How a major U.S. organization improved efficiency and profited in both its business unitsDOWNLOAD
One of the largest organizations in the U.S. had watched as growth slowed down in both its business units. The company, which owns close to 100 manufacturing facilities, engaged Deloitte to help improve its operating margin without letting product quality or service slip at any of its plants. The Deloitte team targeted both effective near-term gains and a long-term foundation that could sustain efficiencies across the company and engage employees at many levels. Deloitte helped the company improve operating margins by about $18 million across just a handful of plants across the two business units.
Both business units at the company were experiencing slower than desired growth, less than effective operating margins and suffering from under-utilization in the manufacturing processes. Specifically, despite a strong brand, the sales for one of the business units were affected by the recent economic downturn. In the other, demand for a lower-priced product mix put intense pressure on margins. The company recently launched and Deloitte helped identify several opportunities to make improvements. The goal of the program was to drive margin improvement on the order of $200 million across the entire company over three years, about 15% of which would be through plant productivity improvements within the four walls of several manufacturing plants across both business unit.
The varying sizes and complexities of the company’s plants presented several challenges. For example, shortly before the launch of the margin improvement program and the manufacturing efficiency initiative, the company installed new management at a plant that had been losing tens of millions of dollars annually, resulting in the shut-down of a product line, layoffs and reduced employee morale at the facility. This made it challenging to win employee support for an operational improvement program.
This was also the first time Deloitte worked with this company in manufacturing. As a result, it was important for Deloitte to gain trust from the manufacturing organization and build confidence in the overall approach.
The company had previously started plant productivity improvement programs with limited effectiveness. Working on a contingency fee basis — meaning its fees would be based on the extent to which the client saved money — Deloitte proposed this approach:
The team managed the process at four levels: helping executives set priorities and expectations, assisting manufacturing leadership in defining details and resources, helping plant supervisors develop a baseline of operational performance and identify areas for improvement and working alongside floor operators to implement solutions.
Deloitte sought to build trust between top executives and floor workers by communicating the program details in a way that each level could understand. The company needed to convince some employees that the status quo was unacceptable and their active participation was critical to the initiative’s effectiveness. Deloitte gained buy-in by providing detailed information based on plant-specific data, conducting brainstorming sessions and soliciting feedback.
Deloitte also worked with the company to create Process Improvement Teams (PITs), composed primarily of hourly operators working across different plant functions ranging from core product manufacturing to equipment maintenance or plant sanitation. This approach helped give the teams a sense of ownership of the changes being made as they continually found ways to identify and rectify operational challenges.
During the initiative, Deloitte sought to understand current operating conditions, analyze available data and arrive at conclusions that could favorably impact operating decisions. For example, plants belonging to one of the business units were typically highly responsive to customers and to internal logistics, which added more complexity to daily operations and introduced hidden costs. Using analyses, Deloitte demonstrated the current cost of service at one facility. This helped with devising an alternative solution to provide the same service at a lower cost — an approach that is being implemented at other plants too.
In the first eight months, with the program implemented across 10 percent of the company’s manufacturing facilities across both units, the company realized about 60 percent of the three year plant productivity improvement target. The Deloitte team helped plants with their bottom line by improving materials use, line efficiency and labor productivity while maintaining product quality and service. The company’s initial target for margin improvements over two years was increased by close to 50%, far exceeding initiative targets.
The company also institutionalized a continuous improvement (CI) approach through the PITs at the aforementioned plants across the two business units, using them to help identify problems and then work through them using structured problem-solving techniques. Establishing these teams was important for a couple of reasons. First, without the help of plant workers who drive improvement on a daily basis, the initiative would not be as effective. Second, the teams helped win trust and sustain interest among fellow workers. In a nutshell, they needed to be aware that they were being heard and their feedback counted. This approach can be expanded to other plants.
Deloitte also helped the client create a productivity system toolbox, which consisted of qualitative leading practices and quantitative analytical tools to help plants understand where opportunities existed and how they could drive value. The toolbox helped plants collect data on different items and processes, which were then analyzed to define opportunities.
Deloitte worked with the company teams to institutionalize the governance structure at both the corporate and plant levels to help sustain improvements, set future strategy and manage the initiative. The governance structure synchronized efforts and agendas across the company from the manufacturing leadership meeting down through a shift change meeting involving hourly operators. The idea was to include as many employees as possible to discuss a broader set of issues, improve communication and help drive even greater gains over time.
As used in this document, "Deloitte" means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.