Operational Performance Improvement: Manufacturing Benchmark Study and Opportunity Assessment

Client

A fourth-generation Precision Machined Products Manufacturer serving automotive, heavy truck, and marine OEM and Tier 1 customers was experiencing persistent operating losses due to high levels of variance to standard across materials, direct labor, indirect labor, and overhead.

Situation

  • One manufacturing facility faced with 15% reduction in sales which shifted product mix from high volume – low mix to low volume – high mix
  • Variances exceeded standard cost by 25%
  • Performance was flat or declining across key performance measures
  • High defect, scrap and rework rates resulted in unacceptable PPM, poor customer quality and $1.2 million in cost of quality (COQ)
  • Out of date asset base was unreliable and expensive to maintain as maintenance spent 89% of its available time and budget addressing mechanical failures
  • $11 million addressable cost base
  • Projected to lose $1.5 million

Solution

  • Board of Directors engaged BlueWater Partners to conduct a plantwide benchmark study to validate the company’s standard cost model, identify performance gaps and develop an improvement roadmap
  • Completed 2-week benchmark study to assess current state operational performance, identify key cost drivers, and determine Achievable Standards
  • Prepared high-level analysis of projected financials based on historical performance and projected efficiencies to support greater than 5x return on investment
  • Developed Improvement Roadmap with high value projects, key assumptions, financial impact and timing
  • Established one-year and three-year targets that, when achieved, will clearly position company as a model manufacturer with world class manufacturing systems and practices

Result

  • Standard cost model was sound with 2% variance in quoted standard versus operating standard
  • 22% variance resulted from non-value add (NVA) activities across direct and indirect categories, as charged labor and paid labor differed
  • Improvement Roadmap reduced the addressable cost base by 32% over 24 months
  • $3.5 million savings annually

Published with client permission