Success Story: A raw materials price spike threatened this manufacturer's survival
When immediate, high-impact help was needed to get inventory under control, Crown Battery's CEO called MAGNET
Fremont, Ohio—In October 2007, Harold (Hal) F. Hawk Jr., CEO and president of Crown Battery Manufacturing Co., received a nasty shock. Lead prices had doubled almost overnight—rising from around $.80 a pound to more than $1.60 a pound in just 45 days. Prices for fuel, plastics and resins were all spiraling through the roof. Hawk knew there was no way the company could raise its own product prices fast enough to cover the ever-widening gap. To make matters worse, he had 128,000 batteries in stock; batteries built with lead prices at historic highs. The company was strapped for cash, delaying payments to vendors and on track for a $2.5-million net loss in its first quarter—a situation it had never encountered before in its 80-year history. Crown Battery was in an unprecedented situation. The more product it produced, the worse its financial situation became. "I said, 'Time out! We have a problem.'" Hawk recalls. "We are going to be out of business if we don't do something about this right now." Working harder, losing money fasterIt was as if a tornado had shredded the economic environment at the same time an earthquake reshaped the business landscape. To survive, Hawk knew his company had to evolve and adapt to a harsh new reality. "We were increasing prices as fast as we could, but we needed additional help," says Hawk. "So that's when we call in MAGNET: for high-impact, immediate assistance to find real dollars and cents." Hawk had good reason to believe he would get the help he needed from MAGNET's service delivery professionals. In 2006, MAGNET had delivered on two three-day kaizen events that yielded excellent results (see "2006 Kaizen Event" below). MAGNET Senior Lean Consultant Michael O'Donnell and Senior Business Consultant Cynthia Leis programmed a five-day kaizen event that would bring together 14 individuals from different functional areas of the business. Critical to success was convincing the members of the sales team that they could deliver on their sales targets and satisfy their customers with a drastically reduced volume of product in stock. "What we do is not magic," says O'Donnell frankly, pointing out that a 5-day event is not enough, on its own, to change ingrained habits. "We at MAGNET always find, at the end of the day, success all comes down to leadership. Hal had the leadership to challenge the status quo as well as the focus to hold his people accountable [for implementation] after the kaizen event was over." The right stuffAccording to Hawk, it all came down to "having the right stuff at the right place at the right time." The kaizen team worked out minimums and maximums for stock levels at the company's branches. They prioritized which products needed to be kept in stock at a what levels. Most importantly, the team designated product lines for which customers would be asked to accept a defined lead time. "We had to take a serious look at customers' expectations," Hawk says. "The team decided we were over promising and over delivering in some areas just because we were overstocked." Follow throughAt the end of the kaizen, Hawk's team had a 120-day action plan with well-defined responsibilities for each team member. And some previously skeptical team members now were completely convinced of the urgency of the situation. O'Donnell says his experience has shown that, without committed leadership and persistent focus from top management, companies implementing lean process improvement will capture only partial benefits from a kaizen experience. On the other hand, companies, like Crown Battery, that incorporate the lessons of a kaizen into their daily logic, frequently find they continue to multiply the ROI from a single lean process improvment project years after the actual event. Results"Within nine months we had inventory down to around 70,000-80,000 batteries," Hawk says with evident satisfaction. "Today (April 2008), we're sitting on inventory of only 60,000 batteries and feeding all our clients successfully. So all that money, around $3 million to $5 million, wound up back in our check book." Even sweeter, now that lead prices have returned to historic norms, Crown Battery is actually more profitable than at any other time in its long history. "When times are difficult, people don't want to spend any money at all," observes Hawk. "But sometimes you have to spend money to make money. When it comes to the kaizen approach, our experience has been MAGNET helps us achieve break-through savings and immediate impact. I don't know of anybody who does it any better." 2006 Kaizen on productivity
Crown Battery's very first MAGNET-led kaizen focused attention on the company's SLI battery grid casting process. The factory was running at full tilt, 24/7, but just barely making its production goals. The overtime alone was astronomical. When staff proposed investing $300,000 in new grid casting equipment to catch up, CEO Hal Hawk said, "Let's study this." "Everybody thought I was crazy," says Hawk with a laugh. "My question was, are we getting the full capacity out of our existing equipment? Turns out—we weren't." After a two-and-a-half day MAGNET-led kaizen event, Hawk's team discovered that, although operators were working 24/7, the casting machines actually were operating only 50% to 60% of the time. For example, on the Sunday evening shift, operators arrived at 11:00 p.m. and began work by switching on the pots that heat the lead to molten liquid. However, the heating cycle takes three to four hours. So actual grid casting didn't begin until 3:00 or 4:00 a.m. Hawk says this discovery was a real "Aha!" moment for Crown Battery's kaizen team. The team left the kaizen with a 90-day action plan. One of the new initiatives was to create a "Sunday Night Readiness" program, to get the lead pots turned on by 8:00 p.m. so operators could begin casting immediately at the start of the 11:00 p.m. shift. This worked so well, that the team rolled out a Sunday Night Readiness program for all the factory's equipment. Other improvements included better preventative maintenance to reduce equipment downtime and new procedures for personnel changeovers. Hawk says the savings identified by the first MAGNET kaizen project amounted to hundreds of thousands of dollars a year, much of it by eliminating overtime. In addition, the company did not need to invest $300,000 in new equipment. "Back then, we were working seven days a week, 24 hours a day and barely reaching our production goals. After the MAGNET program, we are working five days a week, three shifts a day, with increased capacity," Hawk says proudly. Economic Impact as of January 2009
Total EI: $1,100,000 economic impact + 30 jobs created/retained Testimonials"Our experience has been MAGNET helps us achieve break-through savings and immediate impact. I don't know of anybody who does it any better." "We were increasing prices as fast as we could, but we needed additional help. So that's when we call in MAGNET: for high-impact, immediate assistance to find real dollars and cents." —Harold (Hal) F. Hawk Jr. |
