Improving Profitability in Manufacturing

Background


An automobile manufacturer was finding itself becoming progressively uncompetitive and unprofitable as the cost of operations spiraled upward uncontrollably. The manufacturer engaged Parikar at one of its production facilities in order to help improve its profitability. The brief given to Parikar was that material costs needed to be aggressively reduced followed by improvement in overall operational effectiveness of manufacturing.



Methodology and Analysis :


Parikar's team first carried out an analysis of cost drivers for the manufacturing unit and arrived at the primary cost drivers; a plan was next devised with the help of client personnel in order to attack each of the primary cost drivers.


Each team worked on a specific improvement area. Some areas considered were material cost reduction through improved control over procurement and re-use of material within the facility; reduction in time lost due to production set up changes by introducing Single Minute Exchange of Dies (SMED) techniques; and improved production planning to improve overall productivity.


During the course of this engagement, Parikar's team analyzed material requirements for thousands of parts, examined material re-use possibilities for all major components manufactured in the facility and undertook an exercise of identifying profitability for each major component manufactured. This team also observed hundreds of production set-ups and analyzed activities in detail.


Parikar's team interfaced with personnel from production and the client's senior management team to drive changes across the facility.




Results


This engagement resulted in identification of many improvement possibilities at the manufacturing facility. Some improvements in centralized processes, such as procurement, affected all locations for this manufacturer. Changes implemented at this facility included development and deployment of simple, but effective tools to aid procurement and production planning. There was a move in decisioning from previously used experiential methods to data based methods using data from the production floor.


The manufacturer was in a position to make significant savings through reduction in material cost and improvement in overall operating efficiency. Indirect savings in the form of financing costs for inventory was also possible. The estimated improvement in profitability after tax due to this engagement was around 3 percent of revenue.