thing. If a company does not measure variation in scrap, quality, cycle times, warranty costs, or key specification measures, the opportunity could be significant. When variation is reduced, costs go down.
Plant observations of the
“7 Wastes”:
Defects, Overproduction, Inventory, Transportation, Waiting, Motion, Extra Processing
These items represent the most fundamental items to observe during the plant tour and to have management communicate their views on the measurement and management of these wastes.
Individually, these items can be identified and quantified for focused improvement efforts.
Collectively, they represent the cornerstone of any operational excellence initiative to enhance profits, service, and morale.
Late deliveries / past due back ordersAt times, poor customer service can be attributed to a real lack of capacity. We simply cannot produce what our customers demand when the want it. At other times, however, it is more accurate to say that we do not produce at the rate our customers require.
Scrap, field failures, warranty costsScrap is a double whammy. Not only do we have to dispose of purchased materials and write off the efforts we invested to complete our finished good, but we also have to re-do the item to fulfill an order. As a result, any reduction in scrap not only avoids the related expense, but it also creates capacity. If we stop making items we have to throw away, we can use the time to make saleable items!
The company does not utilize make vs. buy decisionsOften, there is a substantial benefit to make something you buy, or to buy something you make. In some cases, you have the scale to justify expanding your fixed cost base, and at other times your suppliers offer a cost structure that beats your own. If the company does document make vs. buy decisions, there may very well be an opportunity.
The company has more locations than strictly needed to serve current customersCompanies often have more facilities, or space, than they need to serve their customers. Warehouses can come with an acquisition. Customers can require a facility be maintained to support their operations. A company manager might be comfortable operating on a large investment in inventory (you can’t sell from an empty cart!!). But with multiple such scenarios happening over time, you will have a foot print no one would design from scratch. A quick review of the current distribution network can highlight duplicate locations and might provide the impetus for additional investigation.
Does the company have a designed approach to determining which customers and SKUs are stocked (make to stock) and which are only made to order?If a company turns their inventory six times per year, then they are paying for raw materials and are paying for the labor 60 days before they ship to a customer, on average. If we extend payment terms with suppliers, that will exacerbate the situation. If the company does not develop stocking plans and set inventory levels based on segmented data, then the return on investment and the delay in recouping the investment may be unbalanced and inconsistent.

These are just the tip of the iceberg when it comes to the many indicators we investigate during our initial due diligence site visits. The good news? They’re all evidence that opportunities exist to make meaningful improvements in market position, EBITDA and inventory management. Think of this stage as taking a sick patient’s vitals, like temperature and blood pressure. It provides us with symptoms to investigate. After all, we need to understand before we can diagnose. A partnership with us provides the most thorough physical your company has ever experienced, and the results will do more than simply remedy an illness– they’ll open up new possibilities for growth.

Reach out to Tim Van Mieghem to explore how an operational diligence can turn your underperforming company into a thriving asset.

Timothy Van Mieghem
tvm@proactiongroup.com
The ProAction Group, LLC
445 North Wells Street, Suite 404
Chicago, IL 60654
Tel: (312) 371-8323
www.proactiongroup.com

The Competition is Fierce. Change the Rules. ™

The Big Three: Top Indicators of Opportunity

When a portfolio company is underperforming, it’s hardly surprising that investors are frustrated and management is stymied (or perhaps stagnant.) Our goal is to bring a fresh perspective to the company and provide analyses that provide actionable data. When we perform an operational diligence, certain indicators highlight opportunities to improve a company’s position in the market and its financial performance. While we have a multitude of targeted indicators we use to address the various aspects of a company’s operations, here are three that cut right to the chase.

Inventory Turns

Does your company turn inventory at rates that are consistent with the top performers in your industry? Since “good” inventory turn levels vary by industry, comparing your company to its competitors provides a good benchmark. It’s also important to review turns based on their ABC classification and margins generated. From these vantage points, you can examine where your current production schedule results in inventory that gathers dust and ties up capital.

