How Frontline Factory Teams Delivered $44 Million in Cost Savings

Manufacturing executives face constant pressure to reduce operations costs. The annual budget process has always been my least-favorite exercise. Despite months of trenchwork to prepare and summarize the coming year’s capital needs, our projections more times than not were met with questions about cutting vs. investing.   

Creating breathing room on financials after a significant acquisition drives an added dimension of pressure, especially if it is a rollup of several companies. Conventional strategy in these cases would dictate that you start cutting. This “nuclear” approach often involves staff reductions, trimming office operations and even shutting down plants.

But leading a turnaround event and building the manufacturing enterprise for the long haul can be two entirely different things. 

What if you didn’t take the nuclear approach with expensive consultants, but rather, facilitated existing teams to drill out cost in their own operations? The following is a case study of exactly that.  

In the late 2010s, I was recruited to lead a private-equity rollup of three separate operating companies into one vertically integrated model of 25 factories, two distribution centers and a large private fleet.

The starting point was chaotic and tense, as prior integration attempts had failed to capture the synergies that justified the deal. The combined enterprise was under significant financial distress.

I chose a continuous-improvement, lean/Six Sigma team approach. The thought was to build organizational capability for the long haul while simultaneously driving out significant cost. We did not lay off a single person or shut down a single operation, and my team delivered the cost-out defined in this article.

The Starting Point

Three separate manufacturing organizations. Different technologies, separate customer bases, minimal standard processes, severe lack of financial reporting with little to no understanding at the plant level. The internal cultures of the three legacy companies could not have been more different, and in some cases involved a very low level of skill sets. The result when rolled up: chaos and unprofitability.

How Our Team Approached the Problem

Step # 1: Flying into New Jersey—Calling All Leaders

Instead of canned statements and memos from the corporate office we hit it head on, upfront and very personal. To get maximum alignment and kick off our direction, we organized an event and requested all top leaders from the 27 plants to travel into New Jersey for a two-day meeting. My direct reports and I hastily sketched out a two-day agenda and agreed on each team member’s role. We surmised that this meeting should be about opening up the channels of communication while setting the direction and priorities, understanding the top issues hindering results and stating the “out of bounds.”  

Many of these leaders had not even met each other, even in the same legacy companies. Unsure about how this was going to go, we hastily cobbled it together. Once they arrived and we shook what seemed like a thousand hands, we then asked leaders to take assigned seats alongside leaders they had not met from the other legacy companies.

At first the arrangement was awkward—as we had been operating as three separate companies with three separate cultures at the time—but it helped set the tone for the future and to start building relationships as one team.

Nervously, I stepped to the microphone for opening comments.

“Good morning and welcome. My name is Chris, and it my sincerest hope that we leave here at the end of this event as a new team.”

Key points and priorities that were communicated:

We are one company. Be proud of your past, share what you know, but buy into the future.

Safety is our No. 1 priority. Safety is a rallying point for trust in any company and its leadership, and the first door for establishing excellence.

Face facts. We are unprofitable; not your fault, but ours to fix.

Every order counts. We need it, and our customers expect it.

Cost-out ASAP. Not gutting or scorched-earth, but with continuous improvement and teamwork

My nervousness turned to relief as Day Two of the event turned from initial silence to cautious dialogue and then significant collaboration. During brainstorm sessions, we encouraged plant managers to communicate with each other on something that would have been taboo in the past. We left with a set of quick-hit actions. Each plant manager had 30 days to work with their team on the ideas for the first round of cost-out, and we scheduled follow-up check-in meetings.

Step # 2: Financials/Reporting

One of the biggest issues we faced was financial reporting, which was non-existent to cryptic at best, so it provided no guidance on what was happening at the plant level. I was surprised by how little each plant knew about their own financial performance and wanted them to learn and own it.

One element of all integration events is locating talent that might be underutilized or displaced. Surveying the legacy organizations we found several people who had been reassigned but had cost-accounting experience. I unabashedly became a poacher. I grabbed these people, rolled them up into one team and assigned each a series of plants as a “mini controller.” Through sheer luck, a high-caliber finance guy I had worked with previously happened to be available. He was recruited to lead this team in support of operations.

Under his leadership, the team took on the significant task of rolling out profits and losses by plant so we could begin to see each individual location’s cost. We then divided plants up like operations and compared cost. Meetings were facilitated to close the gaps between the best-in-class plants and laggards. This became the significant first round of cost-out.

Step #3: Continuous Improvement Tools

Short-Term

To quickly roll out a set of simple tools plant teams could use to brainstorm ideas and address waste in their operations, we trained teams on what we called “basic skills” from the lean/Six Sigma tool kit:

·        Brainstorming

·        Root-cause Investigation

·        Multi-voting

·        Fishbone diagrams

·        Cross-functional teams

·        Key Performance Indicator (KPI) reporting

·        Action-item registers

Mid-Term

To track and assess suggested plant projects, our newly minted operations finance team created a cost-out database and a cost-out project verification step. This ensured we had all projects captured and that each could demonstrate the projected return on investment.

This database became instrumental in sharing improvement gains across the business. When one location demonstrated success, the knowledge could be applied to others. The operations finance team also had to demonstrate it could track savings on profit-and-loss statements.

Long Term: Institutionalizing Gains

One outlier we had in this situation was the lack of a strong quality control presence in the plants. This also contributed to excessive inventory costs, customer complaints and credits. We rolled out a new quality group to institutionalize our gains, as well as to boost onsite capabilities to advance product quality and continuous improvement.

This new team answered directly to the plant but secondarily reported to a new vice president of quality who was a Six Sigma Master Black Belt. It was through this new leader that quality group was born—and  each quality manager trained and certified as a Black Belt to support the plant not just as a quality assurance manager but with the ability to train the workforce and assist project team success.

In the End

This frontline-team approach secured $44 million in cost-out from a network of plants in just over 24 months, with a line to $10 million more.

The real kicker was this approach not only boosted EBITDA and valuation but significantly advanced the capability of business teams by embedding continuous improvement methodologies across the organization.

Oh, and I also slept better at night not being the “jobs-cutting guy”—as not a single employee was laid off or a single factory shut down.