Eliminated Bottleneck in a chemical manufacturing business resulting in a $17.66MM windfall
Through simple observation and communication with operators, we discovered that product transfer from a chemical reactor to mix tanks was taking long er than it should.
Product transfer should take 30-45 minutes had extended to more than 4 hours.
The nature of the product being manufactured lent itself to piping becoming narrowed over time. There was no process or procedure that was in place to measure how long a transfer was taking.
After a brief conversation with an operator at the plant and some further investigation, it became evident that a cross over pipe was closed from 4″ ID to less than 1″ ID.
Because the product was manufactured in 8,000 gallon batches, any extended transfer time reduced the amount of time available for additional batches.
Average batch time was 14 hrs.
So when a product transfer takes 4 hrs when it should have taken 30 minutes, the company was losing 3hr and 30 minutes of production time per batch.
This means that every 4.5 batches, the company was losing a batch.
The average batch was worth $600k in revenue at 45% profit margin.
The company was a 24/7/365 operation so the production capacity per day was approximately 1.7 batches at 14 hrs/batch and 30 minutes transfer.
3 manufacturing locations x 4 – 8,000 gallon reactors per location, so total number of possible batches per year = 7,446 batches
When product transfer extends past 30 minutes, the number of possible branches is reduced.
Because the product transfer wasn’t measured, we assumed an average product transfer time of 60 min before our solution to be very conservative.
Transfer time should be 30 minutes, transfer time was 60 minutes.
So they lose 30 minutes of production for every batch.
So every 28 batches, they lost 1 batch.
With a total possible number of batches at 7, 446 / 28 = 265 batches lost.
265 batches x $600,000 per batch = $159MM gross revenue x 11.11% net profit margin = $17.66MM net profit