Order Fulfillment

Are your service levels competitive, or are they holding you back? Examples of meaningful pain include growing past due backlogs, late deliveries, quality exceptions, and customer complaints. Rising costs, growing inventory, and stretched lead times may all contribute to the problem, as can excessive employee turnover. If you have any of these issues, it’s time to do some digging. You may have process problems that contribute to employee frustration. You might also be suffering from a lack of insight into customer needs. Thorough forecasting is a necessity. Without it, you’re left scrambling to catch up. If you’re constantly employing day-to-day tactics instead of a long-term strategy, customers are bound to notice.

Metrics

Does your company maintain a closed-loop metric system? If so, do they post visible metrics? If you can’t measure something, it doesn’t exist. This may seem like a strong statement, but it is hard to overestimate the impact of measuring performance, conducting root-cause analysis, and implementing corrective actions. Companies that do this show continuous improvement. Companies that don’t go backwards; no one stays stagnant – you either get better or you get worse.

We often see a 10-15% improvement in performance when we start effectively measuring it, for one simple reason: leadership that doesn’t use metrics is running on gut instinct. While many of us discuss “good instincts” in an admiring fashion, our judgement is most finely honed when we’re well-informed. Management without metrics is largely theoretical.

Pain Points As Opportunity

At the end of the day, if a company turns inventory and fulfills orders at the top end of their industry, they are likely tapping the potential of their company well. And if they have a problem-solving culture, they’ll continue to achieve. If any of these three components are missing or in disarray, then we know there is opportunity to improve the competitive position of the company and its financial performance.

If you’re ready to turn pain into profit, reach out to Tim Van Mieghem to explore whether an operational diligence is the right investment for you.

Timothy Van Mieghem
tvm@proactiongroup.com
The ProAction Group, LLC
445 North Wells Street , Suite 404
Chicago, IL 60654
Tel: (312) 371-8323
www.proactiongroup.com

The Competition is Fierce. Change the Rules. ™

Pre-Close Operational Diligence

Operational Diligence

We’ve discovered that there are two key triggers for a private equity firm to reach out to us. One is before their investment in a new company and the other is when they encounter an operational issue after the deal closes. We’re happy to help you either way, but there are compelling reasons to perform an operational diligence before the deal is closed.

A Smoother Sale

When Private Equity firms consider the acquisition of a new asset, the phrase “forewarned is forearmed” often comes to mind. That’s certainly true, especially as it relates to potential risk. But an operational diligence is just as likely to uncover good news as bad — perhaps even more so. Even profitable companies can underperform if their owners don’t realize what they have. Without these insights, you may be doubling down on fine points that shouldn’t be allowed to make or break a deal. When you know ahead of time that a few key changes can greatly increase the value of the company, it’s easier to avoid having a minor issue kill the deal.

Added Value

Just how much improvement are we talking about here? After all, companies don’t leave money lying around. Well, actually some of them do – in the form of inefficient workflows and excess inventory. One of our diligence projects was on a company that was already earning 30% margins. With profits like that, you’d think there was nothing to fix! But our client has made a routine of performing an operational diligence on all of their deals. In this one, we found we could improve their bottom line by 6%. In another case, our recommendations helped a company implement Lean workflows– and eliminate 140,000 square feet of warehouse space. They increased their EBITDA by $3 million a year while reducing working capital by $4 million.

Momentum

When a company changes hands, it’s often easiest to stick with the existing management team. But that shouldn’t mean maintaining the operational status quo. A change of ownership is a natural time to assess the company and re-envision its workflows. In doing so, you can quantify the value of potential changes, get ahead of plan, and start playing with house money from day one. While you’re still in the transition phase, change is already accepted as a given. If you miss that window, you lose the natural impetus a change of ownership creates.

If we’re called in post-close, it’s typically only after our client has experienced real pain – usually after the first full quarter or even later. They may find they can’t fill orders fast enough and have developed a backlog…yet they often have too much inventory on the shelves! Then again, there are times when the opposite happens. Sales are lagging, and management provides many excuses, but no solutions. Both issues are exacerbated when products have a limited shelf life. These problems benefit from a process-oriented management approach, and because the optimal moment to make that change has passed, inertia has set in. The management team has often retreated to a position of entrenchment and dislodging them, once a preventable task, is now an essential one.

