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CASE STUDY 4 Industry: Manufacturer-Industrial/commercial
metal windows Size: 30 employees. Entity: Non-public corporation. Situation: Unprofitable
for the past five years. Findings: The
“job shop” mentality lacked justification in terms of market potential,
machining capability and financial feasibility. Extrusion dies were being
designed, bid and used in producing customer orders without market, machining
and cost justification. The result
was operating inefficiencies and excess inventory. Company sales reps were
ineffective. Jobs were being released for production without all materials available causing shipping delays and excessive work-in-progress inventories. Job materials were being
ordered prior to receipt of approved drawings resulting in unusable
materials. Production standards did
not exist causing estimates to be poor. Machine layout was poor;
machine operators were doing all of their own materials locating, staging,
loading, unloading and handling. Departmental
decentralization and autonomy was excessive and dysfunctional. Interest on debt was in
excess of 14%. Action: Developed
a turnaround plan focused on standardization, improved pricing, and operating
efficiencies. Standardized product and
machining processes. Ordered materials only
upon receipt of final drawings. Released Jobs only upon
having all materials. Involved shop lead
personnel in bidding process. Restructured and
refinanced debt. Results: Losses
were eliminated. Improved gross profit
margins from 21.1% to 36.6%. By the end of the third
year, net profits were 15.7% of sales. Return on assets climbed
to 27.7%. Cash
balances increased from $700 to $242,000. |