Manufacturing Site Optimization
HVAC&R Products
The client is a premier supplier of HVAC&R products in the United States and a leading global competitor. The focus of the assignment was on a $1.3 billion component of the corporation encompassing three business units across two business segments. These business segments provide a full range of air handling/refrigeration products and services to commercial, industrial and governmental sectors. The base of business was built through acquisition and was loosely integrated in management and business processes.
Objectives
The objective of the first phase of the assignment was to determine if the current asset base could be more fully utilized and ultimately approach optimization. A second objective was to determine the breadth and depth of financial improvement opportunities that existed in each facility. Thirteen manufacturing facilities in the United States and Mexico were within the project’s scope.
Approach
The 12-week assessment process phase consisted of four integrated focus areas:
- Detailed evaluation of business segment and plant historical financial data
- Visits to each of the 13 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
Conclusions associated with the assessment process included:
- Few existing facilities were designed or located to maximize business segment performance.
- Several facilities should be immediately closed due to geography, layout and unfavorable business environments.
- Significant financial gains could be achieved by outsourcing more non-critical manufacturing processes.
- Shared manufacturing space across business segments could improve customer responsiveness, significantly reduce freight costs ($4.2 million annually) and add to top line growth.
- System-wide organizational span of control could be dramatically improved to reduce cost and improve accountability.
During the course of the assignment over 35 different optimization scenarios were developed and financially tested. The business leadership team, including input from the CEO, selected three options to test further. Separate business cases were prepared for each scenario, with financial benefits ranging from $33 to $62 million on a recurring basis.
To capture identified benefits, implementation timelines and schedules were prepared. These implementation plans showed that optimization of the asset base could be accomplished in less than 18 months, with positive cash flows. Realization of the total financial benefits could be achieved in less than two years.