Increased EBITDA From Day One

The crux of the issue is this: when we are brought in pre-close, we can help a good company become a better company. When you blend an operational diligence team into the diligence work you’re already doing, you close the deal with a plan in hand to access unrealized profits. Your value creation plan represents an EBITDA increase that begins the moment the company changes hands.

If you’d like to get a running start with your next investment company, reach out to Tim Van Mieghem to explore whether a pre-sale consultation is the right investment for you.

Timothy Van Mieghem
tvm@proactiongroup.com
The ProAction Group, LLC
445 North Wells Street
, Suite 404
Chicago, IL 60654
Tel: (312) 371-8323
www.proactiongroup.com

The Competition is Fierce. Change the Rules. ™

Lean – Process Improvement Project

Our client was struggling with problems on their manufacturing plant floor that were driving their costs up and creating customer issues. Defect rates were far too high– as much as 22% on some lines. They also had excessive scrap. And frequent line shutdowns resulted in workers migrating to other lines – creating unnecessary buildups in WIP. Because most of the parts produced could be retooled, the material cost losses were minimal, but the labor cost of the rework hours were significant. Things were so out of control that all lines even had built-in rework processes, essentially normalizing the problem! Because none of this was accurately tracked, management didn’t have a clear sense of the size or cause of the problems.

We conducted a brief review of their operations and determined that the problems could be resolved by implementing Lean manufacturing principles. During our review we identified specific process and equipment deficiencies that needed to be addressed.

Background:

  • “Fighting fires” was a way of life for our client.
  • Lean processes would realize over $350,000 in annual labor savings, while at the same time creating 25% additional capacity.

As a result of the resulting implementation project, our client was able to:

  • Reduced Team Sizes: During our review we discovered that disconnected processes and a lack of monitoring had resulted in crew overages of anywhere from 13 to 47%. We employed Lean principles to streamline operations, and recommended capital improvements such as investing in dual-head processes. Crew sizes were reduced by 25% on average, with an equivalent gain in productivity.
  • Improved Use of Metrics: Many of the inefficiencies we uncovered had become ingrained processes due to a lack of actionable, OEE-based metrics. In short, no one had the data to illuminate how much EBITDA was being squandered. We implemented ongoing tracking for both training hours and offline rework labor hours. As we streamlined processes, we created clearly defined roles and responsibilities. We transitioned daily line monitoring to a Day-By-Hour model to create a line culture that is responsive to problems and keenly focused on schedule attainment. We trained management to draw maximum insight from the data they were accruing, empowered line personnel with problem-solving strategies, and developed and documented a streamlined change management process to hardwire oversight into future innovations.
  • Setup Reductions: We introduced a “pit crew” approach to doing changeovers. By creating clearly defined roles and cross-training operators from other lines to assist in setup activities, we were able to cut time lost to no more than 3 hours (it used to take a full 8 hour shift to complete a changeover). We redirected kitting and prep from “what now?” tasks to proactive, “what’s next?” activities. And we created forward-facing training and troubleshooting models.

Actions Taken:

  • Analysis of all processes
  • Balanced line operations
  • Built clearly defined roles
  • Rolled packaging construction into process (one-piece flow vs. batching)
  • Integrated training and metrics-gathering into operations

Impact

  • Labor utilization savings $220,000/year
  • Cost avoidance of 4 planned new hires: $166,000/year
  • Reduced Burdened Labor Rate from $64/hr. to $49/hr.
  • Dual Head rework reduced from 500+ units/shift to less than 60
  • Reduced Rigid Line 4 defects from a high of 220,000 ppm to 0

Measurable Results:

  • 22% crew size reduction overall
  • $386,000/year in labor savings
  • 25% capacity increase with current workforce

About The ProAction Group

ProAction is an operational consulting firm that works with Private Equity to do three things:

  1. Help you win good deals (and avoid bad ones!) through our pre-close “Q of Ops”.
  2. Help your management teams as they transition from an entrepreneurial approach to a scalable, process driven leadership path.
  3. Help you maximize the value of your portfolio companies through the implementation of operational excellence.

