Operational Improvement: Client Examples

Throughput Improvement

Situation

The Company is a $150MM manufacturer and distributor of oil field equipment and accessories.  The Company manufactures domestically and operates distribution centers in key geographic areas throughout North America. The Company has a proud history and is regarded as a market leader.

 

In a period of rising demand, management tried to implement a number of lean initiatives in order to reduce inventory and increase profitability.  The initiative had a negative effect on results as throughput declined, lost sales increased, and manufacturing variances grew.   The sales organization was frustrated as they had to spend more time following up on late orders as opposed to focusing on new sales.  The operations group was not able to identify the root cause of the problems or implement solutions to mitigate the problems. 

Approach

Keystone performed a diagnostic to define the root cause of the problems and to develop a detailed implementation plan for improvements.  Key diagnostic steps included:

  • Conducting interviews with management, functional team members, and hourly personnel

  • Performing detailed data analysis

  • Observing manufacturing operations, setups, material flow, etc.

 

Following the diagnostic, Keystone worked alongside the client and performed the following steps to implement the recommended changes:

  • Developed tools and processes in the scheduling department to better aggregate orders, increase manufacturing batch sizes, and reduce the number of setups and setup times

  • Level-loaded the facility to increase throughput and output

  • Implemented lean manufacturing  techniques to improve order management and order prioritization

  • Reengineered processes related to key bottlenecks and outside vendors

  • Developed manufacturing metrics to increase accountability and drive improvements

Results

  • Production volumes increased 14% in Q1 and 15% in Q2 (over the previous quarters)

  • Manufacturing variances reduced each month

  • Gross margins increased by 15% and with a reduction in lost sales, the Company was better positioned for future growth

"The best thing about their approach was how they worked seamlessly with our team, teaching and collaborating to get results, as opposed to being outsiders."

- Client President

Supply Chain Flexibility

Situation

The Company is a profitable designer and distributor of hobby products, serving small independent retailers. While contracting the manufacturing of its products in Asia, the US based company has established an international sales presence through acquisitions.  The Company historically struggled with the balance between service levels and inventory.  When service levels dropped to their low of 83%, Keystone was engaged to perform a diagnostic and subsequently to lead the implementation of various supply chain improvement initiatives.

 

Approach

During the assessment, The Keystone Group quickly recognized the Company’s need for a more flexible and adaptive supply chain.  To achieve this goal, the Keystone team led the implementation of the following key initiatives:

  • SKU Rationalization: Reducing the Company’s 55,000 saleable SKU base was essential to reducing manufacturing lead time, forecasting complexities, distribution costs, and improving sales focus.

  • Improved vendor communication:  In addition to implementing weekly calls with all key vendors, Keystone also developed a 16 point vendor scorecard focused on 4 key performance areas to help vendors improve their overall level of service.

  • Lead time reduction:  The team visited four of the Company’s top vendors in Asia and developed value stream maps to identify opportunities to reduce vendor lead time.

 

After only a few weeks of kicking off the above initiatives, product ordered from China months earlier began to arrive to the Company’s distribution centers, and inventory began to sky-rocket.  The Keystone Group adapted to this pressing new business need by shifting its focus to operational visibility while still working to provide increased long term supply chain flexibility.  It provided this visibility through:

  • Inventory projections: At the time, the Company had no visibility as to what would arrive to its warehouses the following day, yet alone months out.  Keystone developed weekly and monthly inventory projections giving visibility to changes in inventory months in advance.

  • Delay/Cancel report:  Keystone also developed a report detailing all major purchases currently being made so that more scrutiny could be applied to them in order to avert additional unnecessary inventory.

Results

By the end of the Keystone engagement, service levels had risen to 95%.  Through SKU rationalization, SKUs were expected to decrease by 25% while only reducing gross margin by 1%.  Vendor scorecards were rolled out for all top vendors and initial performance increases were noted. Value stream mapping helped identify opportunities for more than a 20 day lead time reduction in the supply chain.  Finally, the operational visibility and inventory reduction efforts resulted in a 12% reduction in inventory, with more anticipated.

"Keystone’s expertise and versatility enable them to quickly shift focus to our new priorities to help assess, triage, and implement long term controls over our inventory and supply chain. They showed us what was possible, and they gave us the running start we needed to manage our own business.”

- Client COO

Sales and Operations Planning

Situation

The Company is a $150 million remanufacturer of automotive transmissions and engines that services leading automotive manufacturers. For over 70 years, the company has been providing light-, medium-, and heavy-duty application products and saw a 30% increase in top-line sales in the past year.

The rapid top line growth resulted in increased complexity as the number of component SKUs and inventory increased to 15 thousand active component parts and approximately $28 million in inventory. Unsure of the root cause of the higher inventory, Keystone was engaged by management to assess short-term inventory reduction opportunities and identify tools and metrics to maintain appropriate inventory levels in the future.

Approach

Keystone utilized its quick assessment methodology to evaluate the situation and determine what actions would yield the most benefit. The team focused primarily on interviewing key personnel and analyzing relevant inventory data.  Upon completing the two week diagnostic, Keystone walked management through a set of initiatives to implement over the next 10 weeks:

  • Revise the forecasting algorithm and process

  • Design cross-functional sales and operations planning meetings

  • Track metrics of S&OP effectiveness and document standard buying processes

  • Provide tools and training to buyers for better inventory management and track metrics for individual buyers

Keystone then worked with management to implement the suggested initiatives and created tools to prioritize expediting and de-expediting exceptions, review component MRP suggestions where other components in the same finished good will not be available, and provide easier access to summarized inventory data.

Results

The conclusion of the 10 week implementation period resulted in:

  • $2.6 million reduction on $21 million of active inventory with an additional $1-2 million reduction expected (representing a 17-22% reduction)

  • A sustainable monthly S&OP review process

  • Increased accountability on forecast accuracy and inventory levels

  • Greater visibility into inventory composition

  • A documented standard buying process and tools including MRP, expedite and de-expedite reports, inventory databases, and a tool to eliminate component inventory when it will not be used

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