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.