Two Simple Steps to Improve Manufacturing Product Margins

A Tier 2 Consumer Industry supplier was struggling with cash flow and profit margins. We quickly discovered inventory turns were not sufficient at less than 4 times per year. The client also suffered from a disorganized warehouse with inventory spilling into the aisles. When we asked why he had so much inventory on hand? The client said, “to protect the customer”. Translated, this meant plant through-put was unpredictable and inventory was stockpiled to insure that shipments could be made on time.

We approached the client’s issue using two simple steps:

  • Our first step: To organize and visualize all inventories utilizing basic FIFO including clear identification of all products and raw material.
  • Our second step: To understand why the plant’s output was unpredictable by focusing on each product’s stream of flow.

As we performed the initial assessment over the next several days, it became more apparent that there was definitively a significant variance in the throughput of the multitude of products in the plant. We focused on the two highest volume products and did not recognize a significant visual difference in the products design. Product A would run more efficiently, running for hours with no interruptions. Product B could run no more than 20 minutes at a time before the line would shut down. This was quite a stark difference in output performance between the two products.

We then inquired from the line’s operators what the difference was between both product A and product B?

They replied quickly, “Only the part number, the customer, and possibly the material specification”.

Our technical training as engineers kicked in, and we started to design a multiple variant Design of Experiment (DOE) to discover what specific factors would cause such a divergent level of performance between the two seemingly similar products.

Incorporating our company’s high-value mindset, we quickly abandoned the DOE and revised our approach to a more practical client value approach.

Through further research we discovered only a slight difference in the sizes of the two product designs. One was .030 inches longer, about the thickness of a credit card. We approached the leadership team to see if the customer could take delivery of a product .030 inches shorter?

Being a customer-focused organization the client responded; “Yes, but then our customer would need to adjust the material handling automation in their plant and we don’t want to inconvenience the customer”.

We suggested a compromise and created a win-win for our client by recommending this adjustment. And since the customer’s plant was being constrained by availability of this product, we proposed the onetime adjustment in exchange for guaranteeing no future shortages of the product from our end. There were literally tens of thousands of the shorter product in inventory.

The client’s leadership team bought into the solution immediately and improvements occurred within a few weeks.

Not only did the our client receive positive inventory outcomes, but through-put also improved:

  • The number of units produced in Plant X increased 100% to 2400 units/man-hour.
  • Plant Y average output increased 35% since April to 3800/man-hour.
  • As expected, inventory efficiencies occurred; turns immediately jumped 200% which led to greater margins and cash flow for our client.

At High Value Manufacturing Consulting we focus on value and simplicity based consulting, words that typically don’t resonate in the manufacturing consulting industry.

By providing high value, simplicity based solutions, HVMC provides quicker, more affordable and easy to understand solutions…. Simple solutions mean implementation costs are minimized and that yields maximum value to our clients.