Case of gross margin increase at a shipyard

With its 8.000+ employees worldwide, a major Dutch Maritime player designs and builds over 180 ships for several markets yearly. Next to shipbuilding, this company repairs, maintains, modifies and overhauls boats for customers. Over 30 yards serve the customers worldwide, in close vicinity to the customers’ operations.

Globalisation has not bypassed the maritime industry. With competitors from emerging markets getting more mature, superfluous yard capacity, and customers’ increasing knowledge of shipbuilding and repair, the margins of the established companies are thinning.

The challenge

A yard in South-East Asia lagged in quality, delivery lead time, and cost compared to the other yards in the portfolio. Then the market turned down as well. The demand for speciality vessels decreased due to the low oil price. The sales price of all ships was under additional pressure due to all shipbuilders fighting for the scarce projects in the market.

A strong turn-around was the only option to keep the speciality knowledge and experience available at this location in the group. If the performance of this subsidiary did not improve dramatically fast, the better solution was to divest and close the company.

The approach

The new general manager, one of the founders of Modular5, employed his proprietary performance framework.

The vital steps to success are:

1. Company direction
2. Every company needs a clear and inspiring direction. The management team frequently communicates the mission, vision, values and strategy to their colleagues. The aim is to:
   • Ensure all employees and contractors understand and support the direction
   • Let all employees and contractors see how the success of the company benefits them.
   • Help all stakeholders decide their role in achieving the vision.
3. Leadership and trust

The highest standard in the company is the lowest standard of the general manager or owner.

Leadership is the essential responsibility of the general manager. Everyone follows their example; When they break the rules, the rules lose their power.

Teams with high trust perform 186% better than teams that lack trust. The way the leader interacts and behaves influences the trust in the company.

• Surge engagement using gamification
• A competition engages humans; it is in our nature to want to win. Friendly competition is used to get results faster by tapping into the competitiveness of humans.
• Start improving and never stop.

Anyone who has been in the same environment for a while gets blind to the things that are not right.

To improve, the people in the company need to remove their blinders and see the opportunities to do their job a bit better each day.

Fortunately, tools are available in many different toolkits, such as lean, six sigma, theory of constraints, scrum, agile, and many others.

With these tools, the opportunities were identified and harvested.

The Results

The execution of the improvement framework had a profound effect on the business performance indicators.

The number of defects decreased by over 90%. Quality improvement is like a snowball. When there are fewer defects to repair, the workers can focus on their tasks and make fewer mistakes.

The estimated saving per annum is $350,000

Let’s take a look at the results below:

The number of hours used to build an identical ship was reduced by over 40%.

The overall effect on the gross margin of these same vessels is shown in the image. The margin was improved by more than a factor of 8!