Identifying the “real” business issue

Far too often, people jump to conclusions about the issues facing their business.?This can lead to wasted time and money if the root causes have not been identified.?

Here is a real-life example that illustrates the point.

Background

Our precision manufacturing business was producing mechanical transmissions for the defence industry.?Expecting the market for these products to decline, the business had decided to diversify into the aerospace sector, on the assumption that it would be a good match for our manufacturing capabilities and that it would generate high margins.?

A sales campaign was launched and soon contracts were won with many prestigious aerospace OEMs to manufacture high precision components and transmissions on a “make-to-print” basis.?

The influx of new aerospace contracts increased our manufacturing workload significantly.?

Perceived Issue

Our production control system struggled to cope with the increased volume and variety of parts to be manufactured, leading to unreliable delivery schedules and increased manufacturing costs.

Despite persistent focus of the whole management team on trying to improve control of our production, the business kept missing deadlines and manufacturing costs kept increasing.?

It was then deemed that our production control system was inadequate and had to be replaced with a more powerful and easy to use system.?

We decided to get help from an external consultancy to select the most appropriate production control system.

External Review

The external consultancy team started by collating and analysing data about the whole business.?This highlighted serious issues: -

• Many machines in our vast manufacturing facility were under-utilised and could not produce parts cost effectively due to their limited capabilities and lack of automation.?
• The company also relied on a multitude of local sub-contractors, who struggled to meet our demanding and ever-changing schedules, ending up delivering sub-standard parts as a result.
• Most of our aerospace contracts were loss-making.?Although the business had been very successful in winning numerous aerospace contracts over a short period of time, this had been achieved by under-cutting prices in a fiercely competitive market.
• The quality of a key bought-out component had dropped significantly rendering our main defence transmission unable to meet the specification.?
• We had failed to negotiate regular price reviews with our defence customers as our sales team was focussed exclusively on aerospace contracts.?

Revised conclusions and actions

It became clear that the inability of our production control system to cope with our manufacturing business was not the "real" issue.

Instead, we agreed that: -

• In-house manufacturing had to be drastically simplified to focus exclusively on the essential and complex parts that we were able to produce effectively.
• Parts that could be made more cost effectively by specialist sub-contractors should be outsourced to carefully selected suppliers with great attention placed on carefully managing the transfer of technical information to the new suppliers.?
• Unprofitable “make-to-print” aerospace manufacturing contracts should be terminated in a controlled manner in conjunction with our customers as we could not compete on price on products for which we did not own the design.?
• Our technical team should focus on resolving the quality issue with one of our key suppliers so that our main defence transmission could again meet the specification.?
• Commercial efforts should start on negotiating regular price reviews with our defence customers.?

Outcome

I had the privilege to lead the far-reaching make-buy exercise carried out internally with limited specialist support.?On completion: -

• We had outsourced 50% of the in-house manufacturing workload.
• We had reduced our supplier base from over 20 down to just 2 suppliers.
• We had negotiated a carefully phased reduction of headcount by 30%.
• We had vacated 45% of our shop floor space.

As a result, and having re-focussed on our core defence market, we returned the business to profitability and the vacated floor space led to our sister company winning a large contract requiring the space we had vacated.?

Lessons Learnt

• The external consultancy did not really tell us anything we didn’t know but it helped us to avoid wasting time and money trying to replace our production control system, which was not the "real" issue.
• We decided to carry out the make-buy exercise internally, having realised we were better placed than an external consultancy to identify and implement the solution best suited to our business.

Need for Help

If you would like to explore how I could help you to clarify the issues faced by your business, please send me a message on LinkedIn and I will come back to you.