TURNAROUND CASE STUDY

Medical & Commercial Power Supplies

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Time frame:

2000 – 2005

Client company:

 Elpac, Inc.

Employees in China:

200

Location:

 Shenzhen, China

Outcome:

Acquired in 2005

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Turnaround by the numbers:

Actual KPI from lean turnaround and improvement project at Elpac Electronic’s (Now part of ICCNEXERGY ) Shenzhen factory. Notice how revenues soar while factory costs remain relatively constant. These are typical of the measurable results which can pump up you KPI and improve the bottom line.

Actual KPI from lean turnaround and improvement project at Elpac Electronic’s (Now part of ICCNEXERGY ) Shenzhen factory. Notice how revenues soar while factory costs remain relatively constant. These are typical of the measurable results which can pump up your KPI and improve the bottom line.

Before the lean manufacturing turnaround: Elpac’s Shenzhen factory was an unmanaged tenant operating in squalor. No human or computer systems were operating. The facility’s improper licensing required the that it operate by smuggling small parcels of components into China, and then smuggling small volumes of finished goods out. With the exception of these small shipments, the factory output was zero, and yet components were being purchased and stocked regardless. Purchase orders and other documents were written on scrap paper and left unfiled on desks. There were no quality systems or records kept.

 

After the turnaround:  A well-run, ISO9000-registered, clean, and profitable power-supply assembly plant serving major medical and commercial customers. A preferred source within these industries for low-volume/high-mix, high-quality power supplies.

 

The turnaround story: In early 2000, I made the first visit to the dysfunctional facility,  located in Shenzhen’s Nanshan district. Wholly owned by Elpac,  an established US corporation, the workshop should have seemed clean, quiet and well organized, especially after walking up 8 rat-infested, garbage-strewn, spittle-streaked flights. Unfortunately the walk upstairs was no preparation for the god-awful mess that awaited him on the 8th floor. I took this turnaround assignment and managed through the dot-com crash and 9/11 business disruptions, and through to a successful strategic acquisition.

 

In the office, managers scribble, then trash, important records. Fights breaking out.
The first thing one noticed upon entering was the shouting. An unpaid vendor and the facility’s purchasing manger were in the office, nearly coming to blows. Not two meters away, the beleaguered general manager was hunkered down at his computer, pretending nothing was wrong. (It turned out later that this was one of many unpaid and angry vendors.)

There were piles of scrap paper on every desk, much of which turned out, after a cleanup, to be be hand-written (and forever unfiled) material receipts, PO’s, and technical documentation. There was no computerized system for issuing and tracking purchase orders, engineering change request, incoming orders, accounts receivable, accounts payable, etc. There were no human-based systems either. Records were simply not kept. As the facility’s licensing was done incorrectly, critical components needed to be  smuggled in, and finished goods smuggled out. Production and shipping were sporadic. To the extent that it operated at all, it was operating without management and totally off the books.

 

In the warehouse, expensive materials check in, but the never check out
The warehouses was actually reasonably well organized, but was overstuffed with the locally purchased components, which couldn’t be consumed because other critical components had not arrived. And the components kept rolling in regardless.

 

On the production floor, not much going on:
Basically, production was unable to get started at all. Most processes had to be outsourced, leaving final assembly, test and packing to be done in-house.

 

The turnaround strategy:

  • Setup management control systems and procedures from scratch.
  • Write, from scratch, a quality management system and register ISO9000.
  • Replace the GM and almost dysfunctional managers, supervisors and staff.
  • Move to more appropriate facility.
  • Re-license to support production and shipping.
  • Vertically integrate value-added processes to ensure flexibility and quality.
  • Setup cellular production, single-piece flow, demand kanban and other JIT initiatives to ensure profitable and competitive completion of low-volume/high-mix orders.
  • Build a local design team to assist the US-based R&D function, reducing headcount of the latter.

 

After the turnaround, everything gets squared away. Revenues soar while cost stay stable. An R&D team is established. Many top 500 customers chose us as their primary source. The company gets acquired

Within the first two years of the turnaround, the GM and much of the dysfunctional management team had been successfully replaced.  Factory output jumped from near zero to about US$500,000 per month (later to jump again up to US$ 1 million). Revenue per labor hour decreased sharply to about 4% of cogs and stayed at that level for many years after. WIP was kept down to under 6% of revenue, as the entire production facility worded on single-peice flow. Even pre-work and prepping  was performed in real-time, feeding the main production lines on a JIT basis. Previously outsourced processes, including transformer and printed circuit board assembly were integrated into in-house production.

 

A design team was established at the facility which took over much of the work from the US research and development function, leaving only the highest-level design functions to the US team. The facility became a preferred supplier of power supplies and chargers to large OEM’s such as Welch Allyn, Sonosite, Medtronics, Abbott, GE Lighting, Teledyne, Intermec (Unova), Pitney Bowes and otherrs. These OEM customers valued Elpac’s  quality system, management commitment, and production flexibility.  As part of the turnaround, the facility expanded twice to accommodate the newly expanded customer base, as well as to accommodate processes we had vertically integrated. Due to it’s cost and quality, as well as it’s flexibility in handling high-mix/low-volume orders, this former basket case had become a preferred source of highly specialized medical, lighting an commercial power supplies for many multi-national corporations. In 2005 the company was sold to a larger US corporation, ICC, fulfilling the long-standing wish of the shareholders.

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CHINA MANUFACTURING SOLUTIONS

by Walker Associates Ltd.


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Shekou, Shenzhen, China 518067

中国广东省深圳市南山区蛇口街道
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