Category Archives: Resources

Do you have FOMT? (Fear of Missing Targets?)

It’s already May and we’re halfway through second quarter…almost half the year is over.

How is it going? 

Will you hit your EBITDA goals? Your growth goals?

If you are a PE firm considering an exit, will you hit the multiple you want?

Fear of Missing Targets (FOMT) is real, but here’s the good news – it doesn’t have to become a self-fulfilling prophecy. There’s still time to affect your demonstrated results…heck, even your third quarter results, and The ProAction Group can help!

And the news gets better — we often discover that with a few tweaks, we can have a massive impact on EBITDA and valuation.  However, the time to act is now!  We can assist by:

  • Identifying operational opportunities that will increase EBITDA, capacity, and performance.  Incremental improvements that add up to big results.  Many of these improvements show up in EBITDA within 8 weeks.  Some take 3-6 months.
  • Performing the “Home Inspection” before the buyers do.  We will identify the issues and risks an informed buyer will integrate into their decision on how much to invest.  Then we can fix the issue before it even comes up.
  • Providing your team with the bandwidth they need to realize the investment thesis

No one wants to be the person that didn’t act soon enough to achieve the targets, nor is it healthy to experience sleepless nights trying to wrap your arms around what to do differently. 

The ProAction Group comes with the people, process, and tools to get the job done.  We’ll help you hit the targets, generate the value, and achieve your investment thesis.  Let us help.

To learn more, contact us today.

Playing Blind:  The Impact of Uncertainty on the Field and in Business

Close your eyes.  Imagine you are a football player, stepping onto the field during a crucial game. The stakes are high, and the pressure is immense. Your heart races with adrenaline as you take your position.  You hear the thunderous cheers of the crowd. The energy is electrifying, and you are determined to give it your all.

But then, something strange happens. As the referee blows the whistle to start the play, you realize that you have no idea what the score is or how long you have been playing. The scoreboard is blank where the scores should be, and there’s no clock in sight to show how much time is left. You try to shake off the confusion and focus on the play ahead, but that nagging uncertainty lingers in the back of your mind.

Without knowing the score, you can’t gauge whether your team is winning or losing. You don’t know if you need to push harder and take risks to catch up, or if you should play it safe to maintain a lead. Every move becomes a gamble, and anxiety creeps in, making it difficult to think clearly and execute your plays effectively.

As the game progresses, you notice that your teammates are also affected by the lack of information. Some seem to be playing with a newfound sense of urgency, assuming that they must be behind. They take bold, reckless actions, hoping for a miracle comeback. Other players seem overly cautious, unwilling to take any chances, fearing they might jeopardize a potential lead.

The uncertainty takes a toll on team coordination too. Communication becomes fragmented, as each player tries to interpret the game’s situation based on their own observations. Without a common understanding of the score and remaining time, it’s challenging to work together seamlessly as a unit.  The absence of critical information begins to impact your individual performance as well. You find it hard to focus on the task at hand, and doubt clouds your judgment. Your confidence wavers, and you become hesitant in your decision-making on the field. Your plays lack the usual precision and timing, and frustration mounts as mistakes start to pile up. 

OK…you can open your eyes. Not fun, right?   Yet, this is the situation so many business leaders put their workers in… no posted metrics, no start-up meetings, no daily review.

The story of the football game without a known score or remaining time serves as a powerful analogy for business owners. It underscores the importance of having access to real-time data, analytics, and insights to make well-informed decisions.

At The ProAction Group, we understand that success in business hinges on making informed decisions backed by data-driven insights. Our mission is to help organizations thrive by identifying operational improvements, mitigating risks, optimizing procurement, and maximizing revenue and profits. In a rapidly evolving market, the ability to adapt and stay ahead is paramount, and that requires having a finger on the pulse of your company’s performance.

Much like the football player needed to know the score and time remaining to devise an effective game plan, businesses must rely on key performance metrics to make strategic decisions, and managers use key performance indicators to set appropriate expectations on the floor.  Our expertise lies in shedding light on the vital aspects of your business that might otherwise remain obscured. We provide the tools and insights needed to navigate confidently through the challenges, helping you stay agile and responsive.  

Furthermore, we work with your team to establish clear benchmarks of success, guiding you on what to measure and how to interpret those metrics effectively.

Education is also an essential part of our approach. We believe that arming your team with the knowledge of these key metrics empowers them to act decisively and collaboratively towards shared goals. By keeping everyone on the same page and speaking the same language of success, we help nurture a culture of achievement and continuous improvement.

