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A Factory Turnaround using Common Sense

Meanderthal Inc. – a case study on how to turn around a Factory, without expensive external interventions (that mostly fail).

Contrary to what some consultants will have you believe, there is no standard, one-size-fits-all solution to turning around a problematic factory.

Each manufacturer faces different challenges. That’s why each company’s unique problems need to be identified, investigated and solved.

And as Richard Branson was recently quoted, “solving problems means listening.” Listening to the guys on the factory floor, for starters.

This case study should resonate with you if you are currently losing market share to cheaper imports.

In this article, I will provide some simple ideas on how to reduce cycle time, which is the #1 KPI for any manufacturer. This will in turn reduce costs, enabling you to be competitive in an environment of cheaper (and now higher quality) imports.

This case study explains why a stock standard change program may not work and may even harm your business.

Let us introduce a fictional – but alas, representative – manufacturing company. It’s a compilation of several real-world manufacturing companies we have worked with over the years. We’ve given this fictional company a name we thought was appropriate: Meanderthal Inc.

Meanderthal is a company that meanders from change program to change program, but never progresses.

The burning problem:
Meanderthal was rapidly losing market share to overseas competitors

Meanderthal is an Australian manufacturing company that was fast losing market share to cheaper imports. For several years, the company had played the quality card to counter the competition. However, with the overseas product improving and becoming of equal – if not superior – quality, this was no longer a valid argument with its customers.

Another side issue:
Lean manufacturing project without results after 2 years

Two years before engaging us, Meanderthal had introduced Lean Manufacturing in the hope of fixing their many problems. Many of you will be familiar with the Lean concept, as pioneered by Toyota in the 1990s to reduce waste and lower costs.

From a position of market leadership, Meanderthal had fallen well behind the competition. The Lean project was their most recent attempt at getting the business back on track.

Problems in the factory

Meanderthal’s product was plagued by defects. More recently, the rate of defects had escalated. This meant the sales team spent more time resolving product issues than actually selling, which was the very job they were employed to do. They had lost confidence in the product. Sales were plummeting, as were profit margins. Negative feedback on social media also posed a real threat to the brand.

Lean manufacturing project fails to deliver results

Back to the Lean project. It was onto me to make the call whether continuing the Lean project would be a go or a no-go. I chose the no-go option. Clearly, if their Lean project had produced no results after running for 2 years, it wasn’t working.

I dug around and discovered that 70% to 90% of Lean projects fail to deliver.

In his book Optimizing Factory Performance, Dr. James P. Ignizio put it perfectly: “While cleverly packaged factory improvement methodologies look good in theory, they don’t work for all problems.”

This project reinforced for me the importance of sticking to common sense solutions rather than fad methodologies for fixing up any business problem, including a problem factory.

Beware of trendy change programs

My hope is that our experience can serve as something of a warning to other business owners and CEOs of Australian manufacturers considering a quick, trendy management ‘fix’.

Whether it’s Lean Manufacturing, Six Sigma, reengineering, management by walking around or MBO (management by objectives), we should all be sceptical of these buzzword approaches bandied about by others in the industry.

As we all know, Australian manufacturers are under enormous pressure from low-cost overseas competition. So, it is understandable that factory owners and CEOs succumb to the ‘best thing since sliced bread’ offers from external consultants. But these programs don’t work for everyone.

Concepts like Lean Manufacturing are fine when applied by the right people to the right problem in the right manner. However, trying to replicate what Toyota did with Lean Manufacturing, and apply it to all factory problems is simply nonsense. Worse still, this one-size-fits-all phenomenon puts otherwise good businesses at real risk of going under.

A customised change program that does deliver results

deConstantin’s approach has no sexy branding. It is simple, quick and costs a truckload less than the fashionable alternatives.

Problem solving remains a simple process:

  • Define desired performance
  • Describe actual performance
  • State the performance gap
  • Find root causes
  • Select interventions
  • Implement interventions

As simple as that!

Here is a visual of the process we have developed to identify and resolve core problems in manufacturing companies:

Performance Optimization Model for manufacturing companies

A sample of the interventions we applied to address performance gaps in the Meanderthal factory

 

Over a period of just 3 months, we managed to identify, address and solve the main issues faced by Meanderthal. We very effectively helped this struggling Australian manufacturer turn the corner.

