Business Case Study 3 5S Factory re-Layout & Talent Upgrade to Achieve Business Turn-Around

“5S Factory re-layout, Engineering Talent Upgrades & Customer Alignment To Achieve Business Turn-Around.”

SUMMARY: Facing financial losses for over three years, I was hired to turn around my failing division.  This largest division of three in the company was losing up to $2M per year and was in violation of bank covenants.  With the strong support of the CEO and sufficient funding, I undertook a strategic initiative to achieve operational excellence (achieve profitability!) through 1) a comprehensive implementation of 5S and LEAN techniques 2) a fast-following re-layout of the factory floor for improved cycle times and throughput and 3) an upgrade of the engineering talent and re-gain covenant compliance by the end of the fiscal year (only 9 months). This case study highlights the actions taken, challenges faced, obstacles overcome, and the remarkable results achieved through operational excellence.

Situation: The company was experiencing financial losses, human talent exits, and product instability.  Inventory costs were skyrocketing as well creating a pressing need to rebuild operations and engineering and turn around the division.  This was my fiscal year objective with 9 months remaining. Despite this, a significant Department of Defense contract worth over $8M was recently secured, adding pressure to deliver on tight deadlines with stable, multi-chip module designs with 100% pass rates.  These communication modules were intended to eliminate friendly fire casualties in Afghanistan and subsequent conflicts which had become highly publicized with the death of NFL player and Army Ranger Pat Tillman.  To turn around the business and to execute successfully this new $8M annual contract significant improvements were needed immediately otherwise the business would fail to an even greater extent.

Challenges:  With multi-year financial losses, the division was hemorrhaging engineering talent as well.  There was a culture of  "fake it till you make it" illustrating the reality of ineffective design and processing procedures and a fundamental lack of attention to detail and a focus of doing things right the first time.  The viability of the division was in question by all employees.  Concurrently, contractual commitments were made to strategic, internationally known Department of Defense military contracting companies for product supply of multi-chip modules (MCMs) and the accompanying million-dollar testing stations similarly under development in the company.  The MCM design was unstable and there was a growing 6-month late backlog on delivery of the MCMs.  There was a real need for urgent, hands-on leadership, operational improvements, and a recovery and strengthening of these key customer relationships.  Failure was not an option!

Actions:

1. In the face of multi-year financial losses and poor employee morale, I overhauled the engineering team, retaining select, critical members and re-hiring former, high-performing engineers. Engineering talent was an immediate priority.  I was successful in persuading two engineers to return to the company after resigning 4 weeks prior!

2. Collected needed and missing KPI data to baseline factory performance of top SKUs (80:20)

3. Created a dedicated 5S/Lean team with our Engineering/Project Manager for continuous improvement and weekly report-out to myself to ensure continued progress & eliminate barriers or obstacles.

4. Implemented a 2-phase 5S factory re-layout taking place over 6 months incorporating value stream analysis and spaghetti diagrams for improved flow based on an optimized layout of equipment & processes.

5. Implemented visual factory metrics for performance tracking and validated equipment methodically before engineering release or turn-over to production.

6. Upon re-start, we enhanced employee communication and engagement through daily shop floor stand-ups.

7. Introduced internally developed certified training programs, in-process audits, and a full-time roving trainer.

8. Fostered & accelerated customer collaboration on product design and testing with the “prime” US Department of Defense contractor and the sub-prime US Department of Defense contracting company for engineering updates and best practices.  An upgrade in engineering talent was the game-changer here.

9. Brought the design & build of test equipment from a sister division in-house to accelerate final development and testing with the customer(s) in parallel to the final design and testing of the multi-chip modules (MCMs) for body-worn, battlefield communication. (ref: Pat Tillman death, former Army Ranger & NFL player)

10. Finalized MCM design and test equipment design, validated results with the customers and launched into production.

11. Upon completion of the factory layout and other actions, I implemented and personally conducted regular stand-ups with all production shifts for alignment and updates.

Obstacles:

1. Pressing need for immediate results! Eliminate financial losses and improve cash flow via inventory analysis. Needed to quickly provide a plan of execution so as to become compliant with violated bank covenants.

2. Overcoming a culture of complacency, low morale and insufficient engineering support for process development and validation along with routine support of ongoing operations.

3. Many others considering the financial losses and understandable pressure of urgency from top customers.

Results:

1.      In a period of 9 months from March to December:

a. We achieved a 30% reduction in staffing through attrition and efficiency improvements.  Employees who could not overcome their complacent attitudes & personalities exited the company, resulting in an instant morale boost!

b. Revenue increased 50% from ~$12M to $18M by the end of the fiscal year and to $23M within 12 months achieving another ~40% revenue growth.

c. Inventory was reduced by $700,000 by the end of the fiscal year (within 9 months).

d. Achieve compliance with all bank covenants for the 3 months ending the calendar, fiscal year.

2. Turned a prior year fiscal loss of -$500K into profits of +$600K by year end after the factory re-layout and then further to +$2.3M within the following 12 months.

Conclusion:

Through a strategic focus on operational excellence, an engineering talent upgrade, and an efficient re-layout of the production space and the cleanroom assembly and testing space, my division successfully achieved a remarkable business turnaround. The results speak to the effectiveness of implementing 5S principles, fostering continuous improvement, and aligning operations with key customer partners with superior senior leadership communication. This case study serves as a testament to the transformative power of operational excellence in driving business success and profitability.

Morale and division momentum and trajectory grew very favorably as my team responded to hands-on, engaged, and authentic leadership successfully turning around the business while simultaneously securing major US government military and defense contracts, improving efficiency, and increasing profitability within a 9-month timeframe.