The analogy of playing blind on a football field underscores the importance of having the right information to succeed. With our assistance, you can navigate the complexities of your business’s operational challenges with a clear understanding of your performance metrics, enabling you to seize opportunities, mitigate risks, and propel your organization towards lasting success. Together, let’s bring clarity to your path, so you can achieve remarkable results and secure a winning position in the market.  How can we help?

We have something to share with you…

The ProAction Group is focused on sharing our thought leadership to help organizations improve their operational efficiency and ultimately their bottom line.  In that spirit, we are pleased to provide you with a digital edition of Insider 94, The Midwest Business Journal for entrepreneurs, tailored to the business owner (  The publication offers relevant, current, and unbiased advice covering issues we all encounter as entrepreneurs and individuals.  We are also featured contributors!

Lessons Learned From Alexander the Great

In 356 B.C., a son and heir, who was to become one of history’s greatest logisticians, was born to King Philip of Macedonia. At age 16, Alexander was already a general in the select army. At age 20, a murderer’s knife elevated him to the throne. Quickly, he built his reputation, striking fear into the hearts of those who dared oppose him. He ruled, conquered, and assimilated countries – including Greece, Persia, and India – into his domain for a short 13 years until his death in 323 B.C.

Alexander’s success was not an accident. He was able to consistently defeat enemy armies and expand his kingdom because of his proactive preparation and logical approach to warfare. Some of the key factors in his success were:

  • Inclusion of logistics in strategic planning
  • Detailed knowledge of opposing armies, surrounding terrain, and harvest calendars
  • Innovative incorporation of new weapons technology
  • Maintenance of a single point of control

These same factors can make any organization successful in today’s complex business environment. There are many striking parallels between Alexander’s ancient organization (the Macedonian army) and today’s modern company doing battle in the marketplace. This article examines Alexander’s implementation of logistics principles and how these same principles can be applied today.

Logistics and supply-chain management

At the most basic level, Alexander was able to perform his legendary feats because he included logistics and supply-chain management into his strategic plans, as any company should do to maintain a competitive edge. For example, he timed his army’s departure so the 30-day supply of rations carried by sea transport would last until 10 days after harvest at the first destination city, which provided a seamless supply of food and water for his men until the conquered city could provide them with additional supplies.

Alexander used the following logistical tactics to ensure an open supply chain throughout his campaigns:

  • He maximized the flexibility of the army by streamlining who traveled with the marching army
  • He developed alliances, enabling his army with a constant and planned schedule for resupplies of ammunition and provisions
  • He marched along rivers, taking advantage of sea transport instead of relying on lower capacity beasts of burden

Ironically, despite today’s complex business environment, most boardrooms still do not give proper consideration to the logistics side of doing business, primarily because its function has traditionally been viewed more as a cost of doing business. Logistics professionals in many companies today have failed to educate their executives on how proper logistics management can add value – a fact on which Alexander the Great based his achievements centuries ago.

Two successful examples

Through careful logistics planning, Nalco Chemical Company was able to develop an innovative method of delivering chemical products to its customers, who previously were having problems with their packaging and experiencing chemical spills during delivery. Nalco’s engineers studied the problems and developed a returnable stainless steel container that completely changed the manner in which chemicals were delivered. Called a Porta-Feed, the container eliminated dangerous and time-consuming handling on the part of the customer, as well as the costs of waste disposal. Nalco’s executives had to strike a balance between any doubts they had and the analytical vision that presented itself. They had to act with a degree of intuition and agree to include logistics in strategic and resource planning. Although the decision to market was made without benefit of quantification, the end result was a strong competitive advantage and return on investment.

Another example is Nortek, where a $600 million division struggled with a complicated supply chain. They managed over 26 high end home audio brands and product lines. They had a high mix / low volume demand pattern with significant demand variation and long (4-6 month) lead times from the China suppliers. Their inventory was growing and their ability to fill orders stagnated. It is hard enough to forecast next month’s demand, let alone demand in 4-6 months (due to their lead time). They did address this, but it was not through complex systems enhancements or beating on their supplier base. Instead, they committed to core suppliers, provided them with rolling forecasts and actual weekly demand. This enabled them to effectively reduce their lead time from 4-6 months to less than 6 weeks. They set up a pulse, enabling their suppliers to resupply provisions on a planned schedule, modified by actual recent demand.

