Transforming a Company from Made in America to Profitably Made in America
It took us just one full week onsite to completely understand all of his business problems. We were alarmed by a number of findings affecting profits, revenue, and simple survivability. A few of the most pressing problems were:
- A disappointing 38% “on time” delivery to its clients. The “average” order was 41 days past promised delivery rate.
They carried 192 days of raw material inventory.
- The Cost of Labor had ballooned by 39% as a result of employee overtime.
- Their information system was 20 years old, and jam packed with middleware over the years.
- The business had not made a profit in the prior 4-5 years, and the owner had taken no salary in the past 3 years. The worst signal was that he was borrowing just to pay for continuing operations.
- There are many other specific findings, but they all follow the same path…they were dangerously inefficient, and manufacturing themselves out of business.
Ballooned Cost of Labor
There was an urgency to fix the business and we put a team of experts together to work on all operational and manufacturing disconnects. The proposed team would comprise two works streams to drive quick results:
- Systems and Data Integrity – Fixing their legacy manufacturing system was evaluated and with a decade of band-aides already implemented, it simply needed to be replaced. We recommended a new ERP platform, aligned to a reinvented manufacturing process, and to fix their most critical data for migration from their legacy system to the new ERP platform.
- Manufacturing Processes – We recommended our manufacturing experts, two Six Sigma Black belts trained at GE, provide a new blueprint for their entire manufacturing process, starting from receipt of a purchase order and ending with 100% on time delivery (using the new ERP platform they significantly weighed in on). We also recommended special attention be given to retraining employees, at all levels, so they could understand the “why” and the “what” of the owner’s changes.
While uncovering their “Rubik’s cube” of inefficiency was rather easy, “fixing” it required changes to every moving part of the company. Six months after project completion, the entire company was operating from the new ERP platform, with a nice by-product being team cohesiveness, understanding of company objectives, and breakdown of counterproductive work silos.
Measuring results at this 6-month milestone, we found:
- On time delivery was raised to 78%, and improving toward the 100% mark set forth in our objectives. This also provided a nice increase in cash flows, and eliminated borrowing to run continued operations.
- Overtime labor plummeted from 38% down to just 8%. Further, 18% capacity utilization was freed up because senior management now had anticipated margin data for each new order and could intelligently approve or reject customer discount requests.
- Inventory days dropped to 94 days, creating a very positive effect on cash flow.
- The owner saw a 2.2% profit on continuing operations, and started taking a salary.
We strongly recommended the owner hire a new COO, with acknowledged expertise in manufacturing companies. We were asked to write the new job description, vet candidates, and made 4 recommendations to the owner for interview. Note: he could now more easily manage the new headcount from savings, particularly labor costs.
The business’s turnaround made the owner a happy man, further enjoying his liberation from the minutiae, and investing more of his time in growing (rather than saving) his company. Most importantly to him was that the 3rd generation of family ownership was at the company, and the business was in far greater shape to hand off over the coming years.