How Daikin Applied Reached a 93% Clear-to-Build Ratio and De-risked Their Ramp-up with Pelico
By 2032, the US Heating, Ventilation, and Air Conditioning (HVAC) market is projected to grow by over 57%, reaching a value of $60 billion.
However, this growth comes with significant challenges, including stringent environmental regulations, rising parts costs, and an ongoing labor shortage. Despite these obstacles, Daikin has maintained their position as the global leader in the HVAC market, commanding over 11% of the global market share.
Recently, Pelico hosted an insightful webinar, "How Daikin Applied Reached a 93% Clear-to-Build Ratio and De-risked Their Ramp-up with Pelico," which shed light on how Pelico has successfully helped this leading US-based Industrial Equipment Manufacturer to leverage their data to secure business projection and avoid line stops. This blog post is a digest of the webinar held initially on September 26th, 2024.
Curious to watch the full webinar? Feel free to check its replay.
Webinar Team
Daikin Applied's Context
Daikin: Continuous Success Supported by Innovation and Adaptation to Market Trends
In the broader context of the global manufacturing ecosystem, Daikin Applied is navigating a significant trend: the onshoring of equipment production and manufacturing in the United States. This shift is reshaping the industry, fueling demand for advanced manufacturing capabilities while presenting both challenges and opportunities for companies like Daikin Applied.
As new facilities emerge, the need for efficient climate control solutions grows, driving demand for air handlers and rooftop units—core products of Daikin Applied. This evolving landscape requires continuous innovation to stay ahead and meet the market's needs.
Daikin Applied US Facilities: Enabling Single-Piece Flow Production with Advanced Customization Capabilities
Daikin Applied's Customers
As an industry leader, Daikin Applied must navigate numerous constraints inherent to the HVAC sector. Their recent product lines—particularly the highly successful Rebel series—demonstrate their ability to address these challenges. Daikin Applied's products are known to be exceptionally energy-efficient and versatile, supporting engineer-to-order capabilities. Each unit is customized to meet the specific needs of the building it serves.
On the customer side, Daikin Applied serves diverse industries, with growing demand across multiple verticals, including tech, healthcare, manufacturing, data centers, the EV market, solar energy, and more.
It's an exciting time for the business. As we've launched our flagship product, Rebel Applied, it's exciting to see it taking off in the market.
Kyle Evenson
Vice President & General Manager
Daikin Applied
With a commitment to top-notch customization, Daikin Applied collaborates closely with a variety of clients, including data centers, battery plants, and automotive manufacturers.
In this context, teams led by Mr. Evenson and Mr. Cleveland face high demands for on-time delivery, as the units produced are critical to getting their customers' facilities operational. It's also worth noting that Daikin Applied's units play a vital role in supporting medical facilities, such as hospitals, cancer research centers, and pharmaceutical production sites.
Daikin Applied's Facilities: Enabling Single-Piece Flow Production with Advanced Customization Capabilities
Daikin Applied's facilities are primarily located in Minnesota, with their headquarters in Plymouth, northwest of the Minneapolis area. The company operates three key sites in Minnesota:
- Faribault North, located about 45 minutes south of Plymouth and led by Brett Cleveland.
- Faribault South, Daikin Applied's oldest facility, built in 1963, situated ten minutes south of Faribault North. This site focuses on producing rooftop units for North and Central America.
- Owatonna, a specialized air handler manufacturing facility.
These three amazing factories produce over 4,000 units a month in a one-piece flow fashion on an engineer-to-order standpoint.
Kyle Evenson
Vice President & General Manager
Daikin Applied
Almost every unit built by these three sites is different.
But each building is different, and so therefore, typically, each unit is different as we move through that. And this drives trillions of combinations. (...) we've rarely built the same unit twice unless it's for the same set of buildings.
Kyle Evenson
Vice President & General Manager
Daikin Applied
A Closer Look at Daikin's Context Before Pelico
In 2019, Daikin Applied invested in a dedicated facility to manufacture this innovative product, showcasing its commitment to industry leadership. However, like many others, the company faced significant challenges when the COVID-19 pandemic hit.
