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Inventory Reduction and Cash Flow Improvement at a $1.2B Automotive Company

Client Background & Challenges

The existing production planning process was designed to maximize asset utilization regardless of customer demand. As a result, excessive and imbalanced WIP inventories limited inventory turns, lengthened cash conversion cycles, and negatively affected the company’s bottom line.

Approach & Analysis

SSA analyzed the budgeted & projected customer demand (projected or expected demand is ~6% higher than budgeted demand), capacity utilization, and OEE for all assets in the production facility. Through a systematic approach SSA was able to recognize the constraints of the organization and leverage this information to create a material replenishment system based on customer demand (pull).

Upon deeper analysis, SSA found that the company was over-producing some products and under-producing others. This led to higher inventory levels, increased overtime, and stock outs throughout the facility and, in some cases, to the customer.

SSA & Company (SSA) created a production planning system, based on Kanban methodologies, designed to maximize the capacity of the bottleneck operations and optimize safety stocks by part while incorporating the natural OEE of the production assets. The analysis was performed using both budgeted and projected plant production levels for 2015 in order to create a holistic view of the facility from space constraint and performance to budget perspectives.

Results & Value to Client

SSA’s production system, in conjunction with forklift analyses, improved WIP handoff processes and re-location of key assets. Well-defined work instructions enabled the company to reduce WIP inventory by nearly $1.12M while saving an estimated $123K annually in overtime costs.

These savings contribute directly to the company’s bottom line by strengthening the  their borrowing position through shorter cash conversion cycles.

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