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Case Studies

Lean – Process Improvement Project

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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. ™

Case Studies

Case Study: Unified Processes Free Up Resources

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For our client, putting out fires had become a way of life. Their cycle times were long enough to cause customer complaints and there were multiple culprits, including long lead times, stoppages/bottlenecks during the manufacturing process, and inefficient labor management. These issues were also driving up per unit costs. The result was an operation that was constrained in terms of both physical space and capacity. Two core products manufactured by our client are sold as matched sets, so inefficiencies in the materials sourcing and manufacturing of one product inevitably impacts the other. Resolving the problem meant envisioning the process for both products as one unified, interactive system. The ideal future state would pave the way toward a substantial impact on EBITDA.

Background:

  • Long manufacturing and component lead times
  • Constrained capacity and floor space
  • Underutilized labor

ProAction improved operations flow by realigning relationships:

  • Lean Implementation. Using Value Stream Mapping tools, we were able to identify cycle-times and then dig deeply into processes. We made it our mission to weed out activities that weren’t adding value. As often happens when there are process inefficiencies, we discovered “hidden factories,” workflows that generally developed over time to compensate for existing problems. We also determined where waste and sourcing constraints were impacting the manufacturing process.
  • Layout Changes. We implemented one-piece flow on the manufacturing floor, and Takt-time metrics to ensure that output expectations created a steady rhythm on the line.
  • Possible Futures. Our client wanted a clear path forward, so we identified several potential future state scenarios, including an ideal future state that would increase product velocity, balance line operations, introduce takt and one-piece flow concepts, and reduce labor costs and work in progress.
  • Elbow Room. Our Lean Process evaluation included future state plant layouts for our client’s current facility to accommodate our recommended improvements. This included layouts compatible with expansion and even new facilities.
  • Insourcing/Outsourcing Redistribution. We identified outsourcing opportunities that reduced cost of components, lead times, and in-house component inspections by almost $3,100/unit. We also discovered that insourcing one major component would reduce lead time by over 360 hours.

Actions Taken:

  • Implementation of Lean Manufacturing principles
  • Restructuring of manufacturing lines and materials sourcing
  • Development of an actionable plan to reach the ideal future state

Impact:

  • Manufacturing lead time for both products dropped by 50-66%
  • 12-39% reduction in labor hours ($3,300-$3,800 per unit savings)
  • Elimination of overtime needed to meet current demand
  • Reallocated overtime creates 33% capacity increase
  • More visible, easier to manage “one-piece flow” process
  • 5% to 15% additional savings in receiving, inventory control and shipping
  • Both product areas can now accommodate 100% more assemblies than before within the same footprint

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

  • The first is during due diligence.  We complete a Q of Ops pre-close (similar to a Q of E but with a focus on Operations instead).  We bring a deep and granular operational focus to the diligence team; we evaluate the scalability of an operation and quantify “hidden” opportunities to increase EBITDA and reduce Working Capital beyond management’s plans.
  • The second is post close.  After you acquire a company we act as a resource extension working with your management team to accelerate the path to realizing your investment thesis.  We implement lean manufacturing, global & strategic sourcing, quality systems, sales and operations planning, and inventory planning as needed.
  • Finally, we conduct an operational diligence on “stale” portfolio companies (sort of a sell-side Q of Ops).  The PE firms that hire us to complete this review are most often frustrated with the gap between their expectations and company performance.  In some cases, the PE firm is tired of the additional attention the portfolio company requires.

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 606546
Tel: (312) 371-8323
www.proactiongroup.com

The Competition is Fierce. Change the Rules. ™

Business Practices

Lean As An Investment Thesis – Lean Principles

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A couple of years ago we worked with a packaging company that had about $6 million in EBITDA. Initially, we projected that the company could increase EBITDA by about $1 million through the application of Lean principles. These opportunities weren’t hidden, just overlooked. There was a lot of work-in-process inventory. Some periods had high overtime, others excess capacity. Poor controls and a loose inventory strategy led to lots of frazzled customers, and the company compensated for these issues with expedited shipping.

By applying Lean principles, the company realized not $1 but $2 million in EBITDA improvements within 6 months. But here’s something that might surprise you: they also saw a 20% increase in capacity. In short, not only did existing business become more profitable, but the company could grow by 20% without adding additional capacity.

And those margins kept growing! Within a year, the management team actually realized $3 million in increased EBITDA and $1 million in reduced inventory. The company manufactured a 50% increase in EBITDA and built $30 million in market capitalization without increasing revenues.

Lean is a Philosophy

This is the difference between treating Lean principles like a one-time implementation plan, and the philosophy they truly are. Those new to the idea sometimes worry that adopting Lean principles will inhibit growth, but as you can see, that’s the furthest thing from the truth. In reality, waste often accounts for a substantial amount of your capacity, and reducing it puts time, money, and infrastructure back in the resources column. Transforming the culture of an organization around Lean principles yields very specific benefits, including increased scalability of operations, reduction in stagnant inventory, and a virtuous cycle of improvement.

Will Lean Impact Your Company?

When estimating the potential impact of implementing a Lean model, there are some key indicators we look for. The most obvious problems involve inventory. We’ve already mentioned work-in-process materials. Excess inventory is another classic marker. The flipside, of course, is back-orders. All of these issues indicate that operations are not balanced correctly with customer demand, which is a problem we can help you fix. Unusually high levels of scrap, rework, and warranty costs are further signs of waste that can be eliminated.

Another indicator we often see is a lack of metrics and post-mortems. In companies that don’t monitor key performance indicators, we typically find opportunities for at least 10-15% improvement, and productivity goes up when KPI’s are reviewed during the shift or work day. After all, the fastest way to identify and resolve a problem is to take a look at actionable metrics while the events of the day are still fresh in your mind.

Another thing we investigate is downtime. We measure companies against the theoretical maximum production their facility could produce, then track down the source of any discrepancies between capacity and actual output. That’s where you have room to transition from cost savings to growth opportunities.

Lean Applies to All Business Models

Many types of companies can apply Lean principles. Obviously, with manufacturing companies we look at WIP inventory that’s languishing. We identify under- or ineffective utilization of existing assets. We quantify the extent to which excess product is tying up capital before there’s actual demand.

But Lean is just as useful for other models. In healthcare, it can be applied to patient care issues, like registration and wait times. Lean can help reallocate resources to address actual patient population and flow. It can streamline revenue cycle management.

Distribution companies can benefit from Lean as well. On time, complete and accurate fulfillment of an order is the distributor’s equivalent of good production. When working with these companies, we focus on pick times and accuracy, slotting methodologies, and manning tables and controls.

With business services companies, we can apply Lean to the processes that directly create the value customers pay for, as well as supporting processes that involve documentation, invoicing, and collection.

Lean Improves Higher Business Functions

The truth is, any company can benefit from applying lean to its support and administrative functions, like accounting, supply and demand planning, and even forecasting. While these areas do not directly add value to customers, they do impact a company’s ability to maintain an environment in which you can add value to customers and get compensated appropriately.

The main thing to remember is that Lean is not something you implement and then walk away from. It’s a philosophy, one which needs to be socialized until it’s a company-wide practice with champions at all levels of management. Fully implemented, it means less hands-on monitoring for your organization’s top leadership, enabling them to be more vision-driven.

Applying lean to your portfolio company will pay for itself in the short term with EBITDA and working capital improvements. In the longer term it will also develop additional capacity and a virtuous cycle of improvement. Make Lean part of your investment thesis and drive it!