While internal manufacturing encountered hurdles, the biggest difficulties emerged in the supply chain, when delays became a critical issue. Suppliers were doing their best, but problems arose from various sources—congested inbound ports, rail yard delays, and damaged goods during transit.
A Typical Day in at Daikin Applied: All Eyes on the Clear-to-Build (CTB)
Disruptions faced by Daikin Applied post COVID-19 pandemic made securing the necessary parts to maintain smooth production difficult. Given the complexity of Rebel Applied's manufacturing process, which typically takes less than a day from start to finish, having the right parts on hand was crucial.
The units are substantial, measuring up to 12 feet in width and 54 feet in length, limiting how many can be stored onsite. This meant Daikin Applied needed to find innovative solutions to ensure a "clear-to -build" status while producing these complex machines efficiently.
At one point, we had over 700 units sitting idle in the yard, waiting on critical components. We needed to improve our 'clear-to-build ' process dramatically.
Kyle Evenson
Vice President & General Manager
Daikin Applied
Before Pelico, Daikin's clear-to-build process was largely manual, relying on hundreds of individual reports from their ERP system and Excel VLOOKUPs. This method was unsustainable, lacked scalability, and led to daily surprises as new bottlenecks emerged.
We were leveraging hundreds of individual reports from our ERP system. We were doing VLOOKUPs in Excel... but that was not scalable.
Britt Cleveland
Director of Operations
Daikin Applied
A Constant Priority: Customer Satisfaction
At one point, we had over 700 units sitting idle in the yard, waiting on critical components. It was clear we needed to dramatically improve our 'clear to build' process. We asked ourselves, 'What solutions are available to help us move forward?' That's when we turned to Pelico
Kyle Evenson
Vice President & General Manager
Daikin Applied
Even in the face of significant challenges in meeting its revenue targets, fulfilling EBIT commitments, and managing cash flow tied to these goals, Daikin Applied has always kept the same objective: ensuring customer satisfaction. A understandable focus given the fact the units produced by the manufacturer are pivotal for their end customers.
Our outbound logistics team coordinates directly with a helicopter lift to the top of a building—you can imagine a skyscraper in New York City, Atlanta, or on the West Coast. We have to be very precise in our delivery timeframe. And frankly, we weren't making those delivery times coming out of COVID, and we needed to change something.
Kyle Evenson
Vice President & General Manager
Daikin Applied
To ensure they'd mee this goal, Daikin Applied knew they'd need to start with their on-time deliveries. Given the highly specialized nature of the units, timely delivery is far more than a matter of convenience. It often involves complex coordination, such as synchronizing with crane or helicopter lifts for installations on skyscraper rooftops. In these scenarios, precision becomes paramount, requiring the outbound logistics team to align deliveries with exact helicopter lift timings.
A Typical Day in a Daikin Facility Before Pelico: All Eyes on the Clear to Build (CTB) Spreadsheet
With Rebel Applied being a new product line for Daikin Applied, one of the most significant hurdles was gaining visibility across the supply chain. Like many companies in the post-COVID era, Daikin struggled to maintain a clear understanding of order statuses and pinpoint the major bottlenecks caused by missing parts. Meetings frequently centered on manually tracking components, where teams from scheduling, procurement, and materials planning would gather to ask, "Where are we missing parts? What is the status of these orders?" This approach quickly proved to be unsustainable and lacked the scalability required for efficient operations.
Before partnering with Pelico, the "clear-to-build" process was largely manual. Teams relied on hundreds of reports pulled from the ERP system, using Excel VLOOKUPs and storing various files on individual desktops, trying to piece together a consolidated view of the situation.
We were leveraging hundreds of individual reports from our ERP system. We were doing VLOOKUPs in Excel. We had different files saved on desktops, and we tried to consolidate everything into one spot where we could see it. But as I said, that was not very scalable.
Britt Cleveland
Director of Operations
Daikin Applied
Whenever a new issue was identified, the team worked hard to address it, but fresh problems seemed to arise daily—often ones that hadn't been visible the day before. Daikin Applied soon realized the urgent need for a more scalable and efficient solution, which led to their decision to partner with Pelico.
It really came down to every time we saw an issue, we wanted to do something about it, and it felt like every day there were new issues that we just weren't seeing the day before. We recognized that we needed to take that next step to a better solution, and that's when we started to work with Pelico.
