Focus and Reorganization Lead to $1 Million Cash Flow Turnaround

How Platinum Group is helping to preserve a family and regional legacy

Situation:

A $15 million, family owned and managed custom manufacturer was losing more than $400,000 in cash flow due to foreign competition, rising inventories and lack of operational discipline. Concerned about his viability and credit line, the owner returned to day-to-day management and removed an autocratic general manager. He also had a strong desire to preserve a family legacy business to encourage workforce vitality as the town’s biggest employer. His accountant referred him to Platinum Group for operational, strategic and organizational assistance.

Challenges:

  • Organizationally, no one was accountable for business performance. The owner was unsure where money was being made or lost. And only a fraction of the new, integrated ERP system was being used.
  • Strategic focus was more opportunistic than disciplined. In recent years, 70 to 80 percent of revenue was tied to one customer that was fading quickly.
  • Cash flow problems arose as work-in-process and finished goods inventory grew – a result of a “push” system in the manufacturing plant.
  • Classic low-tech manufacturer had a culture of individual employee measurements and incentives that was driving up payroll costs, work-in-process and cycle times.

Responses:

Platinum partners convinced the owner that much of his custom business was a commodity and not the desired future of the business. The business was at significant risk of further erosion to low labor cost markets. They helped him identify core competencies and prioritize which products were most profitable. To counteract losses, high-end business opportunities with value-added services and quick turnaround are being pursued to insulate the company from competitors.

At the same time, the organization chart was reorganized into a holding company with five profit centers around specific markets that all use the company’s core functions. Then the management team was mentored and empowered to hold more responsibility and accountability for operations.

Training the leadership in Theory of Constraints helped everyone to see the high fixed-cost nature of the business, which had been previously measured in variable terms. Rather than individual incentive programs — resulting in tremendous piles of work in process — employees were cross-trained and provided team incentives to maximize throughput.

Results:

Within one year, sales increased by more than 10 percent with a $1 million turnaround in cash flow and reduced cycle times. Accurate inventory measurement, with better ERP disciplines, reduced inventory and also aided cash flow. By delegating to his profit center managers, the owner has moved into a new business development role. Overall culture change — from autocratic to empowerment and teamwork — is very positive and driving growth.

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