A manufacturer retools from top to bottom, for sustained growth and profitability.

Manufacturer, in business for over thirty years, had lost money for the past three years.
Management had lost control of the organization, allowing each department to pursue its own agenda, at the expense of top- and bottom-line growth.
Comprehensive lack of communications—between owner and management, and management and personnel— resulted in zero accountability and wasted time and effort addressing daily crises.
Insights & Opportunities process identified management deficits, organizational weaknesses, and absence of financial controls and defined processes, while creating migration path to more cohesive operations and greater efficiency and productivity.
After six months, profits have increased by 100% and the owner renewed his contract with AMS, to continue the process of cultural transformation and adapt to changing market conditions.

Overview

The client, a manufacturing company, had been in business for over thirty years, but struggled recently, losing money for the past three years. The company retained AMS and our advisors began the engagement with an Insights & Opportunities Report. This comprehensive overview revealed multiple issues:

Owner-centric organization disconnected from management
No clear definition or accountability for the profit centers driving sales, payables, turnover and space.
No financial accountability for procedures or functions.
Burdensome accounting system unable to measure all COGS, resulting in owner having to rely on tuition for cost and profit mix.
Sales personnel on both commission and salary, with no strategy for growth or accountability.
Plant management offered little positive reinforcement or constructive criticism.
Job responsibilities changed in response to the daily “fire fight.”
Employees had inconsistent perceptions about job responsibilities.
Mismanagement of personnel and fabricating plant resulted in loss of orders totaling $350,000 and no opportunity for additional manufacturing.
Lack of margin oversight in all areas resulted in increased material costs; $140,000 of additional costs, from approximately 15% increases in fabrication and as much as 5% of overall direct material allocation, weren’t passed on to customers.
Overruns were frequently not shipped to clients, but added to inventory.
Plant personnel received a guaranteed 1.5 hours of overtime a day, with no consequences for not meeting shipping quotas and no incentive to be efficient.

Challenges

The company’s unending “fire fights” effectively prevented it from addressing its more significant underlying problems. Not surprisingly, communications had broken down between the company’s owner and management, and interdepartmental cooperation had also declined.

AMS advisors identified two employees who actively undermined the company’s operations, due to their ability to rationalize their own lackluster performance. The company had also guaranteed plant personnel 90 minutes of overtime a day, with no consequences for missed shipping quotas (and no incentive to be productive or efficient).

Solution

Our Insights & Opportunities Report did more than reveal the fundamental problems facing the company—it gave the owner specific costs for each of those problems, (lost orders, unnecessary material costs during fabrication and unnecessary overtime charges, to name three). However, our report also forecast the gains the company would realize by implementing our recommended processes and financial controls. With the owner’s approval, AMS made the following changes:

Restructured compensation package for the sales force, using commissions to move from salary to incentives.
Eliminated the guaranteed overtime, using the funds to hire one more employee for an immediate 20% increase in production capacity, with no additional fixed cost.
Implemented an incentive program tied to productivity, allowing employees to replace income lost from guaranteed overtime.
Installed a new accounting program, to cut processing time by 20%.
Two new hires replaced team members who chose not to buy into the company’s transformation; the new team now works together to meet their goals.
Team members now track and “manage to” efficiency, productivity and inventory goals.
Revised procedures and functions, making them financially accountable to company needs, profitability and costs.

Results

After six months, AMS reviewed the state of affairs with the client and found that profits had increased by 100%, resulting in positive net operating income. The company’s owner was finally able to work “on, not in” his business, focusing on customer relationships and new opportunities.

Perhaps the most tangible expression of the client’s satisfaction with our services was his decision to sign another one-year contract. Our ongoing responsibilities, such as reviewing the market and making adjustments to sales, cost of goods and services, and general and administrative expenses, are part of the company’s ongoing commitment to continuous improvement.

For more detailed information on this case history and its relevance to your company, contact Fred Rappaport, AMS CEO, at 843.422.1610 or email.