The Challenge:
A Chinese-American medical durable goods trading company with exponential sales growth, outsold the capacity of its manufactures. To keep up with demand the founder and CEO partnered with private equity firms to raise capital to purchase 3 manufacturing plants in China and to establish a US based warehouse distribution network.
Under the leadership of the President of the company, sales continued to soar as they closed deals with major US medical supply manufactures to produce certain lines of durable medical goods on a contract manufacturing basis. The new plants soon were overwhelmed with demand. As capacity was strained, the delivery lead times increased significantly from 70 to 120+ days. On-time-delivery performance suffered and resulted in a worldwide shortage of these products due to lack of material in the supply chain pipeline.
Quantumlytix was engaged by the Board of Directors to determine how to improve throughput and On-Time-Delivery to meet demand, quickly.
Our team sprinted through the operations of the 3 production facilities in China and also the US distribution network going through in detail all the processes from order to production planning & scheduling to delivery, gathering operational and financial data, directly observing production & office functions, and collecting unfiltered feedback from front line employees in 1:1 meetings.
A comprehensive set of deliverables were provided to the executive team and Board of Directors revealing in detail the operating gaps of the company and how they were affecting on-time-delivery and throughput. We included how much improvement could be expected and how to unlock the constraints and achieve the objectives to turnaround performance in a logical sequence.
The output of this phase was a road map to cut lead-time by more than 50% and improve on-time delivery and communication throughout the supply chain. Part of the plan included restructuring the company decoupling the President from operations and adding a Chief Operating Officer role accountable for production and distribution, transitioning from 1 shift 5 days a week to eventually 3 shift 7 days a week at the plants, setting up dynamic material replenishment in the MRP with safety stock and reorder points versus waiting to a customer order comes in to order raw materials, setting up dynamic safety stock and inventory replenishment in the US distribution warehouses versus using a fix lead time which caused perpetual stock-outs.
However, some basic quick hits were identified to improve lead times, such as a misunderstanding in the acronym ETD. Half the company understood this to mean Estimated Time of Departure (from China) while the other half understood it to be Estimated Time of Delivery. In China the finished goods warehouse managers understood ETD to be the departure date and would hold on to product in the warehouse until that date – causing a loss of an average of 35 days of lead time.
Results:
The company moved forward and implemented the plan successfully, restructuring the organization, migrating production shifts, improving planning and scheduling using the MRP instead of spreadsheets. Approximately 2 years later, from our clients in major hospital networks, we understood the world-wide shortage of these goods was no longer an issue.
The hallmark of Quatumlytix operations consulting practice is Speed, Clarity and Execution. Rapid deconstructing of complex problems into component pieces, providing clarity on how to solve the pieces, and making clear how to mobilize resources to get results.
Highlights included:
- Illustrating a simple misunderstanding in the order entry and shipping process between US sales team and the logistics department in China that resulted in an average of 35 days additional waiting time in the finished goods warehouse.
- Revealing 90% of stock outs in the US distribution center were caused by a system glitch that fixed lead time to 90 days where as the actual lead times varied from 110-180 days.
- Identifying the need to implement a pull system for raw materials replenishment over practices that were contributing to 5-30 days excessive waiting time on raw materials.
- Demonstrating 40% of work-in-process (WIP) inventories were due to lack of schedule compliance, lack of supervisor awareness of order status, and lack of understanding of the daily duties of a production supervisor.
- Recommending realignment of roles and responsibilities of the senior executive team between the division Presidents and VP of Operations, and the establishment of a Chief Operating Officer role to provide clear operations leadership for the 3 plant managers and US distribution team.
- Identification of the benefits of transitioning from a 5 day and two shifts to seven days a week 3 shift operation to increase throughput.
