Lean manufacturing, strategic sourcing, spend management, value stream mapping, Kanban, Kaizen, quick changeover, Six Sigma, ISO … AGGGHHH! There’s no shortage of methodologies and best practices to improve your operations and deliver results. Just do a quick web search and you will find hundreds of scholarly articles and case studies touting the benefits of these powerful techniques.
But if you’re a private equity sponsor or a C-level executive at a private equity backed company, it’s not about learning the latest trends in process improvement and deciding which one is right for your organization. The overarching, ever-present goal is to increase enterprise value … period, full stop.
In this month’s Hidden Value Series, we focused on Past Due Orders, one of the most complex, multi-faceted obstacles faced by many mid-sized manufacturing firms. In Part 1 of the series, we showed how to identify a Past Due Order problem and how it will present itself to management and the board. In Part 2 we covered different techniques to drill down on the problem and identify root causes. In today’s final article in the series, we will cut thru the buzzword bingo and use real-world examples to show how solving this complex business challenge leads to enormous gains in enterprise value. And in the end, isn’t that the goal?
Creativity Before Capital: Many Past Due Order problems present themselves as a capacity issue, and the commonly proposed solution is to add equipment, facilities, labor, etc. to increase capacity and eliminate the backorder problem. In addition to being costly, adding infrastructure to a flawed set of processes and procedures is like building a new house on a bad foundation. Before committing to costly capex, build a foundation that will scale as the company grows.
Without diving into the alphabet soup of process improvement methodologies, each have their purpose and will deliver beneficial results when implemented successfully. The most important thing to remember is that Past Due Order problems are nuanced and can arise from a variety of inefficient processes. A “one size fits all” solution is not the answer. Creative analysis and bringing the right tool/methodology to the table is the key to success.
What is possible? The following summaries are provided to highlight the potential benefits you can achieve when focusing the right people on the right problem with the right tools and the right management support.
Case #1 – Pharmaceutical Packaging Company
Long production lead times
Significant Past Due Backlog
Complacent, Uncompetitive Suppliers
Implement lean scheduling process and strategic stocking levels
Teach root cause analysis and continuous improvement tactics to plant staff
Strategic Sourcing project on 6 commodities
75% EBITDA gain ($3M)
Gross Margin improved by 4.8%
20% increase in effective capacity
53% reduction in overtime
On time Shipment rate improved to 95%
Case #2 – Specialty Food Manufacturer
Significant new customer demand led to large Past Due Backlog (2 weeks of capacity)
Large customer at risk due to production delays
New production line planned, but space constrained to install
Implement variety of lean techniques to balance operations and eliminate bottlenecks
Implemented new Executive Sales & Operations Planning processes and tools
> 50% capacity increase within 2 months
Reduced labor inputs by 28%
$1.4M in annualized savings
Eliminated past due order backlog in 90 days
Eliminated need for new line ($250K capex avoidance)
Case #3 – Chocolate Manufacturer
Cost increases eroding profits
Space constraints hindered effort to acquire a business and absorb into current facilities
Failed project to consolidate US and Canadian operations
Equipment downtime was elevated and impacting results
Removed obsolete equipment and conducted Six Sigma project to eliminate downtime
Changed line layout to improve flow
Expanded operating metrics and dashboard to focus performance
Consolidated 3 plants into one existing facility avoiding large capital expenditure
One size DOES NOT fit all. Past Due Order issues are multi-faceted and nuanced. No one tool or methodology fits every problem, so be creative and flexible in devising solutions.
Don’t build on an unstable foundation. Before embarking on costly capacity expansion projects, make sure you streamline current operations and establish a strong foundation for future growth
It’s not about the methodology, it’s about the people. A corporate culture stressing continuous improvement and openness to new ideas, combined with a supportive management team and experienced resources to guide the effort can deliver amazing results.
The ProAction Group is pleased to announce the continued growth of its team with the promotion of Doug Blanchard to Partner. Since joining the firm in 2003, Doug has had a significant impact on client service, team leadership, process and tool development, and overall growth of the firm.In particular, Doug has led the firm’s Lean, Quality, Sales and Operations Planning, and New Product Development work for our clients across many industries.With his extensive background, commitment to client satisfaction, and overall leadership capabilities, Doug has had a major impact on the firm and its clients.We are honored to welcome him to the Partner team and look forward to his continued influence in the firm while he continues to deliver clients the exceptional service they have come to expect.
Prior to joining ProAction, Doug worked for Lexington Home Brands as COO/Executive Vice President of Operations, where he was responsible for a $450 million division with 15 plant locations. Prior to that, Doug worked for Emerson Electric, where he had P&L responsibility for a $300 million division. Doug also has experience at Darling Store Fixtures, Tenneco Automotive, and Goodyear Tire and Rubber. Doug has a BS in Industrial Engineering and Management from the University of Akron.
I am pleased to announce that Greg Hayward has joined The ProAction Group. As you would expect from ProAction, Greg brings over 30 years of leadership experience in manufacturing and operations. We very much look forward to integrating Greg’s ITW strategic planning, commercial, engineering and operation experience; M&A skills & experience; and the focus that the 80/20 mindset brings into our client work.
Greg began his career almost 30 years ago and rose to a General Manager role at multiple ITW divisions. During his time there, Greg had full P&L responsibility including strategic planning, financial planning/accounting, sales/marketing, distribution and direct channels, manufacturing, R&D/engineering, new product development and team building/talent development. Since leaving ITW in 2011, Greg has been providing consulting services in a variety of short and long term capacities.
For Greg’s complete bio and the ProAction website, please follow this link.
Please join me in welcoming Greg to the ProAction family!
Doug Blanchard shared real-world examples and tools on benchmarking at NAPEO’s Risk Management Workshop (National Association of Professional Employer Organizations) in February. Download Benchmarking Best Practices
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