Recent Case Studies

Flow Consulting Assessment and Intervention Case Studies

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Business Issue: Oil producer plant maintenance turnarounds too long

Oil producer was experiencing long and unpredictable plant maintenance turnarounds. Outage durations consistently exceeded plans and budgets resulting in lost production and excessive maintenance costs.

Approach Used by Flow Consulting:

A team of Flow Consulting consultants applied Lean techniques including:

1. SMED (task separation, conversion, and simplification to complete outage tasks outside the outage window),
2. Constraint Reduction (e.g., dramatically improved critical path management),
3. Visual Controls (e.g., optimized Outage Command Center),
4. Streamlined Collaborative Planning (e.g., earlier and greater involvement of contractors and cross–functional personnel), and
5. High impact metric capture and utilization (e.g., shift in focus from "Cost only" to Cost and Duration).

Results:

• Greater Profits – More stable outage planning and execution process with a reduction in outage durations of 10 percent to 15 percent. Resulting in increased production valued at $25 million increase in annual profit.
• Reduced Costs – Decrease in outage costs valued at $2-3 million annualized.
• Improved Collaboration – Significantly improved collaboration among all groups, greater performance reporting transparency, and improved continuous improvement through capture and application of lessons from one outage to another.

Business Issue: Unmet Net Income Expectations

A high end, international manufacturer of wood stoves was experiencing significant shortcomings in profitability expectations with net income levels of 5 percent versus the goal of 20 percent expected by the owner.

Approach Used by Flow Consulting:

Flow Consulting started with a comprehensive analysis to determine the largest ‘buckets’ of opportunity and developed a high-level plan to reduce each of these major cost buckets by a set amount, targeting an overall goal of doubling net income. The next step was to implement a new flatter organization by “Benchmarking” similarly sized companies in their industry. Then, through the use of “Lean” and “Six Sigma” tools and techniques, Flow Consulting worked with the client to begin to drain the WIP and Raw materials inventory by creating a vastly more efficient assembly line, while systematically addressing and resolving significant quality issues. Throughout the process, continued efforts were made to train key personnel in the Lean and Six Sigma tools while the improvements were being made.

Results:

The key result was the implementation of a “Leaner,” flatter, more cost effective organization that was more reflective of the business revenue and product lines. The measurable results included the following:

• 29 percent reduction in exempt and non-exempt staffing.
• 43 percent improvement in performance to schedule.
• 45 percent reduction in floor space.
• 25 percent reduction in direct labor.
• 100 percent increase in operating income.

Business Issue: Long-Term Negative Profitability

A high end, international manufacturer of automotive components and specialty auto parts employed Flow Consulting to reverse its negative profitability. The company had been unprofitable for a number of years, cash flow was almost non-existent, and the banks were threatening harsh action. The company reported that it earned top-line revenue of about $40 million in three locations:

• Corporate with manufacturing in New York.
• A plant in the Southeast corridor of North America.
• A facility located in Europe.

When Flow consultants arrived, they learned the business had:

• Actual booked sales of $24 million versus its reported sales of $40 million.
• Lost more than $200k per month for the first three months of fiscal 2009.
• Losses in excess of $1 million for fiscal 2008.
• Forecasted losses in excess of $1 million for fiscal 2009.

Key questions included:

• What disciplines would enable the company to collect and track cost reduction and product development efforts?
• What immediate changes were needed to realize positive results in the financial position of the company quickly and with zero transitional costs?
• What long-term plan would take the company to a higher level of profitability and secure its future for the company and its employees?

Approach Used by Flow Consulting:

A one-day evaluation conducted by Flow consultants indicated major issues with process flow from Sales and Engineering to the shipment of finished product. The production floor and warehouse were full of inventory with no apparent organization or identification. Obsolete and surplus equipment filled an overflow warehouse 10 miles from the main facility. Most of the equipment had been stored unused for years and in its original packaging. The absence of an identifiable process–flow resulted in:

• A disorganized production floor with obsolete, WIP, raw, finished-goods inventory and scrap.
• Raw material shortages because of inadequate lead times for purchases and non-existent communication between operations and production control, complicated by a lack of warehouse inventory management.
• Poor production–floor productivity leading to poor labor utilization, poor overhead absorption, and out–of–control and excessive production floor downtime.
• "Batch and Queue" in every process generated travel waste, over–production, rework, scrap and inaccurate inventories.
• Large labor variances, material-usage variances, poor profitability and rapidly diminishing cash flow.

One aspect of the project was to develop a systematic process of tracking and managing development projects and then to hand the management of that process over to the company president. This lack of a systematic process led to little direction, which kept projects open for years with no progress and zero accountability. The Hoshin project tracking process was implemented, which tracked the projects and allowed the leadership to drive cost reduction and R&D efforts, resulting in eventual savings totaling $2 to $3 million annually.

At this time, it became apparent that actual sales were off from earlier projections by as much as 30 percent and management had not realized that booked sales had been trending downward for months. Since we now had a substantially smaller company, Flow Consulting began to evaluate North American D/L head counts, SG&A levels and the manufacturing footprint for the reduced production volumes.

