Our MetaExpert, Ron, had a client who was a $15 billion global power leader that designs, manufactures, sells, and distributes its product and related technology around the world. The client had a major issue with unexpected air freight costs into several of its offshore plants. They brought Ron on board to analyze the situation and recommend and implement solutions. He felt the air freight was symptomatic of the actual root cause and suggested utilizing a seven-step problem-solving process to get to the root cause.
Ron’s goals for this client were to:
- Get to Root Cause investigation and action.
- Implementation of Key Performance Indicators so that he could measure improvement.
- Improve forecast calculating and provide for the maintenance of systems.
- Improve inventory accuracy and material flow processes.
- Improve supplier communication and relationship management internally within the organization.
- Achieve budgeted expense control through process control.
To get to the root cause, Ron dove into the client’s operations. The first operation he studied had in fact incurred excessive premium air freight, both inbound and outbound, year over year. The client had originally thought most of their freight costs would be able to be recovered from the supply base however, that was not the case. The outlying plant had reported back to the corporate that the reason for the air freight excess was due to supplier constraints in the marketplace. However, Ron was able to observe that the results of this dysfunction were due to issues in sales and operational planning.
On average, he found air freight costs for other areas to be in the 10-12% range. However, this particular operation we were observing was at nearly 57%. Upon further research, he also determined that most of these charges were unrecoverable and the root cause was the operation’s own inefficiencies.
To mitigate the client’s inefficiencies Ron implemented the following solutions:
- Sales and Operational Planning training and reimplementation- Understanding the proper use of MRP tools, planning parameters and timely execution of maintenance.
- Evaluate current setting, retrain users, correct missing or invalid data such as lead times, safety stocks, engineering change requests, etc.
- Establish real-time maintenance of systems and all those parameters that affect performance. EDI does not consider transit time, which is a huge process and system gap.
- Create system interface with the forwarder so that visibility can be accessed by the planner. Enforce the use of Advanced Shipping Notices from the forwarder or consolidator.
- Ron evaluated current material flow and looked at map processes used to store, move and track inventory in warehouses and production. He gained repeatable monthly inventory turns and inventory accuracy.
Ron was able to achieve a headcount reduction of 50% in material handling in this operation. The client’s inventory accuracy has gone from 80% to 98% and is expected to rise to 99.7% when complete. Airfreight has dropped to 8% of total costs from 57%.
Ron was able to determine the root cause of the client’s inefficiencies, therefore setting them up for success in the future rather than simply treating the symptoms of their concerns. Thanks to his efforts, the level of communication with the head office have improved and the client now has a process when the supplier delivers materials late–the company can chargeback the supplier for the freight costs.