Manufacturing Transformation

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Transcript of Manufacturing Transformation

McKinsey Automotive & Assembly Extranethttps://autoassembly.mckinsey.com

Manufacturing Transformation and Demystifying LeanDan Crouse, Jeff Holland, Lawrence Wood, Daniel Woolson

OVERVIEW

Summary

Capacity rationalization

Greenfield construction

Plant lean transformation

1

THERE ARE 3 FUNDAMENTAL METHODS TO IMPROVE A COMPANYS MANUFACTURING EFFICENCYCapacity rationalization

Overall manufacturingimprovements can be driven using three levers Closing or consolidating existing plants Constructing new efficient manufacturing facilities Improving, via the introduction of lean manufacturing techniques, existing plants These levers can be employed either singly or in conjunction with one another

Lean improvement

Greenfield construction

2

DECIDE WHETHER MANUFACTURING CHANGES WILL CREATE REAL STRATEGIC ADVANTAGES (LESS LEAD TIME, BETTER QUALITY, ETC.) OR MAINLY FINANCIAL ADVANTAGESLow Frequency of occurrence Value when occurring Client focus

High Medium

Financial lever Direct/indirect labor

Discussion

Large proportion of costs are frequently labor Labor must be removed to realize savings Typically not a large savings lever unless very high scrap/rejects/rework Very important lever in many low-quality plants

Scrap/rejects/rework

Avoided CAPEX

Not usually available as a savings lever unless capital expansion planned Potential savings very large if CAPEX can be avoided

Increased sales by eliminating production constraints

Not usually a major savings lever Potentially large financial benefits for client ifthis situation applies3

OVERVIEW

Summary

Capacity rationalization

Greenfield construction

Plant lean transformation

4

HUGE LABOR EFFICIENCY GAINS ARE POSSIBLE FROM MERGING UNDERUTILIZED PLANTS*Employment FTEs

EXAMPLE FROM COMPONENT PLANTS

1.207 1.075 100 760Labor content of 75 Labor work content of Labor outsourced work gained from outsourced remaining from working OT from closed plant plant 10.9% differential The 10.9% improvement in efficiency from capacity rationalization was worth $9.1 million to this manufacturer at prevailing wage rates New adjusted labor level Original labor level

140

Postconsolidation employment level

* Prior to any lean manufacturing improvements being conducted at the consolidated plant

5

LABOR EFFICIENCY SAVINGS ARE TYPICALLY OF FAR GREATER MAGNITUDE THAN OVERHEAD SAVINGSOngoing savings 100% = $11.9 million

EXAMPLE FROM COMPONENT PLANTS

The labor efficiencyOverhead savings*24

76

Labor efficiency savings

savings are nearly 3 times the magnitude of the overhead savings Though more difficult to calculate, efficiency savings alone frequently provide sufficient rationale for plant consolidation

* One time savings must also be factored in to NPV if closed plant and/or land are sold but net result remains similar

6

KEY POINTS OF CONSIDERATION ONCE A DECISION HAS BEEN REACHED TO RATIONALIZE CAPACITYIssue Timing Discussion

The plant closure and product transfer process is quite detailed and resource intensive Major discontinuities around production rate increases, serious labor issues such as union elections, etc. should be avoided if possible or the closure process incrementally phased to lessen disruption

Leadership

There should be a single point of accountability for the consolidation process Due to burden of on-going job duties, plant managers are not ideal candidates forthis responsibility

Transfer lists

Thorough review should be done of all products/assets at the closing plant(s) withsingle, consolidated transfer lists developed for each major category Production equipment Products (very significant for parts or component plants) Ancillary equipment, e.g., forklifts, hand tools Soft items, e.g., CNC programs

Knowledge sharing Personnel transfer

Important to review best practices from both plants and transfer those fromclosing plant(s) to remaining plant(s) Especially necessary if standard operating procedures and docs, are weak

Companys most important asset is usually its human capital base Personnel should be reviewed and plan developed to retain and transfer keyhighly skilled employees to where they are most needed (not necessarily keeping them in same geographic location as closed facilities7

Summary

Capacity rationalization

Greenfield construction

Plant lean transformation

8

BACKGROUND AND CONTEXT OF MANUFACTURING STRATEGY STUDY

Client situation Client developing revolutionary new bus model (first new design in many years) that has benefits: More user friendly and stylish design New process technologies and integrated body + chassis design New product entails significant capital investment to either improve existing facility or require entirely new facility