Another well-known example is Amazon. They have set up a logistics approach that enables them to deliver product to customers in a way that brick and mortar stores and even other e-tailers can not mimic. Amazon is less than 25 years old and it controls almost 5% of the US retail market.

Knowledge is power

In the area of limited benchmarking Alexander was, in many ways, best in class. He could not always follow a similar organization’s pattern of success, but could instead rely on his knowledge-based intuition. Benchmarking, while a good tool to use, is not reliable when developing innovative solutions. Organizations must continually challenge their world view and themselves to meet changing business demands. Alexander did not rely solely on process knowledge or on technical knowledge about his competition or the terrain, but rather combined both to develop a strategy that allowed him to meet a specific need. He rarely, if ever, lost a battle. Both Amazon and Nalco are companies that have taken the same approach.

Innovatively incorporating technology

In a military scenario devoid of computer tools and mechanized weapons, technology primarily refers to weapons. Alexander’s father, King Philip, invented a new weapon called a sarissa, which was essentially a 20-foot lance. Alexander used this new weapon (technology) to his advantage, and the men in the rear rows of the army’s phalanx wielded the sarissas to provide protection to the front rows of the infantry.

Unfortunately, many companies use current weapons (business tools) to their detriment. The complex and rapidly changing business environment provides more options among technological tools and services. If not properly utilized, any of them can drain a company’s financial and mental resources. Today’s challenge to business is to prudently choose weapons and fully exploit them to meet specific logistics requirements.

In our modern times, new technology weapons, such as non-digital devices connecting to the Internet of Things (IoT), allow businesses to gather supply chain data instantaneously. With the emerging blockchain capabilities to transfer data between manufacturers and suppliers, delays can be mitigated because data transparency reveals any issues in the supply chain as they occur, which can only improve business relationships.

A more mutually beneficial relationship between customer and logistics providers is a strategic relationship. Working together to solve supply chain needs provides third-party entrenchment and enables the logistics provider to invest assets and technology in the customer. In a strategic relationship, the customer awards a specific part of the business to the supplier and agrees to continue doing so as long as the supplier adheres to all the quality, service, and cost standards established during the negotiation process. (This is how Nortek enjoyed its success.)

  • Complete information sharing (forecasts, costs, strategic plans, etc.) between partners along with trust, which must first exist between customer and third party
  • Cross-functional implementation of strategically planned logistics
  • Regular operational and performance reviews
  • A commitment of supply chain assets and management procedures
  • Involvement in strategic planning and integrated logistics
  • A fair sharing of partnership benefits

Whether the weapon is a sarissa or the latest inventory control technique, effective integration of information technology is critical to success. In addition, to be as effective as Alexander the Great, the resources of allies must be used.

A single point of control

Like Alexander, most great logisticians understand that while knowledge-based decision making and empowerment can be relegated up to a point, there ultimately must be a single point of control, a place where the buck stops, a CEO, who is held accountable. Alexander made the decisions for his army. He was the central point of control, he managed the logistics system, an incorporated it into the strategic plan. While modern CEOs should not personally run the logistics management function, they should appoint someone to run this critical area. This person should think like and report to the CEO.

In addition to having the ability to effectively marshal forces, a leader with authority over all aspects of logistics can help a company avoid the disjointed style of operation that leads so many organizations to mediocrity.

Today’s challenge to business is to prudently choose weapons and fully exploit them to meet specific logistics requirements.

Today, more than ever, a single point of control is necessary to maintain a clear vision for an organization involved in logistics management. For example, many widely accepted business practices, such as Lean Manufacturing, cross functional teams, quality systems and process management optimize portions of a company’s existing operations while implementing ways to improve upon them. Too often, however, the optimization of one task or sub-function is completed at the expense of another.

Although Alexander personally led the logistics organization of his army and included it in strategic planning, this does not mean logistics operated in a functional silo. Rather, much like today’s advanced corporation, Alexander’s decision-making process involved cross-functional information sharing.

Like Alexander the Great and his organization, a modern company cannot be fully effective and productive if bits and pieces of its infrastructure are managed by different people sharing disparate philosophies and with no shared culture or central point of contact and control. Effective logistics management processes today are largely a function of having cross-functional, shared information with a single point of control. In organizations where purchasing, shipping, receiving, traffic, production planning, forecasting, and customer service do not report to one person with an overall responsibility for supply-chain management, opportunities for creating increased cost and service efficiencies will fall through the cracks.

