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Business Improvement Project


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Business Improvement project executed in a UPS (Uninterruptible Power Supply) manufacturing company

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Business Improvement Project

  1. 1. Business Improvement project in a Manufacturing company Babu C Appunny +49 178 168 7959
  2. 2. Project back ground Problem statement Situation Company A: selling rebranded UPS is not able to avail VAT waiver available to UPS manufacturers. A European UPS manufacturer is interested to work with company A in order to manufacture and sell its popular UPS models in India Company B: has profit drop because of competition from Chinese manufacturers. The company lost major bids because of its higher cost driven price Complication Both the companies, already in working relationship, understand each others’ issues and agree work out a JV (joint venture plan) if they can find good synergy between them Question Can company B generate 15% gross profit margin?
  3. 3. Current gross profit levels across product lines Every product seemed to be at same gross profitability level • Cost allocation based on sales share did not reflect the true picture • At gross margin of 8%, the company is almost at no operating profit 50% 40% 30% 20% 10% 0% Cost and margin distribution: perception Sales share Cost share Gross margin, % 5 kVA 10 kVA 20 kVA 30 kVA Company made UPS at 4 power ratings: 5kVA, 10kVA, 20kVA and 30kVA
  4. 4. Gross profit levels after analyzing plant work and purchasing data In reality, 20kVA and 30kVA are making losses 50% 25% 0% -25% Cost and margin distribution: reality Sales share Cost share Gross margin 5 kVA 10 kVA 20 kVA 30 kVA 100% 80% 60% 40% 20% 0% Variable cost distribution Sales share Material Labor cost Consumables Support staff 5 kVA 10 kVA 20 kVA 30 kVA
  5. 5. Scaleability comparison between product lines Based on 5KVA values, in 20kVA and 30kVA, company is not able to derive economy of scale • Two way actions to improve profitability • Reduce variable cost in 20kVA and 30kVA: initiate supply chain actions and LEAN initiatives 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 Comparative product price and cost • Step-by-step increase sales price in higher kVA products 0 10,000 5kVA (reference) 10 kVA 20 kVA 30 kVA Actual sales price Calculated max price Variable cost Calculated max cost
  6. 6. Improvement initiatives reduced cycle time, labor effort, and work in progress inventory Continous flow Cross-skill training Work place setup Quality System Support staff Weekly planning is replaced with daily planning, resulted in cycle time reduction from seven days to three days Large work in progress inventory (WIP) was designed to manage the risk of staff absence. Cross-skill training was established to remove skill „bottle neck“ Removel of large WIP inventory created space for smooth physical flow of parts, resulting more productive staff Quality check list at every step ensured fewer rework Cross skill training enabled 25% reduction in support staff Sample improvement initiatives
  7. 7. Supply chain initiatives reduced material cost and labor cost Supplier change Design changes Out sourcing of non core activities Changed the suppliers of Electronic boards and sheet metal parts resulted in 23% reduction in part price Low risk design changes to reduce „work element“, reduce part variance, change semiconductor manufcaturer Cable preperation and inductor manufacturing were outsourced Sample supply chain initiatives
  8. 8. Summary LEAN actions reduced labor cost and supply chain action reduced material cost, resulting in 6% higher gross profit 50% 40% 30% 20% 10% 0% -10% New situation Sales share Cost share Gross margin, % 5 kVA 10 kVA 20 kVA 30 kVA 25% 20% 15% 10% 5% 0% Saving in various variable cost elements Material Labor cost Consumables Support staff