BS/020313/SH-MISC(2000)CONFIDENTIALThisreportissolelyfortheuseofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcKinsey&Company.ThismaterialwasusedbyMcKinsey&Companyduringanoralpresentation;itisnotacompleterecordofthediscussion.PresentationofDiagnosisResultstotheSteeringCommitteeOperationalImprovementProgramBS/020313/SH-MISC(2000)2KEYMESSAGES¶Thecompanyhasbeenhithardbythe1998crisisinparticularline3¶However,substantialshortermimprovementpotentialhasbeenidentifiedthroughchangesinday-to-dayoperations,makingitpossibletoclosethefinancialgapof1998¶Morefundamentalreconfigurationoptionsmaybringevenmoreopportunitybutneedfurtherexploration¶Thereforeatwo-phaseapproachisproposedforoperationsandpurchasing•Tangiblechangethrough,bottom-upideagenerationandscreening,andimplementationinproductionandmaintenanceunits(line3)andbreakthroughteamsinpurchasing•Institutionalizationphasetoensurecontinuity:KPIs,MIS,organization,incentives,procedures,etc.BS/020313/SH-MISC(2000)3CONTENTS¶Keymessagesandsummaryofimprovementpotential¶Diagnosisresults•Line3productionteamdiagnosis•Maintenanceteamdiagnosis•PSMteamdiagnosis¶Nextsteps•Proposedapproachfornextphasesoftheproject–TOPwavesandbreakthrough–Institutionalization:KPIsystem,organization,procedures,etc.•Incentivesystemforideagenerationandimplementation•ActionsrequiredBS/020313/SH-MISC(2000)4CostsCostsQualityQualityTime/serviceTime/serviceTOPIMPACTDIMENSIONSTheTOPapproachseeksoperationalimprovementopportunitiesalongthreedimensions:cost,time/serviceandquality.•Loweroperatingcosts•Lowermaterialandenergyconsumption•Lowerinventories•Internal–Lessdowntime–Shorterchangeovertimes–Eliminationofslowdown–Debottlenecking•External–Fewerlatedeliveries–Shorterleadtimes•Internal–Lessyieldloss,rework,rejects–Lessdeviationfromspecs–Eliminationofdown-grading•External–Eliminationofcustomercomplaints,deviationfromspecsSource:McKinseyanalysisBS/020313/SH-MISC(2000)5ControllablecostsavingsTime/throughputimprovementQualityimprovementTotalproductionsavingscomparedto1998PotentialsavingsoncapitalcostfrominventoryreductionTotalsavingspotentialTOTALOPERATINGCOSTSAVINGSPOTENTIALFORLINE3*ThecostofLine3excludessemi’sfromlines1and4Source:McKinseyanalysisOverallproductioncostsavingspotentialfortheplant:includingsavingsoncapitalfrominventoryreductionOverallproductioncostsavingspotentialfortheplant:includingsavingsoncapitalfrominventoryreductionSubstantialcostsavingscanbecapturedthroughcontrollablecostreduction,time/serviceandqualityimprovement.BS/020313/SH-MISC(2000)6DEFINITIONOFCOSTTYPESCONTROLLABLECOSTInTOP,allcostsarecategorizedas“A”,“B”,or“C”costs.A40%improvementtargetissetfor“A”and“B”costs.Costtype“A”“B”“C”DefinitionThosecostitemsthathavenostricttheoreticalorlegallimitstoconstrainimprovementopportunitiesThecontrollableportionofthosecostitemswherestricttheoreticalorlegallimitsdoexist.Thecostinexcessofthelimitsissubjecttothe40%targetThenon-controllableportionofthosecostitemswherestricttheoreticalorlegallimitsdoexistExamples•Labor•Operatingsupplies•Subcontracting•“Excess”energyandmaterialcosts(duetolessthan100%yieldandefficiency)•“Core”energyand“core”material(requiredat100%energyandefficiency)ImprovementtargetPercent40400Source:McKinseya...
