Lean Manufacturing in Automotive Industry for Aftermarket Parts

This article shows a case study of how Kohlberg, Kravis, Roberts & Co. (KKR) was able to create value in one of their portfolio companies through the implementation of Lean Thinking in the enterprise.

Lean in Private Equity is not new. There are several example where lean was used to stimulate corporate renewal, such as using lean to improve a medical device manufacturer, or using lean to improve the buyout of Sealy Mattresses, or using lean manufacturing to improve the automotive aftermaket.

In 2005, Kohlberg, Kravis, Roberts & Co. (KKR) acquired ATU, an automotive aftermarket company in Germany.  ATU was acquired for 27.2 Billion Euros.  At the time, ATU had 536 stores. By partnering closely with ATU management, KKR and Capstone (their operational improvement in-house consultancy) achieved the following ¹:

1. Reduced the number of suppliers from 800, bought more from each, increased margins through volume and quantity discounts
2. Streamlined product portfolio of 15,000 parts and 45,000 deliverable within 24 hours.  Part of this was eliminating unprofitable products taking up valuable space on the shelf and in the warehouses, reducing inventory by 20%.
3. The end result is a growth of EBITDA margin from 11.2% to 13.8%

What is important to remember here is this: the methods and practices that led to the results above are from Lean Thinking and that Lean Thinking is a critical part of Private Equity.

Was value unlocked and created at ATU through the implementation of Lean?  Are customers happier, shareholders happier, and employees happier?  It appears so.

As with all things, it starts with learning to see corporate wastes, then systematically and surgically attacking it.  Applying the principles of Lean can achieve that aim fast, with an eye for the longer term creation of value.