In Conclusion

Alexander the Great was so named not because of his physical stature, but because of his philosophies, strategic planning, and accomplishments. His unification of much of the civilized world made the later Hellenistic period possible and provided an example for organizational excellence for millennia to follow. The ProAction Group would be happy to review your needs and assist you in leveraging the logistics lessons learned from Alexander the Great. Please contact us here.

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Metrics – the Beginning of a Culture of Continuous Improvement

Hawthorne Effect

Have you ever noticed that being watched at work changes behaviors? For example, if there is a new supervisor who is trying to evaluate the performance of their team – the team’s awareness of the evaluation actually changes how they behave. This phenomenon is known as the Hawthorne effect, where being aware of closer scrutiny causes improved performance – at least in the short-term. While estimates of productivity increases vary, an immediate increase of 10-15% can be expected. However, if there is no follow-up on the improvements (reinforcement of the new behavior, goal setting, etc.), those output gains can be quickly lost.

Similar circumstances can happen any time new metrics are introduced in a business. While people are not physically being watched, they know their performance (output, error rate, speed, etc.) is being measured. Identifying metrics and tracking progress against established benchmarks are critical components to creating success for a business. If we know that the initial “Hawthorne effect” gains can quickly disappear, how do we hang onto the momentum after the “newness” wears off?

Using Metrics to Sustain Productivity

An important first step to improving any aspect of your business is measuring performance – identifying the Key Performance Indicators (KPI’s) or set of metrics that most accurately reflect how a department or area is functioning. When these have been established, employees must understand how their activities directly influence these metrics – this helps create ownership and accountability. And once the metrics are in place, it is imperative that goals are set and progress is consistently reviewed and adjusted. Using benchmarks is a very useful tool in establishing goals. These can be external benchmarks (for example, comparing your performance to established industry or competitor standards) or internal benchmarks (for example, comparing On Time Delivery performance of one plant or one product line to that of another of your own plants or product lines).

Any time you implement a new metric, you can expect to have a Hawthorne Effect improvement at the beginning. One way to build on and sustain the productivity increases of a new initiative is to incorporate a simple but effective problem-solving process. Effective problem solving shifts our focus from the negative aspects of a challenge we are facing to generating a solution. It helps streamline processes and encourages employees to look for solutions – and many times very simple solutions can have a big impact.

A recent client was measuring productivity at the department level, which was too high of a level to identify root cause issues. We developed productivity measures at a line and product level, which allowed us to quickly identify downtime issues and micro-interruptions. We assembled a cross-functional team and using different problem-solving techniques we were able to identify an equipment issue that was easy to fix and improved uptime by 11% in less than two weeks. Without the productivity metrics this deficiency would have remained hidden and been an ongoing cost to the business.

Continuous Improvement

A culture of continuous improvement is necessary to sustain and increase productivity, and problem solving is just one aspect of this. Continuous improvement (CI) – always being alert for opportunities to improve products, services, or processes – is simple but not easy. Using the self-propelling Plan-Do-Check-Act (PDCA) cycle is one tool to implement CI.

  • Plan: Identify/plan for change
  • Do: Implement change on small scale
  • Check: Analyze results of the change
  • Act: If change succeeded, increase scale; if not, begin cycle again

The following is a good illustration of what PDCA looks like in a Continuous Improvement environment. As improvements are identified and implemented, standardization is used to cement those improvements in place and prevent “rolling back down” to the prior way of operating.

Continuous Improvement_Graphic

One of our recent clients has an older bottle line that ran with 4 operators. The capper on this line performed poorly, generating crooked and cross-threaded caps and the cap would often even fall off. Between 20% and 30% of the caps were improperly applied depending on the product. The primary responsibility for two of the four operators was to make sure all bottles were capped correctly and to rework the bad caps! Management had attributed the problem to the age of the equipment and felt the only solution was a to put in a new line – a major capital investment.

This was a very fast moving line, but by using an iPhone and taking some slow-motion video, it was easy to see the tops of the bottles were moving out of position in relation to the cap due the tooling gripping them around the middle where the plastic was most flexible. As the client watched the video, we suggested a test by raising the tooling to grip the bottle at the shoulder right below the cap. This was done and immediately the cap problem went away. So permanent tooling was made and the line was able to run with only two operators (one replenishing materials and one casing product at the end of the line). Even better, we observed 0 defects for that condition during the remaining months of our project! This focus on problem solving allowed for a fairly simple fix (and significant financial savings) to an ongoing problem.

