Anticipating Changes in Customer Demand

Manufacturing

A Manufacturer's Operational Improvement Case Study


When a manufacturer was challenged by erratic customer demand, CCO converted this client to a build-to-stock model and implemented operational improvements, resulting in a 60-person staff reduction, $3.4 million annual EBITDA improvement, $3M inventory reduction, $14 million 5-year NPV, 42% increase in mold availability, and 99.9% OTD.

 

Background

Our client’s customer orders were inconsistent, ranging from 15 to 360 percent of forecast. This often led to significant production disruptions, including line downtime during low demand periods and overtime during peak demand periods. The client was following a build-to-order model, which resulted in an unbalanced production line. This, in turn, lead to high labor costs, excessive inventory, and extreme obsolescence.

As a result, material resource planning (MRP) and work-in-progress (WIP) flow became significant constraints. The warehouse was mass chaos. Standard work processes were non-existent, and both inbound and outbound expedited freight occurred regularly. On-time delivery and customer satisfaction dropped significantly.

 

Methods Applied

The Cornerstone team arrived in August 2018 and immediately assessed the situation. The first action was to establish an inventory tracking tool designed to give visibility to various attributes, including age, location, quantity, and point of use. This facilitated a sorting exercise to reposition material based on need and allowed obsolete items to be liquidated or scrapped. Cornerstone improved overall inventory management to achieve a $3 million inventory reduction and a $2 million cash conversion from the obsolescence.

We then converted the legacy build-to-order model to a build-to-stock system. Using data analytics, CCO adjusted raw material and finished goods safety stock levels. Racks and bins were installed to promote better organization and control. These changes drove a level-loaded, balanced production line, leading to over $400k annualized cost savings.

To better manage forecast data from customers, a custom tool was developed to align inventory targets with a “smoothed” 8-week schedule. Boundaries were placed on production targets to flag potential gaps in capacity and inventory levels. This gave the master scheduler the feedback required to maintain balance in the production line.

Concurrent with the rebalancing, we implemented the lean 5S methodology to restore order and organization.

 

Results

The transition to build-to-stock model rapidly improved forecast accuracy, leading to increased mold availability of 42% and reducing capital expenditures. The client realized the cascaded effects of more precise scheduling, reduced overtime expense, the elimination of inbound premium freight expenses, and drastically reduced outbound premium freight On-time delivery improved to nearly 100%, driving restored customer satisfaction.

customer-on-time-deliver-bar-chart

The return to one-piece flow and rebalancing the production line resulted in significant improvement in inventory levels and reduced carrying costs.

inventory-values-by-category-line-chart

Cornerstone’s operational excellence deployment improved takt times and eliminated bottleneck operations. This led to a balanced distribution of work and increased throughput, achieving a 120-person headcount reduction, of which 60 were redeployed helping address labor shortages.

yamazumi-on-labor-redistribution-bar-chart

Business Issue

  • Poor forecast accuracy
  • Build-to-order model creating unbalanced flow
  • WIP inventory levels out of control and obsolete
  • One-piece flow non-existent
  • Low production velocity
  • High inbound and outbound premium freight expenses
  • Overstaffing and high overtime costs
  • Lack of 5S and urgency

 

CCO Approach

  • Rapidly deployed inventory tracking tool
  • Conducted data mining and analytics to adjust safety stock levels
  • Converted to build-to-stock model to balance production
  • Developed custom tool for master scheduler, improving accuracy of demand signals
  • Completed advanced time studies to reduce labor
  • Implemented robust 5S campaign to restore order

 

Value Delivered

  • $3 million inventory reduction
  • $2 million positive cash flow from obsolescence conversion
  • One-piece flow restored
  • Over $400k in annualized non-labor cost
  • More than $3 million annual savings (60-person headcount reduction)
  • 42% increase in mold availability
  • Premium freight expense near $0
  • OTD greater than 99.9%
  • Project 5-year NPV over $14 million
  • More than 30x return on CCO investment

 

Why Cornerstone?

Cornerstone Consulting Organization is an execution-based consulting firm. When called, we respond rapidly, assuming key leadership roles and performing the actions necessary to close performance gaps. We own and utilize one of the best operational excellence systems and accountability processes in the world. We can deploy quickly and establish effective and efficient governance over any type of process. We offer an impressive price-to-value ratio with ROI often exceeding 300%—far greater and faster than the Big 5 firms. We build lasting relationships and consider our clients to be partners in the progress we seek.

If you have lingering operational challenges or if you are struggling to generate “breakthrough” results, Cornerstone has the methods and manpower necessary to move your organization to the next level. To schedule an assessment or to learn more about how CCO can bring value to your organization, please contact us.

At Cornerstone, we deliver excellence with intensity, humility, and a fierce resolve to drive results and accelerate value!

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