Case Studies

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Operational Improvement: Inventory Reduction via Application of Lean Methodologies for a Major Multinational Consumer Electronics Company

Key Takeaway:
Well-executed application of Lean Manufacturing Methodologies drives dramatic improvements that significantly enhanced the bottom line.

Client was a major U.S. Multinational Consumer Electronics Company operating an established, Wholly Foreign Owned (WOFE) manufacturing facility in China. The plant was originally intended for the manufacture of relatively mature analog consumer items. These products had comparatively long product life cycles and predictable demand patterns. The operation was well managed, had excellent fundamental planning, production and management processes in place. Market changes eventually dictated the need to shift production from these relatively stable products to more dynamic and volatile digital platforms. The production life cycles of these digital products were remarkably brief, generally less than a year. Further complicating the situation were extremely variable seasonal sales patterns, with monthly production demand varying by a ratio of 4:1. In other words, peak monthly production demand would typically be 4X that of the slower months.

The quantity and value of many key components in inventory was very high, and cash required to fund the manufacturing operation was increasing dramatically with the introduction of each new product. And given the large degree of demand volatility, there was a significant risk of obsolescence at the end of each production run. Adding to the challenge, the products had relatively low margins. Thus it was imperative for the company to minimize the cash resources it had tied up in basic inventories, and reduce the risk of write-offs.

Lean Methodologies were utilized to uncover and address major opportunities to eliminate “muda” or waste of all kinds: inaccurate planning, idle and obsolete inventory, handling and transportation, cycle time, and ultimately cash. The process included: 
  • Establishment of a cross-functional team and preparation of a current state Value Stream Map (VSM). This VSM was developed to analyze the detailed flow of materials and components from suppliers through the company’s receiving and warehousing departments to the final production floor. A good kanban system was already in place for individual items delivered from the warehouse to the production line.
  • Based on the current state VSM, several opportunities to eliminate muda within the factory “4 walls” were identified, such as the incoming receipt process for components from suppliers, the need to move items into the warehouse, cycle counting of inventory, and the need to handle and move the items once again when demanded by final production.
  • The current state VSM was also analyzed to identify opportunities for elimination of waste outside the factory “4 walls”. This required close interaction and cooperation with all key suppliers, prioritized based on value of the components and the proximity of the supplier. Ultimately, wasted handling, time and inventory were identified through to the “suppliers’ suppliers”. With such elements of waste eliminated deep into the supply chain, inventory exposure and the value of potential obsolete inventories could be dramatically reduced.
  • Opportunities for further inventory and other waste reductions were identified and a far more sophisticated kanban system was developed. This included “kitting” of multiple components coming from suppliers on standardized and reusable carts that could be delivered directly to the production line from the supplier. The use of kitting provided and additional benefit, by making the production line changeovers for new products far quicker and more efficient.
  • A future state VSM was developed, incorporating all identified tactics and strategies to eliminate waste and reduce inventory exposure. An implementation plan was developed and carried out, which included the use of multiple “kaizen” events to more rapidly implement the improvements in various sections of the value stream.
The Days Supply of Inventory (DSI) was reduced from 7.4 days to less than 2 days. More than 2000 square meters of rented warehouse space was eliminated and total raw material inventory was reduced from US$20 million to US$ 2.5 million. Unplanned financial charges due to obsolete inventory were dramatically reduced and the newly implemented raw materials supply chain enabled full realization of the desired 4:1 final production flexibility.

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