Britt Cleveland
Director of Operations
Daikin Applied
Root Causes of Performance Hindrances: Asynchronously Updated Data, Siloed Information and Inadequate Tooling
As Daikin Applied began working with Pelico, one of the first things that stood out was how quickly the Pelico team grasped their operational challenges and translated them into an effective digital solution. Pelico's platform provided a unified source of truth for all critical data, consolidating information such as inventory levels, supplier delays, and production schedules into a single, accessible dashboard.
This transformation allowed teams to prioritize the most pressing issues each day and collaborate more efficiently across departments. Instead of wasting time tracking down data across multiple spreadsheets, the focus shifted to solving the production problems that had the greatest impact.
As we started working with Pelico, one of the first things that struck us was how quickly they were able to understand our challenges and translate them into a digital solution. Pelico's platform gave us a single source of truth for all our data. It consolidated everything from inventory levels, supplier delays, and production schedules into one dashboard. This allowed our teams to prioritize the most critical issues each day and work more collaboratively across departments. Instead of chasing down spreadsheets, we could focus on solving problems that were impacting our production the most.
Britt Cleveland
Director of Operations
Daikin Applied
In parallel, Daikin Applied also introduced a daily stand-up routine centered around this revamped "clear-to-build" process. With Pelico, they gained real-time visibility into missing parts for each unit on the production floor, enabling them to prioritize efforts based on the most critical shortages. This shift helped drastically reduce the number of units waiting on parts, improved productivity, and reduced lead times.
With Pelico, we could see in real-time which parts were missing for each unit on the floor and prioritize our efforts accordingly. This helped us significantly reduce the number of units waiting for parts. And as we improved our routines, we started seeing the benefits in terms of increased productivity and reduced lead times.
Britt Cleveland
Director of Operations
Daikin Applied
How Pelico helps Daikin to Enhance their Supply Chain Operations Through Data
Daikin Mitigation Strategy: Digitalization and Innovation
Before adopting Pelico, Daikin Applied's processes were already solid, but the tools in use were somewhat manual. The real transformation came with the introduction of digital solutions, which significantly enhanced efficiency.
The primary gap before Pelico was the absence of real-time data. The process was reactive, requiring countless hours to pull details from the ERP system and manually enter them into Excel spreadsheets, which led to duplicated efforts. Additionally, the team worked in silos, without a clear way to connect component buyers from different suppliers. This lack of visibility meant it was difficult to grasp the potential impacts on each unit fully.
Prior to Pelico, we didn't have a clear way to link all the different component buyers from our different suppliers together. We were not able to understand all the potential impacts that would go into a unit.
Britt Cleveland
Director of Operations
Daikin Applied
Forward-looking planning became essential, especially when making decisions around customer on-time shipping. Let’s use an example: when your units are awaited by critical locations like cancer wards needing them urgently, being able to prioritize these components is crucial. However, prioritizing just 1 unit creates a ripple effect on subsequent units—weeks down the line—that needed to be managed, considering supplier lead times.
While Daikin Applied's goal was to meet all customer commitments and demands, it became clear that their challenges were opportunities for improvement. This is the context in which the partnership with Pelico was forged, enabling Daikin Applied to drive meaningful impact across their operations. The HVAC manufacturer needed to ensure they were reducing costs and improving productivity. "It was also important that we provided our team with tools to collaborate", explains Evenson. So, we said, "Let's modernize our tools and unlock the potential within our organization."
Understanding Daikin Applied's Main Objectives
We put the customer first, so... first and foremost: we really needed to improve our customer satisfaction.
Kyle Evenson
Vice President & General Manager
Daikin Applied
Daikin Applied’s our core mission and vision is to deliver an unrivaled customer experience. However, coming out of COVID-19, maintaining this standard proved challenging. As the manufacturer embarked on their journey with Pelico, the team established a key objective: to provide customers with reliable and committed delivery dates.
Achieving this goal required a dual focus on both shop floor and office efficiency. The approach was to become more proactive, gain a deeper understanding of supply constraints, and make informed decisions accordingly. This involved determining trade-offs and effectively prioritizing them to ensure smooth operations.