We Can Help

We are frequently called in to help organizations that are under performing. While most would expect that all businesses today have metrics in place that they are using to drive to performance, we have found that a surprisingly large number of companies have no metrics in place – or the ones that they do have are based on erroneous data, not understood, or not actively managed using problem solving tools. And it is no surprise that these are the companies that are under performing.

Businesses today must be nimble and adaptive, no matter what product or service they provide, because no organization stays static. They either thrive or decline. By establishing valid metrics to monitor performance and by implementing a culture of problem solving and continuous improvement, you can position your organization to be in the group that thrives.

If you would like more information on how The ProAction Group can help your company use Metrics to improve performance, please contact us to discuss how we can be of assistance.

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ISO 9001:2015 What’s In It For You?

Tight Rope WalkerIn our last blog, we addressed some of the risks a company faces if they let their ISO 9001:2008 certification lapse.  This is likely not an issue for 90% of your portfolio companies.  Those companies have already taken the steps to comply with the new, ISO 9001:2015 standard.  For those portfolio companies that have not, losing their certification certainly offers the risk of lost competitiveness in the marketplace as well as the credibility the certification brings to their customer base. Avoiding the risk is certainly a strong motivator, but what about the business benefits the portfolio company can realize when an effective and efficient quality management system is in place?

We will answer the following 3 questions in this article:

  1. Why should I care?
  2. Ok, I hear you, but what’s the business impact?
  3. What should I do now?

In a Harvard Business School study comparing 916 adopter versus Quality Quote17,849 non-adopters of ISO 9001, they found that the adopters of ISO 9001 had the following business benefits:
“Quality is when the customer returns and the product does not”

  • Higher rates of survival, sales and employment growth
  • Increased wages
  • Reduction in waste generation
  • Enhanced worker productivity and ability to pay closer attention to detail

Why are organizations who have adopted ISO 9001 able to achieve these benefits versus their counterparts? The ISO 9001 standard provides a framework to maintain focus on key business elements. Why do customers buy our product? Who are our key partners? Why keep our team engaged? What does it take to create an “even better if” culture that is constantly focused on delivering value?

The American Society for Quality (ASQ) estimates that for every $1 spent on quality management, the organization can expect the following return:

  • $6 in revenue
  • $16 in cost reduction
  • $3 in profit

What are some things I should look for to see if my portfolio company has aligned their quality system with their business system?

Are there monthly management reviews where you can obtain a copy of the presentation package? How often are customers, suppliers, standards committees mentioned? How are employees kept engaged and is there an active development program? Are successes celebrated? How often is the leadership team on the floor or in departments? Upon your next visit, observe when / if this happens.

ASQ, in the same study mentioned above, found that:

  • Quality management reduces costs an average of 4.8%
  • Quality management was a significant driver of success for 93% of the organizations surveyed
  • Without quality management, 83% of organizations agree that they could not justify their pricing to their customers

All businesses have a quality management system that should be contributing to the business. If you are not seeing or experiencing some of the benefits highlighted in this article, a good place to start is by asking why. In asking this simple question, you will be drawing attention and initiating action which can be the spark you need to breathe life into that portfolio company that tends to keep you up at night.

Quality Quote 2

Ready or Not: ISO 9001:2015

The Deadline

Is your portfolio company ready for the ISO 9001:2015 QMS? We’re less than six months away from the deadline to comply with this revised standard, which was rolled out in 2015. While we’d like to assume that everyone’s preparations are well underway (if not completed), we also know that many companies have put this on the back burner while attending to more pressing tasks. As our Private Equity clients have begun to escalate this issue with management, they’ve encountered a trio of challenges. One or more may sound familiar to you.

The Pain Points

The first and most obvious is deadline stress. At this point, any unexpected monkey wrench while you’re moving toward compliance could lead to missing the deadline. ISO certifications are one of the ways we build trust with clients, so you could risk your position as a market leader, or even damage specific client relationships.

Another common complaint is that the sheer scope of what needs to be done seems overwhelming, especially in light of the resources you’ve already invested in compliance. How is it possible, you may find yourself asking, that we’re not closer to the finish line than this? When you find that quality and efficiency issues still persist, despite your best efforts to have sound processes, the recertification process can leave leadership feeling demoralized and frustrated.

