Consumer Product Manufacturer
A McShane partner stabilized an unprofitable Virginia manufacturer with 3 US factories. Losses followed several complaints from the Consumer Product Safety Committee and product safety lawsuits which caused the withdrawal of the company’s fastest growing product line from the market. This resulted in a 40% decline in sales. The resulting issues were extensive:
- Management did not see its ranks as responsible for faulty product designs;
- Cash flow was negative as losses accrued for three years;
- Purchasing did not see itself as responsible for alternative sources for strategic parts;
- Production leaders did not see quality as important in low price product lines;
- Product design efforts were nearly abandoned due to shock from the prior failure;
- Marketing had been neglected, because a ‘cost-plus’ pricing strategy prevailed;
- Standard cost systems did not accurately reflect the cost of hundreds of products;
- Accounting did not want to revise a cost system that had been built over 40 years;
Sales had focused only on price oriented, mass market retail giants; therefore, this 100 year old company had limited hopes for a future. The bank was tired of the loan relationship and gave the owners a deadline to find a new bank. Another lender was not found. The 225 employees, three factories, and a hundred vendors were unaware that they were ‘at risk’ because the owners kept financial results private.
A McShane partner engaged owners and managers in lengthy analysis which led to a new plan. The new plan allowed him to attract multiple new lenders to partner with the company, each of which had the patience to interpret combined results of 30+ planned changes. Then, as new CEO and marketing leader of this re-capitalized consumer product manufacturer, he was able to work with existing management to rapidly implement the many plans which had been carefully staged:
- A factory in Arkansas was closed. Strategic equipment moved to the California facility.
- A severance package was paid to Arkansas employees.
- Union negotiations in the Virginia plant resulted in a higher understanding of employee responsibilities; replacing the defined benefit plan with a defined contribution plan; new options permitting managers to reward select employees for positive contributions; and renewed understanding that negative performance attributes would no longer be lost in a series of tedious union meetings that cost managers time, but rarely achieved constructive change in performance.
- Many non-productive workers were removed, who had not been previously fired due to seniority protections.
- Productivity increased noticeably in all 5 of the remaining production lines.
- New parts designs simplified assembly, making higher quality easier for production staff.
- Alternative vendor sources were found for every material, strategic component.
- New vendors were found for insurance and employee benefits with substantial savings. And,
- Cost standards were updated to be more relevant, accurate and useful for decision making.
By the end of the first year of intense implementation, the company had achieved targeted goals budgeted for the new bank. Profitability was restored to a level that pleased the lenders, the shareholders, and the employees. The vendors were never alerted to the depth of the risk, and so the transition was made without the loss of a single (desired) vendor. Future guidance required a less intense push, but continued the initial momentum, to achieve additional strategic milestones in subsequent years.
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