Managing
Key Performance Indicators Increases Profits and
Customer Service for Manufacturer
The Challenge
A
local manufacturing company needed new equipment;
however, with dipping profits and projections
which didn't seem attainable, bankers denied the
company's request for a loan. Company owners turned
to a Business Advantage Performance Management
specialist to identify why profits were declining
and what they could do about changing the company's
situation.
The
Results
In
less than a year, the firm increased profits by
more than $300,000, secured funding for new equipment
and significantly improved customer service.
The
Performance Management Solution
After
thorough analyses of key performance indicators
(KPI) such as realization per machine hour and
realization per labor hour for each customer,
the Performance Management specialist discovered
a critical issue: The company's largest customer
represented 40 percent of the business yet produced
only a 14 percent margin. The remaining customers
returned an average overall margin of 27 percent.
Further investigation revealed that the largest
customer adversely affected the service level
for all other company customers. Company owners
were shocked to find that the largest customer
presented time demands that made it impossible
to deliver on time to other customers.
With
this information, the solution was clear. The
company would have to transition the large customer
to another manufacturer. After six months, the
company completely phased out the large customer's
business. Strategically, the company went to its
second-largest customer and discussed prior delivery
and service issues. With a penalty clause for
missing a delivery date in place, the customer
agreed to give the company another shot. It worked.
The customer, which was about to fire the manufacturing
company, tripled the amount of business it did
with the manufacturer.
Over
the next six months, the company, working closely
with the Business Performance Management specialist,
implemented new processes that directly affected
KPIs such as realization per machine hour, realization
per labor hour, and on-time delivery. Incentives
were put in place for on-time delivery and zero
defects.
The
results speak for themselves. Bankers, impressed
by the phenomenal, rapid results the manufacturer
experienced, funded the equipment purchase. The
manufacturer now enjoys 100 percent quality and
100 percent on-time delivery. Profits increased
300 percent (putting the company back where it
was five or six years earlier). And, because customer
service is strong, customer loyalty is at an all
time high. The owners are ecstatic about the remarkable
shift they experienced in just one year.
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