Case Study 1
Case Study 1: Turnaround situation:
The client operated in the area of supply of specialist raw materials to the aerospace sector. The company was previously listed on the UK Stock Exchange, but had been delisted following a management buy back using venture capital. The client operated several sites, the one covered by this case study (Plant B) was set up specifically to service a contract to provide raw materials to a major aircraft manufacturer. The client had recently installed (less than successfully) SAP R3, using a pre-packaged solution targeted at their particular vertical.
The site was losing money – in addition, internally, inventory was climbing, workloads were increasing and staff turnover was high. Externally, the end user was expressing dissatisfaction with decreasing service levels and was threatening to invoke penalty clauses and, ultimately, to withdraw from the contract.
The client perceived that the root causes of the problems were largely due to the system in use, which had been implemented on a ‘same as other sites’ basis, where the other sites operated somewhat different business patterns. Fallout from this was that the system was perceived, on site, as ‘forced’ and not appropriate to the business. As a result, extensive ‘work arounds’ were in place, data was not managed properly, and the in-house systems support team spent most of their time on corrective actions rather than development.
The client contracted 3DL, together with an interim manager from a sister organisation (Making Change) to execute a twofold strategy:
Apply immediate controls to the operational side of the business, and
Examine the supply chain in order to produce an operation where the SAP configuration and the business processes were operating in balance.
Service standards / controls related to the end user contract (specifically control requirements of the aerospace sector).
No significant changes to SAP, ie all changes should be implementable by the in-house team and support the concept that the system should be broadly consistent across all sites.
After an initial period of review with senior management (3 elapsed days) the client opted to take a package consisting of:
Interim site CEO/CFO combined on a full time / until further notice basis to deal with operational problems, plus,
35 days supply chain consultancy spread over 4 elapsed weeks.
At the end of this period, 3DL presented as follows:
Immediate process fixes, already applied
Mid term process fixes, available within 3 month time span, and
Significant opportunities, strategic in nature, capable of being dealt with off line.
In addition, at the request of the client, a proposal was put forward for further 3DL support in moving the business forward.
The main points of this support plan, which represented approx 90 man days over a 3 month period, were:
Focus on processes (holistic view, not just SAP)
Use workouts to get users/management buy in
Provide appropriate quick fixes
Re-engineer processes (physical/paper/systems)
Indicate the long term strategy
By month 3, and successful completion of the agreed deliverables, the plant was generating an operating profit of £500,000 (ytd). This effectively covered all costs of the project and set the business on target for an expected yearend profit of £1.2 mil.
Several strategic opportunities identified by 3DL were in excess of this operating profit and include the following:
A review of material classification, designed to rationalise the number of stock keeping units, so as to simplifying stocking policies and minimise inventory,
A rationalisation of the pricing process, to exploit off contract opportunities, and avoid incorrectly priced invoices,
Implementation of ATP (Available to Promise), to maximise inventory usage
Changed material allocation processes, to simplify the operation while improving compliance.
Cost benefit analysis was not completed beyond point 1 which was worth approx £1 to 1.5 million in the first year and an additional £100-150,000 per annum following, although the others were all significant, either in cash or headcount.
For a modest initial investment, the client turned a loss making division into a profit centre inside half a year. All costs were recovered, the client was left with further opportunities for its own staff to exploit and, in addition, regulatory compliance was significantly improved. Further, the end user, who at the start of the project was expressing dissatisfaction, happy that services levels had improved to above contract expectations.
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