David Collins, CMC's Consulting Director, describes a successful China factory turnaround project that he managed two years ago. It involved strong training of the workforce, as well as the application of lean manufacturing techniques.
Hello. Today we want to talk to you a little bit about cost reduction. Want to give you an example of a factory that was a $20 million US factory in revenue that we saved $3 million for over the course of a 12-month engagement. The factory is in Southern China. It was a factory in a small town that had a good workforce but really didn’t understand how to do manufacturing very well.
What we did to fix the factory is we taught the factory managers how to do lean manufacturing. We gave them classes about an hour a day. We didn’t take them off the line so they couldn’t do their job; we wanted to make this part of their job. We wanted the new way of doing business to be something that they could do every day. We gave them … broke them up into small teams, we gave them some projects to do. And these managers themselves, with our guidance, brought back ideas on how we could save money.
Overall, like I said before, $3 million was saved, quality was improved greatly. The factory also was able to eliminate about 50% of the space that it was currently using for manufacturing lines and instead had open space that they could add new manufacturing lines quite inexpensively too so that it could grow its business without having to build a new factory. This is an incredible amount of savings for the factory.
We also rearranged their inventory and taught them how to do just in time inventory pull in so that they didn’t have inventory sitting on the floor. Remember, inventory cost you, the owner, about 2% a month in money carrying cost, the potential damage of the inventory and other issues. By reducing inventory you’re saving that money and that money that’s just sitting in your warehouse is now in your pocket.
So we were able to then get the factory to work with us. I’ve been back to the factory – it’s been a year and a half later. The people are still doing this kind of work and continuing to improve and grow which really makes us happy. We think our success is when the customer can continue to grow and continue to use what we taught them to move forward.