Asset Rationalization
Automotive Components
The client is a $5.5 billion global supplier of automotive components and subassemblies serving the world’s original equipment manufacturers and aftermarket. The company uses its engineering and materials expertise, proprietary technology, manufacturing skill, distribution flexibility and marketing power to deliver products, brands and valued services to its customers.
Our assignment was focused on an $850 million division supporting OEM aftermarket sectors. This division had been working on a division-wide asset rationalization plan for approximately four to six months.
Objectives
We were asked to evaluate the rationalization work done to date in order to:
- Validate the existing rationalization plan
- Recommend alternate rationalization/optimization scenarios with business cases and implementation plans
- Identify near and longer term opportunities that could have immediate impact on the division’s financial performance
Approach
The assessment phase consisted of five integrated focus areas:
- Detailed evaluation of business segment and plant historical financial data
- Detailed evaluation of the internal rationalization plans to include assumptions, financials and overall project timeline
- Visits to each of the nine plant sites to evaluate:
- Layout
- Material flow
- Productivity levels
- Current and anticipated initiatives
- Improvement opportunities
- Overall strengths
- Preparation of optimization scenarios that would leverage strengths and improvement opportunities identified and comparison of those scenarios utilizing both financial and non-financial criteria
- Financial business case preparation for the selected optimization scenarios, including estimated benefits, investment required, ROI and a pro forma for each scenario.
Results
Evaluation of the client’s rationalization plans revealed several significant findings:
- Previous client study financial benefits were overstated 20 to 50 percent
- Paybacks were poor and did not meet internal hurdle rates
- Implementation plans were incomplete
In addition, individual plant assessments revealed significant opportunities that could be accomplished independent of any rationalization effort.
- Poor planning and anticipation of customer demand resulted in excessive overtime and expediting costs
- Little had been done to document and transfer best practices
- Documented improvements had not been translated into measurable benefits
- SMED techniques had not been applied uniformly or extensively
- Acceptance of the status quo
- Short-term focus on day-to-day issues and firefighting
- Poor understanding of overall business strategies
We identified an alternative three -phase scenario that provided $69 million in financial benefit with a 71 percent internal rate of return while allowing for accelerated implementation and significantly lower capital investment.
