The Challenge: This was a struggling $40M kitchen cabinetry manufacturer that serviced custom housing markets in the Southwest United States. Its manufacturing operations were in Southern California and it also had a distribution center in Northern California. The business was experiencing high labor costs and excessive inventory levels as well as poor customer service performance due to both product delivery and product quality problems. In order to meet customer demand and cover the quality-related issues, they were heavily overstaffed in the plant and were expending high levels of overtime. Production priorities were often based on orders that would provide higher efficiencies rather than in the priority that was needed to support the customer’s need date. Therefore, the business carried a high level of WIP and finished goods inventory because of their inability to exert control over their production priorities as well as create achievable production schedules.

The Fix: The production planning department was restructured and a Master Scheduling discipline was created to establish priorities. This schedule not only established a level scheduling process but it also more-closely managed the timing of production and complete shipments of product with the client’s actual needs.  Given a firm schedule, manufacturing disciplines were enforced to work the oldest order first and use ship dates to set the production priority. Management systems were put in place to closely measure and control production overtime and the use of temporary workers.

A formal Quality program was developed that established inspection processes in key control points as well as identified and tracked Cost-of-Quality factors throughout the plant as well as field warranty and rework costs. This Quality program included implementing a formal SPC process to establish levels and control process parameters in the PVC door manufacturing process, a quality-prone area. Additionally, new packaging and shipping processes were created to reduce material handling and shipping damage. Finally, manufacturing leadership and supervision was restructured to support the newly established disciplines.

The Results: In the first six months of implementation of the project, we were able to make substantial improvements in on-time order performance while reducing inventory levels by 64%. In addition, we created annualized reductions on manufacturing costs of over 10% of sales or $4.0M. A few highlights of the performance improvements in place by June 2007 are listed below along with the reasons for the changes:

1. Reduced inventory levels by 64%, from $3.34M in August 2006 to $1.20M in June 2007.
   • Implemented a master scheduling and production planning process to level load the plant as well as insure production dates reflected true customer ship/installation dates.
   • Implemented new production floor scheduling disciplines to dramatically improve the on-time and ship-complete performance.
2. In FY07, reduced labor costs as a percent of sales by 25% over FY05 and FY06 run rates (16% reduced to 12%) for an annualized improvement of $1.6M.
   • Reduced habitual overtime to a mere fraction of previous run rates.
   • Quality and material handling damage rework was substantially reduced.
   • Restructured the workforce and production floor leadership to support new processes and disciplines.
3. In the first six months of implementation, decreased field warranty costs from an annual run rate of $4.2M to $1.8M, an annual savings of $2.4M.
   • Improved finishing, final assembly and packaging processes.
   • Implemented quality audits and process controls, including SPC, in a variety of key process control points.
   • Reduced material handling and shipping damage with better packaging material handling and shipping processes.