A summary of initial interventions that scored us some quick wins:

  1. Immediately addressed leadership gaps in the factory – never pleasant but absolutely unavoidable
  2. Reduced unnecessary complexity in the main assembly line – too numerous to mention here
  3. Reduced process variability – ditto
  4. Opened the books
  5. Installed 6 workstation “gates” along the main assembly line, each with TV data dashboards

The main wins in the first 90 days:

  • Reduced factory cycle time – cycle time being the #1 KPI manufacturers should focus on
  • Consequently, reduced costs – including warranty costs and significant overtime costs
  • Increased output – by a whopping 30%
  • Eliminated major defects – this started to take effect in weeks of implementing the 6 gates
  • Reduced customer complaints and brand damage

And most importantly of all:

  • Got managers and employees to start thinking and acting like owners, rather than cogs in a machine.

5 suggestions for your own factory turnaround program

Step 1: Evaluate & consider substituting factory management

What we did for Meanderthal: We quickly installed new leadership in the factory. The factory manager was clearly struggling. He was qualified perhaps to oversee a smooth-running factory, but not one that was in dire trouble.  With a new manager on board, we started listening to the guys on the production line. They had many of the answers and were super keen to fix things.

Step 2: Remove non-value adding process steps

What we did: We overhauled an inefficient assembly line and eliminated superfluous process steps. We also installed process step specifications, which were largely absent. In addition, we engaged a professional cleaner to help de-clutter all workstations. The guys started to take pride in their workplace and with that, morale got a much-needed shot in the arm.

Step 3: Reduce variability in your processes

What we did: We eliminated the main bottleneck of missing parts. Missing outside parts and missing internally built parts were killing throughput. We also limited the amount of unauthorised product customisations by the sales team. Random requests had been hampering the smooth flow in the factory. In addition, we stopped micro-management from those outside the factory, which was adding to the confusion on the factory floor. While further improvements remain, these were the 3 main productivity killers: missing parts, unauthorised design changes and external meddling.

Step 4: Open your books

What we did: We made everyone in the factory aware of how their actions impacted the financial end-game. They welcomed the new responsibility for their KPIs and targets. We listened and coached. Team leaders started to act like owners and not just workers. These were the beginnings of an entrepreneurial mindset, replacing a silo mindset, where in the past it wasn’t safe to speak up.

Step 5: Make the key data visible

What we did: Because production targets were rarely met, we installed 6 new gates along the production line, each with targets for cost, quality and output. At each of these gates, we installed large TV monitors that displayed live dashboards. These TV dashboards played a major role in the turnaround. For instance, if  daily output fell below 3 for each station, the number turned red. Seeing their production, quality and cost numbers loom large every day, meant productivity, efficiency and quality in the factory soared. In fact, they reached levels never before achieved in Meanderthal’s 50+ years of trading.

Give factory workers pride and ownership by making live production data visible via monitors at each workstation to help make your manufacturing company profitable again

Six workstation dashboards in the factory made live production data visible to workers and helped achieve better results

Displaying live production data in the factory can help turn around a struggling manufacturing business

Close-up of the factory dashboard

A brighter future for Meanderthal

From a design and strategy perspective, there is now more to do at Meanderthal to truly compete on the world stage. However, the bleeding has been staunched, and this company is out of survival mode. It now has the space to think clearly about how to again become the best in Australia, and potentially globally.

Simple, direct interventions that address the real problems on hand is the only tool for effective turnarounds. Shy away from the latest trends, and invest in engaging the right people to solve the right problem with the right approach.

Note: I am indebted to James P. Ignizio for his work on the science of manufacturing as published in Optimizing Factory Performance. James flags lacklustre leadership, complexity, and variability as the three main enemies of factory performance – all of which have featured in this story about Meanderthal.

Article written by Jeremy de Constantin
deConstantin Business Advisory is a specialist exit planning consultancy based in Sydney, Australia. We are partners with the Business Enterprise Institute, a Colorado based think tank on mid-market private exits and transitions, headed by John Brown. On our team we have specialists in commercial, employment & contract law, investment banking, financial planning, forensic accounting, process improvement, HR, strategy and performance measurement.

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