Supply Chain Optimization Program Generates $11.2 Million to Consumer Products Company’s Bottom Line

PROJECT BACKGROUND

Due to a continuing loss of market share and subsequent loss of operational focus, a global provider of residential and commercial design-coordinated surfacing solutions encountered deteriorating operating performance, and an inability to develop and implement an improvement strategy for their manufacturing and distribution operations. Unmitigated product (sku) proliferation, poor product line management, reactive production and distribution planning, unsuccessful initiatives to reduce operating costs, and a failure to develop and utilize standard, valid operational information took root. Consequently, manufacturing and distribution operations slid into a state of disarray and on-going poor performance, as evident by a decreased utilization of manufacturing capacity, while per unit operating and inventory-related costs steadily increased. These cost increases, when coupled with an often misapplied product rebating program, led to poor overall margins and less than acceptable profitability.

To resolve this situation, the client requested an evaluation of the organization’s “manufacturing footprint”, or more specifically, the elements of the supply chain focused to manufacturing and distribution of their products. The desired outcome of the evaluation was to develop and implement precise recommendations to optimize multiple manufacturing, warehousing, and distribution locations, while clearly identifying valid sales requirements. It was hoped that improvements in these areas would induce sustainable improvements in overall operating performance, as measured by a direct reduction in the Cost of Goods Sold (COGS), inventory costs, and corresponding improvements in manufacturing capacity utilization, while creating greater overall profitability.

IPM’S SOLUTION

Utilizing its phased project management approach, Integrated Project Management Company, Inc. (IPM), in conjunction with client team members, executed a strategy to quickly develop a clear, unbiased understanding of the client’s business, particularly the influencing factors of sales and operations performance. The key elements included validating the current product portfolio, re-defining the sales forecast, developing comparative cost of goods sold, analyzing manufacturing capacity utilization, and determining warehousing and distribution cost drivers.

Cognizant of the cause and effect relationship of sales requirements and operating performance, the IPM team diligently maintained a systemic perspective throughout the evaluation of the clients marketing, sales, manufacturing, and distribution functions to appropriately consider the downstream effects of change. This approach led the team to perform a progressive review of the interrelationships of the key business functions, beginning with the sales organization. The team completed a rationalization of the current product portfolio to identify those products offering the best combination of volume potential and margin contribution, while eliminating underperforming products. A revised sales forecast was developed using the rationalized product portfolio in conjunction with current market-research data. The revised sales forecast represented the baseline requirements to guide the re-configuration and optimization of the “manufacturing footprint”.

The team completed a comparative analysis of the COGS and manufacturing capacity. These measures were redefined and standardized to facilitate valid site-to-site comparisons and further the analysis of COGS and capacity to identify key performance drivers. All information was summarized to identify cost performance rankings, capacity utilization estimates, and an assessment of each site’s operating performance capability and potential. The team performed a quantitative analysis of the client’s production and distribution network to identify opportunities to optimize the logistical configuration of the various manufacturing, warehousing, and distribution locations, re-define customer service zones, and facilitate the reallocation of production, warehousing, and distribution.

Provided with this baseline information, several alternatives were developed to reconfigure the “manufacturing footprint”, and consequently reduce operating costs, while maximizing the utilization of productive capacity. Each alternative was diligently evaluated with respect to feasibility, cost, risk, implementation time, and overall contribution to net operational savings, and ranked accordingly. The team constructed a recommendation based on the chosen alternative and developed a milestone driven plan to guide timely implementation and effective use of client resources. IPM project managers successfully led five cross-functional teams through the detailed planning and implementation phases of the project. These teams were chartered to implement sixteen initiatives focused to achieving the recommended supply chain improvements within an eight month period.

PROJECT RESULTS

The results of this project positively impacted the client’s operating performance by achieving significant reduction in the COGS, improved utilization of manufacturing capacity, and dramatically improved their ability to manage their product portfolio. The results also affected the client’s ability to manage working capital by delivering significant reduction of finished goods inventory levels: a 29% reduction was achieved during the course of the project, without compromise to customer service! The following diagram indicates overall savings achieved through the project and specific actions taken to reduce work-in-process and finished goods inventories.