Our analysis in Texas during 2013 revealed low Overall Equipment Effectiveness (OEE) of around 50% and Capacity Utilization (CU) just above 30%. Due to low CU, idle invested capital was high and both fixed and variable expenses were bloated. Return on Invested Capital (ROIC) was about 1%.
There were significant problems with conflicted Enterprise Resource Planning (ERP) and operating systems following multiple acquisitions. Data integrity was low. Contribution margins were thin due to constant pressure on Sales to load up excess capacity by engaging in margin sacrifice.
Approach & Solution
Sales & Operations Planning systems resulted in reduced variable expenses. Idle invested capital and fixed expenses were recovered by closing a number of plants within regional ‘capacity hubs’.
The operational goals of the program were to lift Overall Equipment Effectiveness (OEE) to 75% in a first pass program at each plant and subsequently lift Capacity Utilization to a minimum of 75%. RONA improved to 14% and annual operating expenses were reduced by $150M (USD).
Pilot Project Success
Building on the analysis, a pilot project was conducted over eighteen (18) calendar weeks using a joint team of 4 full time people in 2013. Overall Equipment Effectiveness (OEE) improved from around 53% on high volume packaging lines to over 70%.
As a result of OEE improvement, Manned Hours were reduced from 86% to 71%. Overtime hours were reduced from 32% of total hours worked to 12%. The result was an annualized expense reduction of $1M (USD) at the pilot site. CU rose from 30% to 43% in a subsequent rationalization of capacity ‘hubs’.
25 Plants across 3 Continents
Based on the successful pilot, PSC was engaged during the first half of 2014 in a phase 1 global rollout to a further 11 plants throughout North America, South America and Europe. Phase 1 was completed successfully.
In the second half of 2014, Phase 2 was conducted at a further 14 sites globally. At the end of 2015, savings have exceeded $100M (USD) and the approach has now been applied successfully at 25 sites in 3 continents, over a period of just 32 consecutive calendar weeks.
ROIC Up from 1% to
Savings (Million $)
OEE Increased from 53% to