Plans were put in place to determine the need for multiple locations and to identify which plant had the necessary systems and leadership to assimilate a large transfer of business. For the smaller, top–line revenues organizational charts were developed with specific management positions changed or consolidated for a "Leaner," flatter organization.

To ensure a higher probability of success during the upcoming consolidation, daily production "walk-abouts" were initiated on the production floors with Operations and support functions. During the "report-outs" from the cell leads, expectations were communicated and disciplines were installed to ensure that proper action was taken to resolve issues before moving to the next station or department. Daily project lists were collected and monitored for completion every 24 hours.

A system change that enabled purchasing to monitor production requirements led to a 20 percent reduction in overall inventory. Plans were developed and the consolidation began with the entire process taking less than one month to complete — and with no adverse effect on customers.

A second consolidation plan was developed and passed to ownership for further restructuring. The selection of a project manager who participated with the development of the plan helped to ensure proper knowledge transfer once Flow’s consultants completed their assignments.

Results:

The key result was the implementation of a "Leaner," flatter, more cost–effective organization that is more efficient for its size. Original SG&A and overhead staffing for North American Operations saw a 38 percent reduction with plans for a further 32 percent reduction.

Operational results also achieved:

• A 55 percent increase in throughput.
• About a 50 percent reduction in required floor space.
• About a 35 percent net reduction in total headcount.
• A 45 percent direct–labor reduction for North American operations.
• A 61 percent reduction in indirect labor.

The first consolidation improved cash projections and profitability for North American Operations by 260 percent and 150 percent for fiscal year 2009 versus 30 percent less sales volume in 2008.

Business Issue: Company Considering New Warehouse

A parts distribution warehouse for a major automotive company was experiencing capacity issues and was considering spending $25 million on a new warehouse expansion. The warehouse covered approximately 20 percent of the volume of the United States and served all of the dealers in the region along with components added to new vehicles prior to delivery to the dealers.

Approach Used by Flow Consulting:

Flow Consulting performed a comprehensive analysis of the key causes driving the high–capacity percentage and, together with the client, developed a sequential set of projects that would have the largest impact in improving the capacity issues in the shortest amount of time, as the company was experiencing annual near double–digit growth. Flow Consulting worked with the client to lay out a detailed project plan, and then developed a software program that would accurately track the impact of the projects, along with predicting when an expansion would be needed with enough time to plan and build the expansion.

Results:

The capacity percentage was reduced from 94 percent to 61 percent within one year, and it is now expected that the $25 million expansion can be delayed at least five years and probably closer to eight years.

Business Issue: Failure to increase throughput after capacity increase

A high-end emergency-vehicle manufacturer employed Flow Consulting to identify specific reasons for its failure to increase throughput after the company increased capacity. The failure to increase throughput caused the manufacturer to lose money in the first two quarters of fiscal year 2007. Present annual revenue is about $60 million in Value Added Sales. Increased capacity was expected to increase weekly average throughput from nine to about 15 vehicles.

Key questions are:

1. Is Operations Leadership capable of managing the business well enough to increase throughput?
2. What are the bottlenecks throughout the production floor and what must be done to increase throughput by 30 percent?
3. What disciplines would enable the company to realize capacity gains throughout this process?
4. What immediate changes are needed to reverse the financial losses of the company in the shortest time?

Approach Used by Flow Consulting:

Flow consultants conducted a two–day assessment that found major problems throughout the production floor from Sales and Engineering to incorrect and inadequate order–taking that caused the following:

• Long lead times for specifications and design development.
• Parts shortages for specialty purchases and min/max items caused by inadequate lead times.
• Design on–the–fly on the production floor caused wasted labor, poor overhead absorption and excessive production floor downtime.
• Poor profitability.

Once the assessment was completed, work started in the Final Assembly area of the production floor. Flow consultants tracked up-stream through the process to identify key bottlenecks. They also began to implement "Visual Factory Tools" by first instituting "Production Control Boards" at each assembly stall. Teams and team leaders were chosen to be responsible for morning progress report–outs of truck–build status for the implementation of future production–meeting walk–abouts. Flow provided clear and concise plans to management ensuring that they all understood that a paradigm shift was taking place by focusing everyones attention on the daily build requirements.

On the production floor, daily production meetings were started with all operations and support functions including Engineering and Purchasing. During the report–outs from the stall leads, expectations were communicated and disciplines were installed to ensure that proper action was taken to resolve problems before moving to the next station or department. Daily project lists were then collected and monitored for completion every 24 hours.

Problems related to design engineering, material procurement and control, and hidden batch and queue inventory were easily identified. Plans were formulated with the management team and corrections were implemented to eliminate the problems that caused the inefficiencies and move toward single–piece flow for the entire production line.

A rudimentary kitting function for specialty products was initiated then expanded to min/max items as well. This greatly reduced downtime and material variances because of missing components. Components were pulled or identified at receipt, then assigned to a scheduled truck weeks in advance. Single–point responsibility for the scheduling of the total facility was instituted. This ensured continuity throughout the scheduling process from the customer–to–delivery of the completed vehicle and eliminated all confusion within the operations of the facility. Changes in order retrieval from the customer through engineering were also instituted. Accountability for dates and timing requirements from the customer and the manufacturer were outlined in the overall schedule pushing the process back to the customer. This ensured total "process flow" visibility throughout the system.

