Turning product mix and varying run lengths into a strategic advantage

A contract aerosol manufacturer, built through acquisitions, was looking to consolidate its manufacturing into a single location. They had accumulated an incredibly diverse product line and, within that, very diverse order patterns and sizes.

Their basket of over 600 formulas and over 1200 SKU’s ranged from popular window cleaners, with millions of cans in a run, to specialty rubber products with orders of fifty cans or fewer. Customization and unpredictable spikes in demand further increased the complexity of planning and operating the production lines. Because of this diversity, as much as 50% of production time was spent on changeovers.

Given the above, the CEO was concerned with two main challenges: “How do we best schedule our production and manage our inventory?” and “What should we work on first to improve?”

It wasn’t immediately clear whether customer orders should be made to order, fulfilled from pre-built inventory, restricted to a minimum order size, or handled via some other strategy. One thing was clear: if they didn’t sort this out before consolidation it would lead to chaos.

The CEO called Stroud for help to answer his two questions.

Starting with production planning, Stroud focused on sorting the 600 formulas into 8 product families by characteristics such as product type, changeover costs, and changeover times. The key here was breaking long held constraints that each formula was “unique.” By simplifying the allocation of product types into eight categories, the potential run strategies suddenly shrank to a manageable amount.

Next, Stroud focused on how order types, based on volume and frequency, should be grouped for each product family.  High volume orders were more conducive to a make-to-order model, while lower volume, but high frequency orders could be inventoried or bright stocked and labeled later. The solution could be visualized using a two by two matrix highlighting optimum run strategies; grouping items into one of the four run strategy categories (see Figure 1 below). This optimized cost for a given run of product.

 
 

Figure 1: Cost categories on a two by two run strategy matrix used for production planning

 

With the run strategy clarified, Stroud next worked with operations to improve efficiencies and cut changeover times, making smaller, less frequent runs more profitable. They also worked with the sales team to identify where changes like this could have the greatest impact on the sales portfolio.

Beyond the strategic value of being able to produce the right products, at the right time, in the right amounts, Stroud was also able to help realize over $400k in changeover cost reductions and save hundred of thousands of dollars in inventory carrying costs. What had once been a worry about whether an appropriate run strategy even existed, became an advantage in the marketplace as the company gained business by providing better service levels than its rivals. This allowed the company to continue growing, both organically and through further acquisitions.

 

Like this article? You might like:

To Solve a Hard Problem, Change These Two Mindsets

Accumulation - Effective Placement

Two Year Quality Problem Eliminated in Four Weeks, Saving the Company's Brand