Clients often raise a separate but related concern – the cost of maintaining a quality system can be high. But for many companies there isn’t a single system, there are two. One is the system your quality management team designed, which meets the highest quality standards. The other is the way things are actually done. This is particularly common when a team was rushing to meet a deadline. Rather than doing a deep assessment, then redesigning processes to meet best practices, the team designed a castle in the air that didn’t match the existing foundation. The disconnect between these two realities is often hiding potential EBITDA and a myriad of headaches.

The Possibilities

While the actual compliance process is frequently viewed as a headache, the new standard offers many benefits. Organizations that adopt ISO 9001:2015 will move toward a much leaner, process-based approach. This new quality standard is also designed to be tailored to your specific product or service, doing away with a more one-size-fits-all approach. We’re also very happy to see a push toward data-driven decision making.

If you’ve been paying attention to our blog, hopefully you’re making a connection right now. The key components of ISO 9001:2015 align with the best practices we advocate every day. That’s not an accident. You can see why we’d be natural partners for companies on the path to compliance.

What we typically do for clients who are working on their renewal is perform one of two kinds of analyses, depending on your needs. In some cases, an all-areas Systems Audit is the right starting point. Or, if there are specific areas where you feel exposed, we can do a more targeted Surveillance Audit. At the same time, we’ll do a Gap Analysis to highlight opportunities for cost reduction and profit improvement.

This is what we love about this new revision: it aligns your business with your Quality System, which is exactly what we do already. Instead of hiring a consulting firm to help with compliance, then having another firm in later to find overlooked EBITDA, clients who work with The ProAction Group on this will kill two birds with one stone. As an additional benefit, you’ll be able to count our due diligence as an Internal Audit, which it just so happens is a requirement of your QMS. If you’re ready to turn your ISO certification journey into a victory lap, reach out to us.

For Further Information:
Timothy Van Mieghem
The ProAction Group, LLC
445 North Wells St. Suite 404
Chicago, IL 60654
Tel: (312) 371-8323

The Competition is Fierce. Change the Rules. ™


More Operations-Side Indicators of Opportunity

In our last blog, we discussed three critical indicators of opportunities to improve EBITDA within a company. Our goal was to highlight how seemingly innocuous issues can become major resource drains for your portfolio companies. We have identified the key indicators for each of the various functions of a company – all told there are over a hundred. Using them as a lens, we can examine every aspect of operations and illuminate issues that might have been previously obscured by inefficient processes and management tools. If our top three got you thinking, this chart of additional common pain points may also resonate with you.