Putting customer first also means prioritizing on-time delivery, which calls for efficiency. Ultimately, it's about improving both the top and bottom line.
Kyle Evenson
Vice President & General Manager
Daikin Applied
These guiding principles shape Daikin Applied’s approach across all locations:
- Customer-first
- Efficiency and productivity on the shop floor
- Make sound bottom-line decisions
The Secret to Pelico's Impact at Daikin Applied: Intelligent Assistance and Algorithms to Identify the Critical Path
When we first engaged with Daikin Applied, we understood that the complexity of their operations required a solution that was not just capable of handling data but also adaptable to the specific needs of their production processes.
Ismail Zizi
Lead Customer Operations
Pelico
Pelico worked closely with Britt’s team to seamlessly integrate the platform into Daikin Applied’s operations. This provided real-time visibility into their supply chain and production status, a critical factor in optimizing their clear-to-build process.
Training and enablement were also key priorities. It was essential that Daikin Applied’s teams could not only use the platform independently, but also make it an integral part of their daily operations. By empowering Evenson & Cleveland’s teams to make faster, better-informed decisions, Pelico has helped them navigate the daily uncertainties inherent in managing such a complex supply chain.
Live Demo: How Pelico Facilitates Daikin's Teams Daily Routines
Over the course of the demonstration he walked the audience through, Mr. Zizi first started by sharing how Pelico helps them Daikin Applied's Team with their daily Clear-to-Build Routines.
He then shared how different teams from Daikin Applied leverage the supply chain operations management platform:
- first, the supply team;
- second, buyers.
Results and Next Steps
Pelico's Adoptions Curve at Daikin Applied
The philosophy we’ve adopted for this project —it's probably an industry philosophy, is called crawl, walk, run, right. In a nutshell: we wanted to crawl, then get up walking, and now we’re running.
Kyle Evenson
Vice President & General Manager
Daikin Applied
Pelico’s adoption has started in Faribault North. The first teams onboarded were the planners and the production controllers. Eventually, we extended it to the site leadership team and the customer service team, so they could also see what was happening in the factory.
Throughout this process, Daikin Applied realized that their unique product builds required some tailored adjustments from Pelico. They requested that Pelico customize the platform to better align with their specific needs, while simultaneously adapting their own workflows to take full advantage of the new insights and capabilities Pelico provided.
Ismail and the team worked extremely hard over a couple of months to create a custom solution for Daikin. After that, we started rolling it out to other sites, moving from Faribault North to Faribault South and Owatonna, all within roughly six months.
Kyle Evenson
Vice President & General Manager
Daikin Applied
In just six months, Daikin Applied successfully expanded Pelico from an initial pilot facility to three key sites. Seeing the rapid and impactful results at these locations, the company has decided to extend Pelico’s adoption to all nine of its North American facilities, ensuring streamlined operations and increased efficiency across the entire network.
Comparing the Clear-to-Build Pelico's Before and After Pelico
Pelico brought a huge improvement to Daikin Applied’s Teams daily routines. Initially, misters Evenson and Cleveland’s teams would need to have 10 buyers spending about 25 man-hours on the clear-to-build process. Now, they we've been able to drastically reduce that. Their teams can focus on a proactive approach, minimizing time spent on immediate firefighting by addressing parts with suppliers much earlier in the process, which has significantly improved efficiency.
This has also impacted positively the supplier quality, since the manufacturer’s teams can now focus on ensuring parts are delivered as expected, with improved communication and integration with suppliers. Instead of everything being a last-minute emergency, we're now able to have much smoother operations, which has really enhanced our overall ability to build units.
Before Pelico, only one in five units was being built on time, and we had to offline the rest right at the start. Now, that number has dropped to less than 3%, and it was 7% just six months ago.
What's really been a game-changer is having real-time visibility—hourly updates instead of weekly data dumps. We now get notifications and escalation processes in place, and that's been a huge improvement.
Britt Cleveland
Director of Operations
Daikin Applied
The team was used to working in Excel, but now it's just a few clicks—it's all digital. It's like, "Wow, we've got an app for that." This shift has really helped change the mindset of our buyers, and the results have been incredibly positive. It's reduced their workload and the time they spend on tasks, and, to be honest, it's relieved a lot of their stress.