We focus on three sectors: consumer products, manufacturing and distribution. We have experts in Lean Manufacturing, Six Sigma, Sales and Operations Planning, Inventory Strategy, Sourcing, Logistics and Human Capital Development. We were founded in 1995 and are headquartered in Chicago.

For Further Information:
Timothy Van Mieghem
tvm@proactiongroup.com
The ProAction Group, LLC
445 North Wells Street
Suite 404
Chicago, IL 60654
Tel: (312) 371-8323
www.proactiongroup.com

The Competition is Fierce. Change the Rules. ™

The Confidential Information Memo (CIM) Request

When acquiring a company, more information is typically better. But without the right analysis, some of that data won’t be actionable. A key aspect of our work is helping our PE clients identify and quantify the risks and opportunities that can be mined from the data received during the diligence process.

There are several concerns clients tend to raise during the acquisition process. To begin with, they want to ensure they have correctly assessed their offering price. Naturally, they want their bid to be competitive enough to close the deal – but there is a balance to be struck. Fierce deal competition is much easier to justify when you have confidence that there is a latent benefit to capture after the sale is complete. This is closely linked to worries about costly issues that can crop up after a sale, such as capacity constraints, aging equipment or needed top-grading. No one wants to “write the check” only to turn around and immediately cut another one.

In most cases, a business seller will compile a Confidential Information Memo (CIM) to share with prospective buyers. This document typically provides a detailed overview of the company – including its products/services, geographic footprint, markets, growth plans, management team, and financials. From our experience, often times there are salient operational insights that can be gleaned from the CIM that provide a roadmap for areas of risk or opportunity that need to be explored – before a deal is closed!

There are many reasons to share this document with a trusted expert in order to gain additional insights pre-close. We provide an additional aspect of review to identify value factors that can be built into the bid, as well as to help identify risks to allow you to walk away from bad deals or avoid over-bidding on a company. Because we specialize in Operations, we can suggest specific areas of concern that might not be on your radar. With us as your partner, you’ll be able to ask questions about operations that can help bring critical issues to the forefront – many times these are related to things left unaddressed in the CIM.

Here’s how the process typically works. After signing an NDA, we are sent the CIM / management presentation. We review the documents and debrief our thoughts with the deal team – usually in a 30-minute conference call. If there are areas of opportunity or risk that you feel need a deeper understanding, we will work with you to define a diligence scope to meet those needs. This Q of Ops diagnostic can provide a deep and granular operational focus for the diligence team. Depending on the deal thesis, some of the key areas we delve into include the scalability of the operation, manufacturing strengths/weaknesses, the capability of the management team, supply chain structure/fitness, and the overall impact of risks/opportunities identified on EBITDA and working capital. This helps ensure that your purchase is a sound investment.

This process generates benefits after the sale as well. Armed with the findings identified during diligence, we function post-close as a resource extension, engaging with your management team to accelerate the pace of change. We implement lean manufacturing principles, global and strategic sourcing, quality systems, sales and operations planning (S&OP), and other operations and supply chain solutions as needed. This proactive approach drives the improvements identified in the diligence and creates an environment of continuous improvement with the existing management team.

We also partner with Private Equity clients by performing this same process on their stale portfolio companies. Think of it as a “sell-side Q of Ops.” Clients are typically hoping to address the gap between their expectations and the company’s performance. Our analysis can shift a languishing portfolio company away from being a time and resource drain, to being a productive asset in the portfolio and/or ready it for sale.

If these scenarios sound familiar and you are ready to take the next step, reach out to Tim Van Mieghem to explore whether a pre-sale diligence is the right investment for you.

Timothy Van Mieghem

tvm@proactiongroup.com
The ProAction Group, LLC
445 North Wells Street, Suite 404
Chicago, IL 60606
Tel: (312) 371-8323
www.proactiongroup.com

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