IndicatorWhat it can mean
Sourced materials have not been competitively bid in the last three to five yearsPerhaps counter intuitively, we have found evergreen (ongoing) contracts to indicate that the company does not test the market and leverage their volume and position to their full advantage. Some companies do put specific and narrow needs out to bid. Either of these signals that there is potential to lower the total cost of goods purchased.
Inbound freight costs are buried in product costsA common answer to “Who pays freight on incoming shipments” is, “Oh, well, freight is free.” We often find that suppliers build profit into freight charges. Unbundling freight costs can lead to significant improvements.
Schedule attainment is not measuredOne of the first questions we ask a plant manager during a tour is, “How are things going?” If they respond, “Great, all the machines are running” or “Our efficiencies are well over 100 percent”, then we know they are likely scheduling the plant based on a “push” methodology. There is a good likelihood that they are building schedules to minimize changeovers and downtime. Measuring schedule attainment is most common among higher-performing companies that run the plant to fill customer orders or on some type of pull system.
Forecast is not measured or is low qualityOften, companies that do not have the discipline to forecast well put unnecessary burdens on operations. These burdens lead to E&O inventory, overtime, downtime, expediting costs, and chaos. If forecast accuracy is low or not measured, the company is likely not managing this area effectively.
Service levels are lowThere are rare instances that require a company to provide poor service and quality levels to their customers. If a company does not have an industry-leading perfect order level, has longer lead times than competitors, or has high scrap/warranty costs, then there is likely a significant opportunity to improve operations and EBITDA.
Service levels are buoyed by high inventory levelsOne easy method to lift service levels is to increase inventory. This approach, however, leads to many costs and problems. If a company has competitive service levels, but holds more inventory than others in their industry, there is opportunity.
Significant work in process (WIP) and overproductionWork in process may not be evil, but it is close. When we tour any factory or office, we look for WIP in front of machines, in warehouses, or in inboxes in the office. Any of these can indicate unbalanced lines and processes. Putting lines and processes into balance leads to cost, service level, inventory, and lead-time improvements.
The company has not conducted a value engineering exerciseWe know that lean manufacturing and process re-engineering can work to dramatically improve cycle times and lead times, and lower the costs to process paperwork, products, and services. The same mindset can be applied to the product design itself. Design for manufacturing, value engineering, or similar methodologies can dramatically improve the landed cost for an item.
VariationIf anything is worse than WIP, variation might be the thing. If a company does not measure variation in scrap, quality, cycle times, warranty costs, or key specification measures, the opportunity could be significant. When variation is reduced, costs go down.
Plant observations of the
“7 Wastes”:
Defects, Overproduction, Inventory, Transportation, Waiting, Motion, Extra Processing
These items represent the most fundamental items to observe during the plant tour and to have management communicate their views on the measurement and management of these wastes.
Individually, these items can be identified and quantified for focused improvement efforts.
Collectively, they represent the cornerstone of any operational excellence initiative to enhance profits, service, and morale.
Late deliveries / past due back ordersAt times, poor customer service can be attributed to a real lack of capacity. We simply cannot produce what our customers demand when the want it. At other times, however, it is more accurate to say that we do not produce at the rate our customers require.
Scrap, field failures, warranty costsScrap is a double whammy. Not only do we have to dispose of purchased materials and write off the efforts we invested to complete our finished good, but we also have to re-do the item to fulfill an order. As a result, any reduction in scrap not only avoids the related expense, but it also creates capacity. If we stop making items we have to throw away, we can use the time to make saleable items!
The company does not utilize make vs. buy decisionsOften, there is a substantial benefit to make something you buy, or to buy something you make. In some cases, you have the scale to justify expanding your fixed cost base, and at other times your suppliers offer a cost structure that beats your own. If the company does document make vs. buy decisions, there may very well be an opportunity.
The company has more locations than strictly needed to serve current customersCompanies often have more facilities, or space, than they need to serve their customers. Warehouses can come with an acquisition. Customers can require a facility be maintained to support their operations. A company manager might be comfortable operating on a large investment in inventory (you can’t sell from an empty cart!!). But with multiple such scenarios happening over time, you will have a foot print no one would design from scratch. A quick review of the current distribution network can highlight duplicate locations and might provide the impetus for additional investigation.
Does the company have a designed approach to determining which customers and SKUs are stocked (make to stock) and which are only made to order?If a company turns their inventory six times per year, then they are paying for raw materials and are paying for the labor 60 days before they ship to a customer, on average. If we extend payment terms with suppliers, that will exacerbate the situation. If the company does not develop stocking plans and set inventory levels based on segmented data, then the return on investment and the delay in recouping the investment may be unbalanced and inconsistent.

These are just the tip of the iceberg when it comes to the many indicators we investigate during our initial due diligence site visits. The good news? They’re all evidence that opportunities exist to make meaningful improvements in market position, EBITDA and inventory management. Think of this stage as taking a sick patient’s vitals, like temperature and blood pressure. It provides us with symptoms to investigate. After all, we need to understand before we can diagnose. A partnership with us provides the most thorough physical your company has ever experienced, and the results will do more than simply remedy an illness– they’ll open up new possibilities for growth.

Reach out to Tim Van Mieghem to explore how an operational diligence can turn your underperforming company into a thriving asset.

Timothy Van Mieghem
The ProAction Group, LLC
445 North Wells Street, Suite 404
Chicago, IL 60654
Tel: (312) 371-8323

The Competition is Fierce. Change the Rules. ™

The Big Three: Top Indicators of Opportunity

When a portfolio company is underperforming, it’s hardly surprising that investors are frustrated and management is stymied (or perhaps stagnant.) Our goal is to bring a fresh perspective to the company and provide analyses that provide actionable data. When we perform an operational diligence, certain indicators highlight opportunities to improve a company’s position in the market and its financial performance. While we have a multitude of targeted indicators we use to address the various aspects of a company’s operations, here are three that cut right to the chase.

Inventory Turns

Does your company turn inventory at rates that are consistent with the top performers in your industry? Since “good” inventory turn levels vary by industry, comparing your company to its competitors provides a good benchmark. It’s also important to review turns based on their ABC classification and margins generated. From these vantage points, you can examine where your current production schedule results in inventory that gathers dust and ties up capital.

