Client Issue: The client was a private equity firm who had recently purchased a rapidly growing CPG manufacturer with sales volumes that were starting to exceed production capacity, especially during peak season. The client wanted to maintain a level workforce and use slower seasons to pre-build inventory for peak season. This was an attempt to level the workload to match the crew and keep overtime hours from spiking during peak season. Consequently, this manufacturer ended up with substantial obsolete inventory since their production model required them to assume production quantities by SKU in order to pre-build. Effectively, much of the gains that they believed to be making controlling overtime, they were losing on obsolete inventories.
Approach: We leveraged some of the principles of Agile Manufacturing to help the client scale production capacity to be more in line with production demand. The first step was to establish volume projections based on growth rates from previous years' sales data. We used this data to determine which process steps would require capacity expansions based on current proven throughput capabilities. From there, we developed a capital and facility layout plan needed for the next three years growth projections. Then we established the "Economic Laborforce" which determines the most economic level of full-time employees versus the application of part-time and temporary employees to meet the projected demand. This required use to classify jobs by level of complexity, required learning curve, and risk to operations, to determine which jobs should be given to full-timers, part-timers, or temps. This allowed the client to do a better job of matching capacity with demand by scaling labor up and down based on seasonality while maintaining a core crew. During slow seasons, more time is spent on continuous improvement efforts to increase plant capability so that overtime is not required during peak season.
Results: We were able to help them develop a model that allowed them to grow with their demand without inflating conversion cost or compromising on quality and morale. They were also able to establish a continuous improvement program where many of the required action items were completed by a core group of employees during slow season. These improvements allowed for a significantly reduced overtime burden during peak season. Additionally, the client was left with a more Agile workforce and more of a make-to-demand production model, which resulted in 88% less obsolete inventory.