Three operational improvements and one common denominator

7/15/2020
Three operational improvement success stories

Have you considered how operational improvements in your supply chain can help you preserve cash?

When you want to cut costs and increase liquidity in your supply chain, it helps to look beyond the budget. Identifying high-performing goods and finding ways to increase production could bring improvement. Or maybe it would help to find areas that consume significant resources but don’t provide significant profit.

Operational improvement looks different for each company, and these three success stories show how the right approach can yield long-lasting results and increase liquidity.

1. Realignment of inventory working capital reduces SKUs by more than 50%

Who is the client?

A leading provider of rigid plastic packaging components and containers, this company develops made-to-order (MTO) products with an in-house innovation team and maintains made-to-stock (MTS) items for fast fulfillment.

What was the challenge?

The company wanted to optimize the legacy MTS program and its underlying replenishment and planning parameters. Our analysis uncovered that:

  • Criteria used to determine MTS program membership was too broad and didn’t consider volatility
  • Replenishment calculations were overly complex and inconsistent with best practices
  • Levers to adjust parameters were not intuitive, making program management and sustainability challenging
  • Overproduction of certain stock-keeping units (SKUs) adversely affected inventory turn performance and MTO production (which would have yielded a higher profit margin) 

How did they solve the problem?

Over nine weeks, the Crowe team relied on its deep process expertise to improve working capital performance, increase on-time delivery, and reduce customer lead times. Specifically, we helped the client:

  • Implement a dynamic-threshold, multicriteria methodology to determine MTS program inclusion
  • Identify and recommend scrap factors by SKU, reflecting actual performance and reducing production shortages and excesses
  • Recalculate inventory parameters to reduce excess inventory and minimize stock-outs
  • Design and implement key performance indicators (KPIs) and weekly/monthly reports to measure performance and track working capital 
  • Update planning standards to reflect current-state weighted average performance for each SKU, enhancing scheduling predictability

What were the results?

  • Reduced MTS SKUs by more than 50%, focusing resources on high-turning SKUs
  • Created a formalized and sustainable framework to review and reset the MTS program on a standardized iterative cadence
  • Increased capacity for MTO orders and reduced slow-moving inventory 
  • Incorporated a postponement strategy between molding and lining operations 
  • Enhanced transparency and corrective ability via improved KPIs

2. Performance improvement turnaround saves company $14 million in total EBITDA

Who is the client?

A $300 million food manufacturer, this company has numerous manufacturing facilities and retail/distribution points across multiple states. Its customers include food retailers, restaurants, and educational institutions.

What was the challenge?

After traditionally seeing year-over-year sales growth, sales had declined in recent years due to shifts in consumer preferences and behaviors. This led to a significant decrease in earnings before interest, taxes, depreciation, and amortization (EBITDA), preventing the company from meeting its bank covenant obligations. An analysis of the issue revealed:

  • Lack of insight into SKU profitability and a bloated product portfolio 
  • Excessive costs from returned product, caused by a lack of order controls 
  • High freight expense from network underutilization and outdated distribution strategy 
  • Significant operational performance challenges related to excessive downtime and changeovers plus high scrap, combined with the absence of metrics and an accountability system 

How did they solve the problem?

Using Crowe data analytic models, the client identified significant operational issues that were draining the company’s profitability. We worked with the company to identify key turnaround and cost reduction initiatives, increase EBITDA, and return the company to compliance with its covenants. Specifically, we helped:

  • Develop a product profitability model and SKU rationalization process to eliminate unprofitable items 
  • Establish reporting and analysis tools to provide visibility and tracking of product returns 
  • Implement controls and modified customer supply arrangements to reduce return of high-stale items 
  • Develop and implement transportation and asset network optimization strategies 
  • Define and improve the accountability process within manufacturing facilities
  • Review its footprint and capacity requirements

What were the results?

  • Saved $14 million in total EBITDA
  • Improved fixed charge ratio from 0.5-to-1 to 1.1-to-1
  • Reduced projected funded debt to EBITDA ratio from 3.0-to-1 to 1.0-to-1
  • Identified root cause issues and developed sustainable solutions
  • Closed one facility, eliminating its associated fixed and variable cost structure

3. Improved sourcing and logistics identifies more than $6 million in savings over only 26 weeks

Who is the client?

A $2 billion manufacturer, this company has more than 25 U.S. locations and eight international plants.

What was the challenge?

This company was looking to capture post-deal supply chain synergies. 

How did they solve the problem?

Using data analytics in combination with operational improvement consulting from Crowe, this manufacturer uncovered opportunities to save costs in both procurement and freight and logistics processes. Specifically, we helped:

  • Optimize mode selection across intercompany lanes
  • Evaluate and optimize final-mile mode selection and related service model
  • Rebalance dedicated vs. common carrier fleet across primary lanes
  • Improve sourcing of packaging, uniforms, facilities, testing and metals
  • Improve vertical integration of fabrication, machining, and contractors
  • Improve general and heavy industrial sourcing

What were the results?

The opportunities added up to more than $6 million in annual run-rate savings within just 26 weeks.

While each industry is different, every business could use some extra assistance.

Using a combination of functional specialization, industry expertise, and innovation, Crowe helps companies make significant operational improvements – and increase cash flow.

Contact us

If you’re looking for help with operational improvement in your business, talk to our team. We’re always looking to create more success stories.
Stephen-Wiley-Social
Stephen F. Wiley
Managing Director
Wil-Knibloe-225
Wil Knibloe III
Principal