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McKinsey’s Recipe for Scaling Complex Production

By February 13, 2023July 20th, 2023No Comments

Many original equipment manufacturers (OEMs) who made it through the challenges of the past couple years with product lines and reputations intact are finding it’s not enough to rest on their laurels. In particular, OEMs in high-complexity, low-volume industries—such as aerospace and defense—face still more uncertainty due to inflation, tight labor markets, and still-stressed supply chains. The difference is that demand for production is bouncing back in a big way.

This means aerospace OEMs need to ramp up from low-rate to high-rate production, which represents a huge undertaking. In a recent article from McKinsey & Company, “Aerospace and defense: Easier scaling for complex manufacturing,” the authors explain how a foundation of core infrastructure will help OEMs achieve their scaling goals. As McKinsey points out, “Without an effective approach to increase capacity, rapidly scaling production may well result in missed targets, significantly overrun budgets, or—more often than not—both.”

Barriers to Scaling Production

The article acknowledges that even as it becomes more critical for OEMs to do so, it’s especially hard to scale production rapidly in the current sociopolitical climate. Rising capital costs and inflation mean OEMs have fewer resources to invest in the additional assets required for higher production rates. Finding and onboarding skilled talent is another barrier, due to factors such as aging workforces, a widening skill gap, and the economic impact of COVID-19. The pandemic is also the root cause of ongoing disruptions to the global supply chain that can still hinder the flow of materials to OEMs. And ultimately, when demand ramps up to necessitate larger-scale operations, OEMs face a monumental impact to daily production operations and the operating model that can sustain and deliver the higher output.

But McKinsey has the answer: a recipe for scaling complex production. As proof it can work, the article presents a short case study of an aerospace OEM that followed the plan and created a road map that aimed to triple their production in less than two years, while also saving approximately 20 percent of planned capital investment.

How to Achieve Scale

McKinsey’s approach to successful scaling starts with a foundation. To fulfill booked orders while also adding assets and new hires and redefining your operating model, they identify key elements that must be part of your organization’s core infrastructure. These will be critical for mitigating cost overruns while simultaneously transitioning to full-rate production. They include a “deliberate, methodical, and codified approach to scaling production,” detailed strategies per capital asset to predict and reduce disruptions, an agile operating model to cultivate and instill new ways of working, and more.

Building on that foundation then requires a mixture of McKinsey’s core ingredients and accelerants.

 

Core ingredients are strategies for how best to use existing resources to meet demand.

  • Maximizing throughput involves running production machinery at near full-potential capacity, as well as the development of specific maintenance strategies and processes necessary for sustaining higher output levels.
  • Shift design and shift augmentation can help unlock incremental capacity without much capital expenditure. This enables OEMs to balance labor needs while also maximizing throughput.
  • Incremental capital investments can be minimized via a total cost of ownership approach that evaluates factors such as lifecycle management, predictability of future demand, and make-buy decisions.

Accelerants are actions you can take that both help you improve or increase output and help you create the required infrastructure for increased production.

  • Advanced analytics can help maximize what’s learned from each production iteration. Having the proper data can also feed digital simulations and digital performance management to identify performance optimization opportunities.
  • Supply-chain scaling is critical to increasing output and ensuring efficient and continuous operations. It starts with evaluating your part for criticality and the ability to simplify or redesign. Next is assessing supplier risk for performance, scalability, and reliability. Finally, mitigating potential risk may include developing redundancy in the supply chain.
  • Optimization of working capital by developing the right fulfillment strategy that can balance part availability and mitigate waste.
Aerospace Case Study

The aerospace OEM McKinsey describes followed this recipe to increase overall capacity by tailoring its production strategies for each asset, “including redesigned standard work, decoupled and batched workflows, targeted maintenance strategies, and a rigorous focus on overall equipment effectiveness (OEE).” That approach saved more than $10 million of potential investment in six assets. It also meant the production line was able to reduce excess staffing requirements by 20 percent.

The OEM is on target for working capital improvement of $400 million by instituting targeted fulfillment strategies for each part on its bill of materials (BOM). In addition, the reduction of obsolete parts and inventory backlogs resulted in a one-time cash avoidance of more than $25 million.

The Recipe for Scaling Success

McKinsey’s guidelines for how OEMs can scale production capability are rooted in Industry 4.0 principles—including increased connectivity, smart automation, analytics, and digital simulation capabilities. These technologies and data allow OEMs to increase capabilities across all supply tiers and in the factory itself at the same time. Best of all? It can boost production ability for any type of OEM, from established to disruptor, while also helping preserve product portfolios and profitability.

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