CASE STUDY 3
Industry: Manufacturer-Wire Formed Products
Size: 140 people; two locations.
Entity: Non-public corporation; two 50% shareholders.
Situation: Declining profitability due to under performing wholly owned subsidiary 400 miles away; managed part-time by the president’s son.
Findings: Out of state, unionized subsidiary losing $100,000 per year.
Top management depth inadequate to effectively manage subsidiary.
Parent’s facility 50% underutilized.
Parent facility could produce the subsidiary’s products at 16% less cost due to better manufacturing know-how, tooling, and plating capability.
Parent company faced with need and cost to rebuild second line supervisory capability and marketing effectiveness.
Parent could retain 50% or more of subsidiary’s sales.
Action: Closed subsidiary.
Results: Eliminated $100,000 per year of losses.
Retained majority of subsidiary’s sales.
Rebuilt 2nd line supervisory level, and improved marketing effectiveness.
Profitability increased dramatically.
Two years after closing the subsidiary, the president repeatedly said “it was the best move the company had ever made”.