Case Study:
A $400 million OEM designing, and manufacturing telecommunications and medical equipment outsourced manufacturing to an Electronics Manufacturing Services (EMS) company in Mexico. Issues with quality (>10% rejects), on-time delivery (~80%), requirements to maintain excessive finished goods inventory, and the increasing costs associated with managing the EMS contractor (up to 5% of Cost of Goods Sold (COGS)) triggered action instead of reaction from Executives.
Solution:
Mike Schindele, a Mervyn Group team member, led this project. Value Stream Costing analysis was the first step. The Value Stream methodology (Value Stream Cost Accounting) is used by The Mervyn Group to identify opportunities for improvement and improve performance and profitability for companies in general and including for Reshoring/ Inshoring.
A comprehensive value stream assessment was completed to determine the total cost of issues associated with outsourcing to the EMS. The analysis included changes and improvements needed to improve margins and profitability. Labor and direct costs, typically associated with overhead and administration, were attributed to COGS. Costs and impacts on margins were quantified, significant costs associated with rework at OEM, expedited freight to achieve on time delivery, inventory, management time and travel, and Customer satisfaction.
Through the analysis, changes needed to improve operational efficiency and reduce operating and manufacturing costs, and improve quality, delivery and Customer satisfaction were identified. Knowing the true costs and solutions, a decision was made to Inshore to a U.S. EMS.
The supply chain team found in-state sources. The OEM worked with one EMS company to streamline in-house processes to achieve both organization’s goals. Through alternate production methods, process engineering improvements, qualification of alternate raw materials, and value engineering the supplier achieved margin expectations.
Results/ Benefits:
- Sourced contract manufacturing closer to the OEM and its Customers. Improved turnaround time and Customer satisfaction.
- Reduced costs and improved profitability.
- Improved quality and deliver to >95%.
- Minimized Finished Goods Inventory.
The Mervyn Group is ready to help you
- Evaluate cost of goods/ services sold in a comprehensive way (Value Stream Cost Accounting) along with opportunities for improvement,
- Optimize processes and maximize efficiency (Operations Excellence, LEAN, SIOP, Technology and Automation),
- Build new supplier partnerships, and
- Enable your organization to rebound, survive and grow.
Contact Debra Mervyn Debra@MervynGroup.com to learn more.
Next Article- The Power of Simplifying Value Stream Costing- How it cuts like a knife to create a new model for your organization.
