Client Situation
A middle market manufacturer of capital equipment was facing increased competition from similar manufacturers based in China and Europe. These competitors had lower prices and shorter lead times, allowing them to capture market share, as well as erode prices and profit margins. These newer competitors had lower costs due to their more recent investment in manufacturing capability.
Solutions
The CEO of this company, now a E78 partner, working with an outside lean manufacturing specialist and the director of production, led a complete overhaul of the client’s manufacturing and assembly operation over a 12-month period. Two key initiatives in this strategy were developing a more efficient plant layout and an investment in additional equipment to eliminate critical production bottlenecks. A capital expenditure ROI analysis convinced the company’s bank to provide a loan for the new equipment. Negotiations with major suppliers allowed for Just-in-Time delivery of certain high cost components, improving overall plant throughput. Unionized production personnel participated in the implementation of lean manufacturing techniques and lean training, which increased the client’s labor productivity.
Results
- The client was able to reduce the direct costs of production by 15 percent, allowing them to remain price competitive and improve gross margins
- The number of labor hours per machine was reduced by 20 percent, and the client was able to eliminate a swing shift that had been brought on to deal with production bottlenecks
- The client was also able to improve lead times on standard products from 14 weeks to eight weeks, a highly competitive benchmark within their industry
- These changes in the manufacturing process and supplier delivery contracts also allowed the client to reduce inventory levels and improve cash flow
