Which way is hot?

The client

The client is a manufacturer and distributor of gas, electric, solar and heat pump water heaters for domestic and commercial use. Design, development and manufacturing are carried out at a modern facility in the Southern Highlands of NSW using advanced technology and organised along modular manufacturing formats. Products are distributed through 14 centres across Australia.

While the company has significant growth opportunities in Australia and overseas, it is faced with the challenge of remaining competitive with both international and domestic rivals. In order to do so, the company had invested in an integrated ERP system to replace numerous legacy systems, modified the organisation’s structure and sought to better manage assets.

A year after the implementation of a new IT system and structural changes, and performance was not anywhere near as high as predicted. Neither the IT system, nor the way in which it was intended to support sales and operational processes, were well understood.

Like many companies implementing a major IT change, the client had undergone some fairly extensive exercises to map the organisation’s activities. And, as typically happens, the mapping had a limited span and concentrated on what was supposed to happen rather than what actually did happen.

Objectives

  • Despite the IT investments and structural changes, management had concerns over the effectiveness of key processes.
  • They decided to focus on the sales and operations areas of the organisation and to seek ways to improve performance levels.
  • GPR Dehler was engaged to identify significant improvement opportunities, develop a business case for change, develop an implementation plan, and prime project team members to execute the plan.

Tepid performance

A series of formal interviews and informal discussions highlighted considerable frustration, a lot of pointless wheel spinning and a great deal of finger pointing – much of it aimed at the new IT system. Among the key problems were:

People didn’t believe the data produced by the system. Managers chose to build their own spreadsheets, use their own numbers and act independently. Decisions were often based on unreliable and unverified data.

This severely hampered forecasting of sales and planning of manufacturing. Supervisors were continuously reworking plans which made progress against the original plans virtually impossible.

Maintenance and engineering were not keeping critical plant and equipment in a high state of readiness. This was evidenced by some key equipment being by-passed in scheduling even though it operated at a faster rate.

The Master Production Schedule was produced in high level but not in a format that could readily be used by the factory to produce product. It required significant additional detail in the form of work schedules and work orders. These were prepared manually by factory staff.

Warranty costs were high – between one third and one half of all calls into the company’s call centre were regarding warranty issues.

Roles & Responsibilities were not clear; people were rarely accountable for outcomes. Some activities were duplicated, some were not carried out at all, results were not regularly reviewed and therefore corrective action was not taken.

In some locations the company had too much inventory. Or the wrong inventory. In some locations – and in part as a result of a recent inventory reduction program – they had insufficient inventory and couldn’t deliver on their customers’ needs.

The Purchasing department was not able to ensure that all components and raw materials were available at the time and in the quantities required for product assembly to proceed uninterrupted. Too often the focus was solely on purchase cost, not the total supply relationship.

Where to turn up the heat

A project team was formed comprising company staff and GPR Dehler consultants. In concert, a formal analysis of the company’s sales and operations was conducted. This backed-up the findings from the focus interviews and confirmed the issues to be addressed and the priorities.

These were:

  • Forecasting – sales and marketing requirements were done haphazardly and without attention to detail of customer requirements. Forecasting was not measured against actual sales.
  • Planning & scheduling was not completed in sufficient detail to be useful and had to be translated into work orders.
  • Purchasing did not always ensure adequate parts and materials were available just in time prior to production orders being scheduled and started.
  • Manufacturing – optimising the manufacturing process, reducing scrap materials, reducing warranty claims, reducing WIP, planning and scheduling, organising and controlling manufacturing, finished goods inventory, new product development and supply chain continuous improvement initiatives.
  • Roles and responsibilities were unclear; for some activities they were duplicated, for some they were non-existent.
  • Training & development had not been completed for staff using the new IT systems.

Calculating the benefits

The costs and financial benefits were calculated using financial figures supplied by the CFO and quantified using real operating numbers. This provided a clear business case for change – in the order of 20% increase in EBIT in the first year, and between 40% to 50% increase in EBIT in the second year. The figures were met – at least in part – with some scepticism by the manufacturing staff. However, they tallied with calculations made independently by the company’s general manager.

Preparing the plan

The project team prepared an implementation plan covering the scope of the work and the physical areas in which it is to be carried out. The plan included a detailed confirmation of the current situation, the preparation of the future state, the mix of resources, skills, experience and time needed for implementation, and the time needed to embed the changes, document them and audit the result.

Priming the team

The company chose to undertake the implementation of the plan using in-house resources and without external assistance. The general manager was not sure of their ability to deliver, but wanted to make the attempt.

In order to prime the team, GPR Dehler consultants prepared and delivered training materials covering topics that would be useful during the implementation phase. This mainly focused on the Theory of Constraints and the Management Operating System. These two powerful tools, correctly used, will enable the business to identify and provide a template to manage production constraints. Coupled with the designed and implemented Management Operating System, it will enable managers to plan, do, check and act on progress being made, address non-conformance and ensure clear communications across the organisation.

Easy on paper

This project, like many of our engagements, looks straightforward on paper. The reality is far from it. Our skill is not just in identifying problems and designing solutions, but in making those solutions work – often in a tough business and cultural environment.

GPR Dehler has an excellent record of implementing change programs in Australia, New Zealand, Asia, Europe, North America and Southern Africa. Everything we do is geared towards achieving results – not writing reports. We have the management and planning skills as well as hands on consultants with experience to overcome obstacles and transform good ideas into effective and successful programs. Significantly, we do this with minimum disruption to our clients’ business operations.

Results

  • Identified where and why sales and operations’ processes did not meet the needs of the business.
  • Identified the key areas of change required to raise performance standards.
  • Developed the business case for change – using data supplied by the CFO and quantified using real operating figures. The financial benefits were in the order of 20% increase in EBIT in the first year, and between 40% to 50% increase in EBIT in the second year.
  • Developed a plan and primed the company’s team for implementation. The plan contained a mix of resources (internal and external) required to complete the work on time. The staff re- ceived training in tools and techniques that would be required to successfully implement the improvements.