Order Fulfillment

Are your service levels competitive, or are they holding you back? Examples of meaningful pain include growing past due backlogs, late deliveries, quality exceptions, and customer complaints. Rising costs, growing inventory, and stretched lead times may all contribute to the problem, as can excessive employee turnover. If you have any of these issues, it’s time to do some digging. You may have process problems that contribute to employee frustration. You might also be suffering from a lack of insight into customer needs. Thorough forecasting is a necessity. Without it, you’re left scrambling to catch up. If you’re constantly employing day-to-day tactics instead of a long-term strategy, customers are bound to notice.


Does your company maintain a closed-loop metric system? If so, do they post visible metrics? If you can’t measure something, it doesn’t exist. This may seem like a strong statement, but it is hard to overestimate the impact of measuring performance, conducting root-cause analysis, and implementing corrective actions. Companies that do this show continuous improvement. Companies that don’t go backwards; no one stays stagnant – you either get better or you get worse.

We often see a 10-15% improvement in performance when we start effectively measuring it, for one simple reason: leadership that doesn’t use metrics is running on gut instinct. While many of us discuss “good instincts” in an admiring fashion, our judgement is most finely honed when we’re well-informed. Management without metrics is largely theoretical.

Pain Points As Opportunity

At the end of the day, if a company turns inventory and fulfills orders at the top end of their industry, they are likely tapping the potential of their company well. And if they have a problem-solving culture, they’ll continue to achieve. If any of these three components are missing or in disarray, then we know there is opportunity to improve the competitive position of the company and its financial performance.

If you’re ready to turn pain into profit, reach out to Tim Van Mieghem to explore whether an operational diligence is the right investment for you.

Timothy Van Mieghem
The ProAction Group, LLC
445 North Wells Street , Suite 404
Chicago, IL 60654
Tel: (312) 371-8323

The Competition is Fierce. Change the Rules. ™

What is Q of Ops?

In a “Quality of Earnings” (Q of E) report the accounting firm audits the financial statements to vet EBITDA, to determine what it is.  Their report will also likely assess the risk of maintaining recent performance at a relatively high level (customer concentration, product mix/margins, etc.).   The Q of E has always been a standard component of the diligence process.  But in today’s deal environment, for a PE firm to understand the full potential of a target – and therefore be competitive in the bid process – they need to go deeper.

A buy side Q of Ops diligence (similar to a Q of E but with a focus on Operations instead) looks at how management runs the company today and determines what EBITDA “should be”.  It answers three basic questions.

  1. What is the likelihood that the company can replicate current performance in the future?  What risks exist that endanger the stability of company EBITDA and free cash flow.
  2. What fundamental changes are needed to scale the company?
  3. What is the financial impact of realizing the latent or hidden value within the company?  The impact on EBITDA, working capital, capacity, lead times, retention, employee engagement, sustainability and/or safety.

Why do a Q of Ops?

Our clients that perform a Q of Ops report the following reasons:

  1. They are tired of losing on a deal and then seeing the winning PE firm succeed in growing the value of the company.
  2. They are frustrated when they end up having to “write a check after writing the check”.  They want to know what they will have to do to maintain EBITDA and grow the company before they close.
  3. They are concerned about hitting the ground running post close.  They want management focused on getting ahead of plan early in the hold and on building momentum for sustainable value growth while they are onboarding the portfolio company.

Sell Side Q of Ops

One major accounting firm we work with reported that they did 0 sell side Q of E’s in 2013, 2 in 2014, 54 in 2015 and over 130 in 2017.  It is a real trend and is proving to be a good investment.  This preparation leads to a smoother close and gives the seller a chance to prepare answers to likely questions and objections.

A sell side Q of Ops is most relevant when the PE firm is:

  1. Worried that selling a portfolio company with mediocre performance will drag down fund performance.
  2. Concerned that the portfolio company is, as one client put it, “a $5 million EBITDA company doing $3 million”. 
  3. Exhausted from investing so much personal time into a portfolio company.

The sellside Q of Ops quantifies the latent value hidden beneath current management practices.  It provides the PE firm and the management team a clear data-driven path to realize that value BEFORE entering the exit phase.

First Steps?

If you relate to the any of the symptoms described above, reach out to Tim Van Mieghem to explore whether the Q of Ops would be a good investment.

Timothy Van Mieghem
The ProAction Group, LLC
150 North Wacker Drive
Suite 2500
Chicago, IL 60606
Tel: (312) 371-8323

The Competition is Fierce. Change the Rules. ™