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Operations management model transformation

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Large-tonnage machinery engineering and manufacturing company, subsidiary to an important, diversified multinational group, improves profitability and service levels by implementing a new operations management model.

Initial client situation and challenges

The company, specialized in designing and production of customer-tailored equipment goods was experiencing delays in the execution of projects that were generating significant issues at the end of the production process, incurring in penalties and cost overruns.

Despite the importance of the final price of the production output as a factor of competitive differentiation, the cost factor had little rellevance in the management of each design and production project, with a typical duration of several quarters. This situation was gradually reducing in a sustained way the profitability of that business activity.

To face that problem, the client decides to optimize the project management function to improve the average profitability of each project by containing costs and reducing production timings while avoiding a negative impact in product quality.

Solution Approach

A critical analysis of project management processes was run under the light of cost optimization that turned in the implementation of a new management model that will allow:

  • The strengthening of the role of project manager as a key element for liaison, coordination and focus around common objectives with all involved departments: design, sales, controlling, purchasing, production and project management.
  • The improvement of project costs visibility, its deviations and their originating causes in all phases of the project.

The challenge of greater complexity was the cultural change in the organization, implemented in the shortest time possible for leaner approach across all stages and in collaboration with all functional departments managers and project managers within the framework of a matrix-based organization.

Strategic actions were aimed to:

  • Increase the focus of the entire organization in a coordinated manner towards common goals based on new priorities and impacting on multiple management processes in order to properly support the function of the project manager.
  • Improvement of project management, multi-project and area management to drive better reliability and to optimize the tracking system.

Results

The implementation of the new management system allowed the immediate improvement of the contribution margin per project by 4% keeping up with both deadlines and service levels.

In addition, the new management model, focusing on the quality, time and cost of projects provided new capabilities for continuous improvement due to the adoption of new management standards:

  • Proactive programming system based on the supervision of suppliers and the management of delivery times.
  • Continuous analysis of cost and time deviations vs. planned budget and schedule.
  • Segregation of the functions of purchasing and supply management.