A $1B manufacturer of transportation vehicles was struggling with a critical cash shortage. Prior to the crisis, parts management performance had declined. The result of this decline was that delivery performance dropped to nearly 75%, which in turn led to a decrease in revenue relative to plan. The decrease in revenue initiated a cash flow challenge which stretched accounts payable, reaching a high of 90 days. In time suppliers withheld parts in order to be paid, which exacerbated the delivery issues, which in turn heightened the cash issue.
A comprehensive assessment was undertaken and determined:
- WIP Inventory levels were at record highs
- Delivery attainment was approximately 75% and dropping
- AP DSO caused excess WIP and delivery issues
- The master production schedule did not align with the required shipments or the production schedule
- The unit production schedule remained at budget levels even though delivery lagged at 75%.
- Inventory planning parameters were incorrect
Productivity ranged between 24 and 40%
The engagement was designed to improve visibility to key drivers of performance, utilization, and team effectiveness, while reducing quality issues.
Key changes included:
- Improved planning, routine management, and real-time reporting tools such as the Daily Operation Report
- Aligned communication cadence for better clarity of expectations and variance resolution leveraging daily huddles, variance meetings, and tactical meetings
- Creation of key stakeholder meetings, improving communication and cross-functional collaboration
- Improved management communication and problem solving through defined roles & responsibilities and on-the-job coaching
- Redesign of organizational structure with documented definitions for those who are: Responsible, Accountable, Consulted, and Informed for every activity in the business
The Results
The conversion of WIP to cash had the result of alleviating much of the AP / procurement dilemma and the business remained a going concern. Over the life of the engagement, operating practices tightened up and further benefits were realized, which stabilized financial results
- Freed approximately $45M in cash
- Plant WIP decreased by 62%
- 10-40% productivity improvement in plant operations
- Reduced shortages and increased average build-in- station 5-10% while increasing consistency 20-40%
