Turnaround Requires Multifunctional Approach

Situation

A private equity group owned three specialty manufacturing job shops in the same industry located in different areas of the country. Economic conditions had contributed to a decline in performance below initial expectations set when the businesses were acquired. The private equity group was covering significant cash losses with no end in sight. Expectations for cash infusions in 2011 were in excess of $1MM. The situation was compounded by management missteps in the business most recently acquired. After closing the worst of the three locations, the private equity group brought Platinum in to stabilize the company and improve results.

Challenges

• Top line revenue had fallen off and was considerably short of expectations.
• Vendors were withholding shipments and demanding payments on past due accounts.
• Financial reporting was weak. Systems were disconnected and there was no consolidated general ledger.
• Shop floor scheduling, control and reporting were non-existent.
• Personnel issues in key positions were a constraint to improvements.
• Banking relations were strained; notice was given to find new financing.

Response

Platinum brought a multifunctional team to the project. Stabilizing the vendor community was clearly the most important issue. In addition to withholding shipments, several large vendors were threatening legal action. The decrease in sales performance was due in large part to the inability to get raw materials from vendors. A key competitive advantage for this business was short lead times and the vendor situation was making it difficult to deliver in a timely fashion. Platinum quickly determined which vendors were critical to immediate improvements in operations and worked with those vendors to develop a plan that allowed for the shipment of needed raw materials. Platinum developed shop floor reporting systems that provided feedback on specific jobs and overall performance, leading to several improvement initiatives. The disparate computer systems were combined into one system that allowed the maintenance of a consolidated general ledger and timely financial reports. A new general manager for one of the locations was hired. Several underperforming sales people were replaced and the overall sales activities were more closely monitored and controlled.

Results

Cash requirements were cut to less than half of the initial forecast. Cash flow is now positive and a new banking relationship has been established. Significant vendor issues have been resolved and vendor relations are stable. Financial reporting is now current, complete and reliable. Manufacturing has begun improvement initiatives and has improved control over schedules.