Narrowing a Company’s Focus to Broaden Its Appeal

Situation

A 100-year-old manufacturer of industrial products had been deteriorating financially over a 20-year period.With decreasing sales and cash flow, the company had not been profitable for eight years. Management attempted to grow sales and profits by developing new products and entering new markets, which further exacerbated the situation.

Challenges

• Management did not have a handle on its true manufacturing costs.
• Product pricing was a dilemma among representatives, dealers and end users.
• The company was poorly positioned in the new markets.
• Marketing materials were scarce and did not present a consistent message.

Solution

Platinum Group was initially engaged to analyze product catalogs but quickly discovered larger issues. Platinum performed an extensive study of the company’s historical sales and costs. Manufacturing costs were streamlined by expanding common components across a broader range of products and implementing an outsourcing strategy for some components. Platinum’s sales and marketing expertise helped the company to withdraw from two markets to focus on broadening its core offerings. Repositioning included adding new products in the original product line to fill unmet market needs. A new price book was developed for better understanding between the independent representative network and dealers. New sales collateral carried a more consistent message and the repositioned products were offered in catalogs to improve sales and profits.

Results

The expanded common components, in addition to applying Theory of Constraints manufacturing practices, resulted in many cost improvements including lower material handling costs, reduced inventory, increased purchasing discounts, and decreased overtime pay. The outsource strategy saved up to 66% on some manufacturing costs. Gross margins across all product lines increased from an average of 25% to 39% and net margins increased from 12% to 16%. For the first time in eight years, the company was breakeven or profitable for consecutive months.