Client needs to determine overallmanufacturing strategy: Where to make? How to make? Client needs to determine a strategy that mitigates risk as much as possible Ongoing cost risk Capital risk Product development risk

9

CURRENT MAIN ASSEMBLY: KEY CHARACTERISTICS/HURDLES TO OVERCOME IN LEAN TRANSFORMATIONWorkstations very cramped lowering worker efficiency and creating poor layout/parts flow Main assembly area has multiple low roofs of varying heights and configurations

Work cell Product flow

Railroad borders plant prohibiting large-scale expansion

Part of fab roof is low and concrete floor 4 feet higher than rest of plant

C/D

C/D

C/D

C/D

C/D

Fabrication

Receiving parts warehouse

Seats WOOD DRIVE Buses must be taken to sub-plant for customization and some finishing/painting

Office

Road borders plant constraining footprint and prohibiting largescale expansion

Chassis entry cramped with no storage space nearby so chassis receiving done at subplant

Parts warehouse at one end of plant creating wasteful intra-plant part movement

10

POSSIBILITIES INHERENT IN CLEAN-SHEET GREENFIELD APPROACH Spacious layout Well-segregated production areas Logical flow All modern building control systems No space, other constraints on types of equipment that can be usedPaint shop

Assembly Chassis from external supplier

Start

Body shop11

COST COMPARISON: GREENFIELD OPTIONS COMPARABLE COSTS TO REDESIGNING EXISTING PLANT AND DOING LEAN IMPROVEMENT

Facility costs

Brownfield 3.2 1.3

Greenfield 3.0 1.3 2.2 0.5 4.1 .2

Comments

Fees/permits Land Site clearing/grading Storm drainage/utilities Stone base/paving Fencing/gates Demolition Labor training/severance Equipment Fab area renovation Additional warehouse construction Contingency Facility (re)construction

FG bus storage (avoids $75-125,000 leases p.a.),Can also dispose of Prospect parcel (~$500,000)

2.0 0.5 9.0 6.5 1.1 3.0 17.4 44.0

Old roofs/floor sections, etc.0.5 13.7

Able to use part of current paint facilities with Brownfield, additional automation in Greenfield HVAC, sprinklers, floor lowering, etc. For space displaced by B2 production equipment

2.0 12.2 39.7

Total

12

RISK COMPARISON: GREENFIELD HAS SUBSTANTIALLY LOWER RISKS THAN RESTRUCTURING EXISTING PLANT

High Medium Low

Risk Disrupt existing model manufacture

Brownfield

Greenfield Comments

High possibility of roof debris orconstruction materials falling into production area in Brownfield

Delay new model introduction

Brownfield timeline results in a one yeardelay in B2 introduction

Delay/inability to capture identified manufacturing savings Project delay/modification due to need for environmental remediation

Several manufacturing improvementideas delayed/stopped due to plant reconstruction

Brownfield site has had manufacturingoccurring on it since 1900. No records from early years of which mfg. processes were being employed or chemicals used

Ability to implement new adhesives production technology to ensure high quality

Old facility does not provide controlledenvironment. Even after reconstruction, adhesive technology performance threatened by infiltration of contaminants13

GREENFIELD IS PREFERRED OPTION BASED ON FINANCIALS AND RISK MITIGATIONFinancials Greenfield project gives a higher NPV overall than brownfield option Significant CAPEX investment yields potential for compressing manpower costs, in particular: Direct labor through new processes and improved layout Indirect labor through clean sheet layout plus improved quality of build New product entails lower overall material cost Overall greenfield layout designed to minimize CAPEX upfront Risk profile Greenfield option overall has lower risks than brownfield option Brownfield option has numerous risks due to: Transformation of existing facility Possible delay in product launch Main actions to mitigate risks for greenfield options include: Locate new facility close to existing facility Mainly keep existing supply base Retain same management team and direct labor force

14

Summary

Capacity rationalization

Greenfield construction

Plant lean transformation

15

MAJOR ELEMENTS OF LEAN TRANSFORMATION OF EXISTING PLANT Introducing lean principles intoProduction system the production environment Standardized work Visual management 5S Total preventive maintenance Pull scheduling

Evaluate plant behaviors andseek to