Cable, Wire Harness & Interconnect Device Assembly
|Time frame:||2005 - 2008|
|Client company:||Lastar Electronics / Cables to Go|
|Employees in China:||650|
|Outcome:||Acquired by Legrand NA in 2014|
Turnaround by the numbers:
Actual KPI from lean manufacturing turnaround effort at Lastar in Dongguan. Note that labor hours and total factory expenses stay relatively constant while revenues soar.
Before the lean manufacturing turnaround: This facility was completely dysfunctional, losing money and customers. Orders, confirmed and issued internally, sometimes disappeared forever. Each department was run like It’s own separate entity, and each grew out of control. The staff to operator ratio was 2:3. WIP was many, many times monthly revenue and inventory turns were in the very low single digits. Corruption had pushed costs out of control. The shareholders’ desire for expansion – and ultimately for acquisition- went unrealized, largely because of this facility’s multi-faceted dysfunction.
After the turnaround: A well-run, profitable production facility for both commodity as well as low-volume/high-mix production. The shareholders’ desire for acquisition was realized after total restructuring, relicensing and operational makeover.
The turnaround story: Walker first visited this dysfunctional Dongguan facility in late 2005 and took a turnaround / continuous improvement assignment there. This US-based company had good marketing and brand recognition in the US, but their China facility was leaking money and losing customers. Poor management of this facility was holding back its shareholders’ efforts at geographic expansion, gross profit improvement and, ultimately, acquisition. At the start of the turnaround effort, all systems, human and computer, had fallen into disuse.
Production: Production was a total mess. Arranged into process “islands” each process leader was constantly negotiating scheduling his/her upstream and downstream process leaders. Management (and customers) had no idea when any given order might be finished until that order was actually placed into finished goods stock. The shop floors had mountains of WIP piled up at each operator location, often so high that individual operators could not be observed. Generally, production cycle time (from receipt of order to ready-to-ship) was many weeks and often months (in fact many many orders simply died and were lost in production. A cleanup unearthed materials in WIP which had been lost there for years.)
Warehouse: Since the MRP system had been mostly abandoned, orders were never pooled, and each order’s purchasing was done without regarding materials on-hand, or those due to arrive in the warehouse. So minimum orders accumulated, and materials were purchased even though there was excess of that same material languishing in the warehouse. Instead of using the materials, the facility’s procedure was to re-inspect the same materials every six months. In many cases, identical materials were stored as different items numbers, making it difficult to deal with unused stock. In general, warehouse was unmanaged, and inventory turns were in the low single digits.
Office: The organization had a convoluted and wasteful work-flow, including and an unwieldy contract review procedure which ensured that orders could not be entered into the system for many days or even weeks following their receipt. This created a constant logjam as papers accumulated throughout the office. It was not uncommon for orders to get lost before they even got entered. As production orders fell victim to anarchy on the production floor, so did productivity in the office. The company’s 300 workers were supporting 200 staff and management personnel, with a revenue of about US$5 per labor hour. There were about ten levels between the GM and the operator on the floor. Each department was allowed to grow as large as the manager wished, and each acted as it’s own small company within the facility. Corruption was rampant, raising the costs of production materials and office supplies alike. The facility was also non-compliant with both local Chinese labor laws as well as internationally accepted labor practices.
Lastar's organization before restructuring:
Before Walker Lean manufacturing turnaround– This is a greatly simplified version the client’s org chart prior to Walker’s lean manufacturing turnaround. The organizational structure had evolved over many years with no direction or control. Departments grew like bureaucracies, and procedures grew in complexity to meet the demands of each growing department. At some point it was decided that each position needed an assistant. Meetings to decide minor issues might have 15 or 20 people talking for half the day. At this point there were 300 operators, producing only US$600,000/month, supporting 200 staff & management.
After Walker Lean Turnaround– This is the client’s org chart after to Walker’s restructuring. Walker flattened and leaned the organization by eliminating all “assistant” position, and trimming unnecessary staff members. Procedures were also streamlined to accommodate the more streamlined organization. At this point there were over 400 operators, producing about US$2,000,000/month (maximum, US$M 1.5 average), supporting 50-60 staff & management. In Addition, the top management positions were either eradicated or localized, resulting in huge savings that went straight to the bottom line.
The turnaround strategy:
- Bring order to the chaotic production floor, instituting lean practices and strategies such as demand-flow kanban, cellular production, cross-training, haijunka, etc.
- Bring order to haphazard purchasing and material warehouse by changing to just-in-time receiving and issuance of material (eventually working with some of the vendors to deploy dual-bin kanban systems between our production floor and theirs).
- Reorganize and restructure dysfunctional, hierarchical and bloated leadership team and staff.
- Establish ERP system procedures.
- End-to-end lean transformation of wasteful material and information flows.
- Create and implement procedures allowing profitable and competitive processing of low-volume/high-mix orders.
- Reorganization of all systems and policies to bring facility into compliance with both Chinese legal requirements as well as international standards of social accountability (SA8000).
The results of the turnaround effort: Within the first two years of the turnaround effort, revenues doubled, jumping from from US$ 6.5 million (2005) to US$ 14 million (2007), and to US4 16.5 million (2008). During this same period factory expenses increased only US$1.5 million, and direct labor hours stayed constant!
- On the inventory side, WIP was reduced from about 300% of revenue (!) way down to 10% and finally down to under 3%. Inventory turns increased and finally rested at ab out 13.
- Production order turnaround time when from infinity down to < 1 day, average.
- As for management, it required a total top-to-bottom restructuring. Operations were flattened and made lean, improving the ratio of staff to worker from 2:3 to better than 1:4. The improvement is attributable to:
- Reduced costs and improved customer satisfaction.
- Increased throughput of existing facilities.
- Improved overall profitability, allowing the factory to fund its own expansion and restructuring.
- Lowered inventories improving cash position
- Per the owners' stated goal, the company was successfully acquired in early 2014 by French multi-national, Legrand, NA.