CFO Synergy Professionals have enjoyed numerous successes over the past years. Although specific company names must be kept confidential, the success stories pull from experience with real public and private companies. Read about some typical success stories in the examples that follow.
Customer Pricing Issues
A small $15 Million automotive parts and the manufacturing company had over 20 years of profitable history in a quiet USA town. The products were relatively simple stamped steel parts that were welded with minimal automation and produced in relatively high volume. This small company turned from historic profit to monthly losses of about 5 percent of sales. Management was shocked, in disbelief and uncertain as to how to proceed to turn this trend around. However, corporate management was not willing to accept the losses. An analysis of the quote process and manufacturing flows identified the issue. A major new $4 Million contract had started and had been seriously misquoted by:
• Basing overhead on labour time when this new robotic work cell did not carry its fair
share of cost since it had virtually no labour.
• Activities (such as JIT and line sequencing) were not included in the quote costs.
The project team worked with the customer for over six months to turn around this loss-producing contract. The customer’s buyers and engineers were invited to offer advice and support. Several cost reduction alternatives were implemented. During this time, the customer ran market tests to determine the price it would need to pay other suppliers. Through a negotiated settlement, a price increase of 20 percent was approved for the last three years of a four-year contract allowing a return to profitability and, eventually, even more profitable business from that OEM customer.
Focus on Product Strengths
A $50 Million cable manufacturer had suffered for many years with zero or minimal profits. Corporate management had decided to close the facility but allowed a project team one last chance to develop and implement a turnaround plan. The team had 13 weeks to generate a viable and believable plan using product and customer profitability analysis, activity analysis and operations efficiency studies.
The project team successfully demonstrated how a return to an 8 percent Return on Investment was possible in Stage 1 of a two-part recovery process. The first stage of actions including:
• Eliminating several small unprofitable product offerings that required specialized work centers.
• Reducing specifications on some products where customers were not requiring those standards. A “Better/Best” product grouping was introduced.
• Charging for special services that had previously been given to the customers. These extra services were not even offered by their competitors.
• Reducing overhead costs by eliminating non-value-added activities.
The second stage involved the acquisition of another company that doubled its size and provided more economy of scale with less competition.
Fire the Customers
A $40 Million aluminum tube, extrusion company served all customers with requested customized products. The company slowly declined in profitability and, eventually, fell into a loss. A product and activity analysis identified an extremely efficient low-cost manufacturer but one that was filled to capacity and losing money.
The actions on the customer side included:
Firing four customers. The smaller customers who required an average of 40 percent price increase were told to look elsewhere for a supplier, as the company could not supply at those prices. Three of the four customers came back within six months pleading to return at the increased price.
A large customer needing several specialized services, such as deburring, had those services eliminated to gain profitability with the customer’s agreement.
Price increases were negotiated in spite of fixed-price contracts.
Since the manufacturer was, in fact, an efficient, low-cost producer, the increased prices were still better than most of the competition.