Case: Oilon

Same revenue with half the inventory

About Oilon Group

Oilon is a Finnish, globally operating, family-owned cleantech company that produces combustion technology and heat pumps for a more sustainable future. Oilon provides its customers energy-efficient and environmentally friendly energy production technology and services.

 

  • Industry: Energy technology 
  • Founded: 1961
  • Company size: Large, 70 MEUR
  • Markets served: Global
I warmly recommend Capacent as a partner for these kinds of operations. They have a lot of experience from similar projects, they have very good personnel, they will keep the schedules, and the promises they will give you.
Tero Tulokas
CEO, Oilon Group

 

Oilon - V3 (1)

 

Challenge – Working capital tied in stocks was an obstacle for growth

Oilon’s market has been changing extremely over the last ten years. Demand for low emission energy solutions and new technology for heat pumps has increased. “Oilon has gone through a big transition from an combustion technology producer to a cleantech company in the recent twenty years. We have renewed our product portfolio almost totally,” tells Tero Tulokas, CEO at Oilon.

Furthermore, Oilon has expanded globally during these years. New factories have been opened in Finland, USA and Russia, in addition to office in Brazil. The quickly evolving market as well as the expansion of operations have impacted Oilon’s working capital negatively: “For this reason, there have been some challenges in stock levels and therefore, our working capital demand has increased significantly,” says Tero.

Oilon needed to release cash for growth, and they decided to use external help. “Capacent had good reference cases that suited our needs,” says Tero. We started our cooperation with Oilon in the autumn of 2018.

What was done – Transparency between sales forecasting, R&D and purchasing a key factor for better stock management

Oilon’s technologically advanced organization was very accustomed to deliver tailored solutions to any need in any market in short lead-time. However, tailoring, global customer base, and short lead times don’t go hand in hand with good inventory rotation without special focus. That was the case with Oilon, where lack of cash hadn’t been an issue. Inventories had grown significantly over the past couple of years.

 

As the company’s least efficient working capital element was known, Oilon and Capacent started their joint project with an inventory analysis. The main root causes for high inventory could be identified; lack of management focus, transparency and ownership, half-way implemented material requirements planning module of the new ERP, and communication deficiencies between sales, R&D, and purchasing.

Promptly after the analysis, a project to overcome the prior deficiencies was started. At first, the project activities were jointly planned with a half a year execution horizon with a weight on long term improvements rather than quick wins.

Capacent was responsible for the project management office, together with Oilon’s project manager. Each project stream had owners from the organization and counterparts from the PMO. Teams were cross-functional, and most tasks were carried out as an extracurricular activity. While the project’s focus was on the organization in Finland, also businesses in China, the US and Russia were involved.

 

Case Oilon - Ground source heat pumps

 

Several important activities were carried out during the first half a year. Perhaps most importantly; delivery models and lead times were clarified, inventory targets implemented, standard product portfolio and option logic laid out, sales transformation from special to standard was started, monthly forecasting ramped-up and inventory control parametrizing started. Early on, it was clear that most of the activities were not one-off type, but required repetition and follow-up to progress.

During the second half a year, the implementation of the prior was continued with the addition of ABC purchasing and excess & obsolete streams, among other things. During the final half, the implementation of most previous activities was completed, and on top item count was reduced, inventory control parameters were mass updated and part of suppliers were convinced to keep stock buffers at their premises.

 

Case Oilon and Capacent

 

In retrospect, Oilon’s organization, from top management to shop floor, responded to the change very well and is now even better prepared for similar cross-functional change initiatives. In addition to all the great characters and opinion leaders that rallied behind the project, the CEO’s hands-on way of working showed all the rest, that this project could not be waited to pass.

While not all activities were implemented as planned, the project managed to reach its principal target during its active phase. Sales transformation is progressing into the right direction but hasn’t yet met its target. Item count was reduced, but still bares potential for improvement. The project currently (05/2020) continues in a sustain phase to ensure that the achieved results are there to stay.

 

 

Results – 50 % smaller stock with the same revenue

“I think that the most important achievement was that our stock was halved during this process,” says Tero. High commitment from of the whole Oilon team involved enabled these results.

During the project, employees’ knowledge about how certain operations affect stock increased. “I think quite many Oilon people have learned a lot working with Capacent. Maybe the greatest outcome of this process in long run was deeper knowledge of total process and affecting factors”, summarizes Tero.

“And, of course, we have to continue from that on. We are not satisfied fully with the existing situation, therefore we have decided to continue the work with Capacent also in the sustain phase.”, Tero continues.

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