SEWN was engaged by a western Pennsylvania tool & die shop that had lost a significant customer and in fact had an operating loss almost ½ million dollars. Initially the company had requested assistance in increasing sales and lead generation. The Clients stated goal was to increase sales by $750k over the next year, a 10% increase over prior year levels. In SEWN’s due diligence several facts came to light. The clients’ variable margin was only 16 percent and the client was already quoting 40 opportunities a week with an overall win rate of less than 10 percent.
A detailed review of the income statement showed extremely high overtime as well as sub-contract costs. On first pass it appeared that there were major problems on the shop floor. A summary was presented to the owner that showed that even if we could hit his sales target that $750,000 would only drop $120,000 to help pay fixed costs which based on prior year results still left the client in a $300,000 loss position. Further it would require an approximate $150,000 in working capital to support. The other concern was that the client was already responding to 2,000 quotes per year with a not so great conversion to order rate.
SEWN proposed a Value Stream Map (VSM) project that encompassed not just the production side but the entire business cycle from RFP to shipping. What came out of the VSM was that the total wait and cycle time on the front-end administration end (RFQ/PO/Design) was 616 hours or 12.4 weeks! With the average promised delivery dates, the client had no choice but to utilize costly overtime and sub-contract out work to meet delivery times.
Yes, the VSM identified a number of opportunities as well as constraints in the current state on the production floor but where the “low hanging fruit” in the 1st part of this engagement lay were in streamlining and eliminating the non-value-added steps and time in the front end. To that end this was reduced to 237 hours or 6 weeks. This in turn allowed production to not be so dependent on overtime and out-sourcing work. It also allowed opportunity to address issues and opportunities the VSM uncovered on the plant floor.
After tracking progress, SEWN helped in lead generation for sales diversification and closed out its engagement.
If you are part of or know of a company who can benefit from SEWN services, contact us at the Manufacturing Distress hotline at 1-866-SVA-8832 or via email at email@example.com.