An additional benefit was a 7 percent reduction in headcount through attrition, while increasing throughput. To eliminate downtime because of the needed reduction in labor, Flow Consulting developed skills matrices to identify training requirements for sensitive processes and to institute cross–training in key responsibilities.

Results:

Through the management teams efforts and with the support of executive–level management, the company increased throughput from nine vehicles weekly to 12 vehicles, with a weekly run–rate of up to 14 vehicles. All of this occurred in less than six months.

A 7 percent headcount reduction through attrition versus lay–offs in the same period resulted in an average reduction of about 10 percent in labor–content per vehicle. A new vice president of operations was installed to ensure that Flow Consulting’s changes would continue as the company’s "culture." Profits in March reached $365,000, up from a January loss of $404,000.

Business Issue: Improve Forecasting and Inventory Turns

A $1 billion, 3,000 employee worldwide division of a mineral drilling manufacturer with three manufacturing locations and 26 field sales locations, needed to improve forecasting and inventory turns. Phase one of the project was to improve sales–demand forecasting in North America to:

• Improve forecast accuracy
• Increase forecast coverage from 25 percent to 70 percent of COGS
• Increase frequency of forecasting from quarterly forecasts to weekly

Approach Used by Flow Consulting:

Flow Consulting conducted a 3.5–day Lean "Business Process" kaizen using data that had been gathered ahead of time. The team consisted of cross-functional representation from Finance, Operations and Sales.

Results:

The kaizen identified the following improvements to achieve the stated goals:

• Creation of a part–number hierarchy focused on how customers order to enable more frequent forecasting on fewer line items, but that increased product coverage.
• Development of site–specific forecasting templates to allow all 26 sites to forecast its top 70 percent of COGS vs. some sites not providing forecasts at all.
• Development and formalization of policies and procedures to ensure proper use of forecast drivers by all sites in SAP to improve accuracy and avoid shipping items even when demand had shifted.
• Formalization of the forecasting process to identify who needs what information on a weekly, monthly and quarterly basis to capture and communicate forecast information to sales, operations/manufacturing and finance.

Business Issue:  Increased Capacity Needed

Dramatic capacity increases were needed in a oil and pipeline gas–valve producer, as it was projecting significant increases in sales and was struggling to increase production.

Approach Used by Flow Consulting:

Flow Consulting conducted a one–week "Lean Manufacturing" kaizen using data that had been gathered ahead of time.

Results:

In just one week the team was able to accomplish the following results:

• Increased throughput from more than 400 valves per day in two shifts to 400 valves in just one shift — this was demonstrated while the kaizen was occuring.
• Integrated packaging into the end of the line taking pick–to–ship from 7.5 days to 2 days.
• Developed an improved scheduling approach where production is scheduled one week in advance, grouped by similar "body" size, and feed bulk–material into "FIFO" lanes.
• The entire process was moved to a new building during the week.
• The hourly personnel so embraced the dramatic changes that they made the final presentation to the management team.

Business Issue: Combining Two Companies

Two separate private equity firms jointly employed Flow Consulting to study the potential benefits of combining two companies that each of the two firms owned. The two companies competed in providing sales and installation of a specific component within the housing industry — to protect their identities we will not divulge that component, but combined sales for the two companies exceeded $200 million.

The key questions asked of Flow Consulting:

• Could two major facilities be consolidated into one facility using state–of–the-art "Lean Manufacturing" concepts?
• Which IT systems should be chosen that would support the new combined entity best?
• What would the operational and purchasing savings be?

Approach Used by Flow Consulting:

Flow consultants focused on working with both Purchasing teams to determine the opportunity for savings based on volume, different price points obtained at the same suppliers, and an analysis of leveraging existing China–sourcing initiatives to a larger degree.

Flow consultants also focused on applying lean principles and worked with both Operations Managers to come up with product flows that could be accomplished in the smaller of the two facilities. Flow Consulting drew on its experience in consolidating operations to obtain a detailed cost analysis for moving the larger facility operations to the smaller facility.

Flow Consulting delved into the costs of Operational and Purchasing line–items in their P&L, including detailed and exact numbers on the amount of manpower supporting all of the numbers. These inputs were then modeled into a financial statement that clearly illustrated the outcomes of the efforts in Purchasing and Operations, along with the costs savings of moving to one facility.

Flow consultants also provided the financial leadership in developing three–year–quarterly financial statements (income statement, balance sheet and cash flow), forecasting the impacts of Purchasing and Operations synergies, including the consolidation of facilities.

Flow consultants also assessed the IT capability of each company and provided recommendations on the future integration of IT systems to support the combined companies in the future.

Results:

More than $15 million in annual operational savings were realized broken up in the following categories:

• $4 million in purchased products
• $4 million in labor as a result of the lean–product flows and a reduced labor rate at the smaller facility.
• $7 million in manufacturing support and distribution costs as a direct result of the lean–product flows and reduced inventory.