There may be trouble ahead...

Client:
High-volume manufacturer, selling to FMCG customers.

Problem:
Our client had recorded 3 years of "break-even" and were struggling to find a strategy that would help them return to profitability. The company was under scrutiny from its bank and were in danger of running out of cash. .

What did we do?
After taking time to understand the business and manufacturing operation, we carried out a "reality check" to identify what had gone wrong in the previous year and challenge the assumptions used in the current plan. Our analysis showed that there was a significant gap between the perceived and actual shop floor productivity, and that this created significant holes in the business model. Compounded with further price erosion and an increase in raw material costs, the business was heading into very dangerous territory. We helped them formulate a plan to return the business to profitability and achieve the financial goals that they had set. The key elements to the action plan were as follows:

1. Stronger working capital management. The biggest area of focus was in stock reduction - moving the company away from long production runs which resulted in high levels of WIP & FG, to shorter, more frequent runs which were more closely aligned with customer demand.

2. To accommodate the more frequent runs, we instigated a productivity improvement project to ensure that the impact of more frequent change-overs did not have an adverse effect on capacity.

3. We designed and implemented a banked hours scheme, giving the company the opportunity to flex employees' working weeks to ensure maximum utilisation of workforce. The effect of this was to eradicate overtime, thus saving the company money and improving profitability of marginal jobs.

4. We undertook a detailed analysis of shift patterns, target productivity and manpower requirement to balance demand with new work methods.

5. We developed a range of performance measures for the management team to drive the company towards the operational and financial targets identified in the profit recovery plan.

What was the outcome?

They are no longer suffering from a disconnect between what happens on the shop floor and what is reported in their management accounts. The resuls of the above actions have resulted in a much more efficient, cost-effective and flexible operation. They have already exceeded the first productivity targets set and are now on course to achieve their stretch goals. The banked hours scheme has played a major part in helping the company maintain a low and stable cost base.

Based on the new cost structure, productivity and flexible working patterns, the specific outcomes were:

  • WIP / FG reduced by £400K (40% reduction)
  • Bottom line improvement in year 1 of £250K
  • New agreements in place with workforce / unions
  • Better understanding of product / customer profitability, allowing for better informed business decisions.