Pelico has also helped Daikin Applied's supply chain leaders, who say
the need to come in early to prepare reports has been alleviated, which has been a great relief for everyone.
Pelico’s Results after 2 months at Daikin Applied
For me, it always comes back to the customer. We were able to improve our clear-to-build to 93%, which was a significant leap within just six weeks. This allowed our buyers to shift focus toward expediting parts and implementing the necessary changes more effectively.
Kyle Evenson
Vice President & General Manager
Daikin Applied
As discussed earlier, Daikin Applied set ambitious top-level goals for its operational improvements, aiming to enhance efficiency and customer satisfaction. The company's efforts to achieve these results were underscored by a significant transformation in its clear-to-build process. Over a six-week period, Daikin Applied successfully improved its clear-to-build metric to 93%, a considerable achievement. This shift allowed buyers to focus on expediting additional parts and implementing necessary changes with greater precision.
Revenue saw notable growth, reflecting more frequent monthly improvements rather than annualized gains. These enhancements also led to a reduction in work-in-progress (WIP) on the shop floor, with fewer units sitting idle or waiting for parts. As a result, the number of units stored in the yard was also significantly reduced.
This operational overhaul translated into remarkable benefits for Daikin Applied's customers, boosting productivity across the shop floor and positively impacting the company's bottom line. A critical outcome of these changes was the enhanced predictability in operations—an essential factor not only for maintaining customer satisfaction but also for meeting stakeholder expectations.
Next Steps
Change can always be hard.
Kyle Evenson
Vice President & General Manager
Daikin Applied
After just a few months of using Pelico, Daikin Applied has implemented standard operating procedures and provided comprehensive training for teams across the platform—and the results are clear. This success is why Daikin Applied's journey with Pelico continues through Pelicare, the extended support model.
Daikin Applied’s decision to adopt Pelicare is driven by three key elements:
- Ensure that Pelico is fully mastered by all teams.
- Continuously enhance how Pelico supports teams in their Clear-to-Build processes.
- Provide Daikin Applied with quarterly business reviews to monitor progress.
This support package is designed to help the company assess system usage, identify areas where teams may need additional support, and uncover opportunities for improvement.
Beyond optimizing system use, Pelicare plays a vital role in driving performance enhancement, ensuring Daikin Applied can continually improve its operations and maximize the value of Pelico.
Q&A
On average, how long does it take to implement Pelico, and to what extent do Pelico teams support the teams during the implementation?
Ismail Zizi: Pelico is designed to be a streamlined, out-of-the-box solution. As a SaaS platform developed over years to address supply chain challenges, implementation typically takes nine to twelve weeks from kickoff to team training.
During those nine to twelve weeks, Pelico teams work on three parallel streams:
- Infrastructure: Ensuring seamless deployment in the customer's infrastructure.
- Data: Cleaning and integrating data, often from the ERP system, to ensure the platform functions effectively.
- People: Shadowing teams from day one, understanding their workflows, and mapping these processes into the platform to ensure a smooth transition.
Pelico’s methodology is simple: teams engage directly with the organization from the start, helping to guide the teams through every phase. After 12 weeks, teams start seeing what Pelico calls "user wins," where teams on the shop floor identify bottlenecks and begin taking action using the insights from the supply chain operations management platform.
Has Pelico made a difference in terms of collaboration with your teams?
Britt Cleveland: Absolutely, it has made a significant impact. We run a tier process within the factory, so our buyers were always spread across various product lines, including Rebel Applied. Initially, we faced constant challenges with part shortages. It often felt like we were continuously asking, "When will this part arrive? Why don't we have this yet?"
Now, thanks to Pelico, we've streamlined our collaboration. Buyers are able to communicate with production managers and supervisors more effectively, saying, "This is your forecast, this is where we're at." They have the information they need readily available, and they're synchronized with production control and the schedulers, which helps smooth out the build schedule. This improved visibility has really helped break down silos and enhance overall efficiency, allowing us to close out units for customers without encountering unexpected shortages midway through production.
Today, we have early visibility into potential issues, and we're able to move through production with minimal interruptions.
As the platform continues to grow, so does its usage and the level of collaboration. Everything is tracked, making it easier to provide updates and maintain smoother operations across the board.
