Publications

Slash Labor Costs With an Even Hand

Increased profitability comes from numerous opportunities – some are more obvious than others.

Recently, our Operations Turnaround experts at KGI completed the redesign of a manufacturer's operations resulting in a sizable bottom-line contribution. How was this accomplished?

A combination of data, insight, discipline, faith... and a bit of theory developed by our friends over in Japan.

I invite you to read more about this situation below and welcome your call to discuss this case, or any of the other services we provide at KGI

Overview:

A $28MM manufacturer packaging material could not excel beyond break-even profitability. By redesigning the production scheduling, key breakthroughs included:

  • Reducing direct labor by 25% within two weeks
  • Increasing profitability by $780K annually

The Situation:

The Company is a manufacturer of high-quality packaging material for use in various industries including building material, lawn & garden, and overnight shipping.

While enjoying a history of profitable operations that enabled continuous investment in new production equipment, the Company hit a wall at the $28MM Revenue mark. Even after implementing every cost-reduction program and operational efficiency in their repertoire, the Company could not increase profits.

The Problem:

The product requires a multi-step manufacturing process that is customized to the specific requirements of each customer. High levels of direct and indirect competition put downward pressures on prices and also increased the need for small batch runs and quick turnarounds.

Industry-leading equipment enabled the Company to maintain its position, but productivity breakthroughs remained elusive. Customer requirements maxed-out facility scheduling in a 24/7 format so that adding new business and contribution margin did not seem possible.

The Solution:

Designed New Production Flow. KGI was asked to find a way to further optimize operations and increase profitability. By relying on our fact-based approach, KGI's Operational Turnaround experts found that the company had a high degree of variability in daily output and determined the company could significantly reduce operating hours via a heijunka methodology.

KGI's consultants recommended implementing an even-flow production process with the knowledge that it would slash direct labor cost by 25% without reducing factory output.

Implemented New Production Flow. KGI's Operations Turnaround team assisted the Company to implement changes necessary to achieve a level production plan. Within one week, it was clear that one entire production shift could be eliminated with no impact to production capacity.

Through this even-flow scheduling methodology, the Company is now saving $780K annually and has the opportunity to win new business and expand production output further.

Building upon the success of this initial project, the Company has hired KGI to assist in determining a better method for allocating factory overhead and to help refine their pricing model. The Company’s owners are planning to use their streamlined manufacturing cost structure to adjust pricing for increased Revenues and Profits. KGI's Operations Turnaround team has also identified high return-on-investment projects for the future including a statistical quality program and an advanced machine maintenance process.

Whether a Company is struggling financially or on the cusp of breakthrough growth, KGI can help. Our seasoned experts work alongside management to solve complex cash flow issues, operational challenges and other business crises. If liquidity or sale is needed, KGI provides a powerful combination of services and expertise to achieve outcomes that cannot be duplicated by other standalone consulting firms.