A producer of automated logistics systems had to deal with low project margins (installation turn-key systems). In particular caused by quality issues and additional unpaid work.
Management had asked us to perform a root-cause-analysis that would reveal the issues and possible solutions.
Activities and results
The analyses showed that the applied engineer-to-order method involved many challenges. Firstly, customers were allowed to determine the detailed design to a large extent. As a consequence the product and component variation was enormous. Modular designs were not or only limited applied. Furthermore, R&D and engineering were given the opportunity to freely select components and suppliers. This led to an increase in non-standard components and suboptimal supplier selection.
As a result, the amount of design errors were high and only discovered during installation, resulting in additional unpaid work. Operations were confronted with material shortages due to limited planning horizon, low productivity and production errors due to limited standardization and the lack of modular designs.
We advised applying modular designing, limiting variations or, if desired, applying higher prices for customizations to cover additional work. The selection choice of components and suppliers were reduced and made subject to an authorization flow. Furthermore, a program was launched to better cover the forecasting of long lead items so that price negotiations and material availability would improve.