Category Archives: Uncategorized

Revitalize Your Stale Portfolio Companies

What you can do today to turn things around in 2020

Stale portfolio companies not only impact fund performance, they also drain valuable time and resources. While it may be clear that a portfolio company’s potential is not being realized, PE execs often have trouble getting to the bottom of “why”.  And, management struggles to explain and fix the problems.

So, for each underperforming company in your portfolio, ask yourself: 

  1. Has this company been lagging behind expectations for 3 or more quarters in a row?
  2. Rather than utilizing internal resources to continue propping up this company, might our time be better spent elsewhere? 

If you answered “yes” to both questions for any companies within your portfolio, then it’s time to bring in outside resources. Third-party operations consultants bring focused attention and unbiased expertise to the core problems facing the company. Effective consultants sidestep any ongoing conflicts, identify achievable solutions and provide the evidence and clarity to gain buy-in across all segments of the organization. 

In fewer than 4 weeks, you should expect to receive an unbiased assessment including: 

  • What is affecting performance levels? 
  • What are the hidden EBITDA opportunities? 
  • What is working well? 
  • What operational changes are necessary? 
  • What personnel adjustments are needed to set the company on a path of sustained growth?  

Operations consultants should integrate closely WITH your portfolio company’s management team and build organizational buy-in to any proposed changes. And, following the initial assessment, they should have the capabilities to work alongside your management team to effectively implement identified strategies, and ultimately build the bridge between the company’s performance and your expectations.  

As you head into the new year, don’t let operational challenges linger at any of your underperforming portfolio companies. Contact us today to find out how The ProAction Group can help you take the first steps to making 2020 a home run year.

Leveraging “9-Box Insights” to Find Hidden EBITDA: Part 3

9-Box in Action: Examples of Successful Implementations

Enough theory already, let’s bring it into the real world.  Here are two “headlines” from recent projects that used the 9-Box framework:

Mid-market Manufacturer of High-end Auto Parts Reduces Inventory by 30%, Increases Fill Rates and Improves Customer Satisfaction in less than 60 Days 

“Private Equity Firm Finds $2M in Easy-to-Achieve Inventory Reductions During Pre-close Diligence”

This third part in our series, “Leveraging “9-Box Insights” to Find Hidden EBITDA”, punctuates our discussion by showing specific examples of how Private Equity Firms and their middle market portfolio companies leverage the 9-Box methodology to gain strategic insight and increase enterprise value.

By the way, if you missed either of the first two posts in this series, you can find them here: 

Strategic Decision Making in the Era of Abundant Data 

Turning Data into Insight

Case #1

Mid-market Manufacturer of High-end Auto Parts Reduces Inventory by 30%, Increases Fill Rates and Improves Customer Satisfaction in less than 60 Days 

This business had over 3,000 active SKUs and struggled to source, schedule and manage the inventory for such a broad product line.  The organization segmented its data in numerous ways, and using the 9-Box framework, profiled their sales by SKU and Customer Size.  The following table summarizes the findings: 

The yellow area of the table represents 89% of their total sales, BUT ONLY 9% of their customers and 8% of their SKUs.  Visualizing sales data in this 9-Box format allowed the company to see (glaringly!) that they didn’t need to plan all 3,000+ SKUs the same way.  Instead, they needed to focus their planning efforts on the 89% of sales highlighted in the chart.  Within 60 days, they had increased fill rates, improved customer satisfaction, and reduced inventory by 30% with more reductions to follow over the ensuing 12 months.

Case #2

“Private Equity Firm Finds $2M in Easy-to-Achieve Inventory Reductions During Pre-close Diligence 

In this example, a private equity firm wanted a due diligence assessment of all operations prior to closing an acquisition. As part of the assessment, the 9-Box framework was used to segment and display company inventory. By plotting inventory by SKU based on COGS and Volatility, we found over $2M in inventory reductions without impacting fill rates.

With this insight, the PE firm was able to bid competitively knowing the underlying opportunity to immediately add new enterprise value. Shortly after close, the company reduced inventory by 50% and freed $2.3M in cash which was used to expand sales and marketing efforts to grow the business.

Summary

Numerous proactive CEOs and their Private Equity sponsors are effectively leveraging 9-Box insights to uncover opportunities for growth and drive operational improvements. These examples led to enormous EBITDA gains, working capital improvements and operational efficiency. As companies consider enterprise planning, the best CEOs and PE sponsors will not get lost in “the way we have done things,” but rather, will be forward-thinking and utilize the 9-Box framework to turn segmented data into strategic insights for moving the business forward.

Leveraging “9-Box Insights” to Find Hidden EBITDA: Part 2

Turning Data into Insight

When was the last time your CEO sought board approval for additional capital investment in inventory? Our guess is never. Inventory is not typically thought of as a capital expenditure. Despite thatmid-level production managers will regularly make decisions to spend millions in inventory without executive review, approval or evaluation of the business case. These decisions are “under the radar” and not given the same scrutiny as purchasing new equipment, making an acquisition, or launching a new product line.   

But excess capital tied up in inventory can be deployed to other purposes that drive greater enterprise value. Shouldn’t inventory investments rise to the level of executive / board visibilityShouldn’t inventory investments be viewed as highly strategic and analyzed to make sure they are delivering strong ROI? 

Inventory is just one example where mid-market manufacturing firms have operational blind spots that can severely impact EBITDA and Enterprise Value. In Part 2 of our series on Leveraging “9-Box Insights” to Find Hidden EBITDA, we focus on how the 9-Box framework can turn your data into new insight and remove blind spots from strategic decision making.

Elevate Your Operations

Did you know that on average, over 26% of the increases in portfolio company value come from operational improvements?1 Unlocking this extra enterprise value usually requires multiple initiatives across your entire operational landscape. We advocate taking a thoughtful, strategic approach to sales forecasting, production planninginventory management, order fulfilment and customer success. Leading mid-market manufacturing firms do this by elevating operational efficiency to be a strategic imperative and including operational improvement initiatives in the annual strategic planning process. Insisting that Operations executives submit a formal proposal, business case and tangible ROI objectives ensures operational initiatives get the same scrutiny as any other capital investment.

9-Box: Go from DATA to INSIGHT 

One key tool in our arsenal is the 9-Box framework. The 9-Box model provides a simple and effective way to highlight opportunities for inventory optimization, SKU rationalization, production planning enhancements and pricing opportunities. In short, it is a powerful tool to turn your operational data into strategic insight. 

Let’s dive into how it works.

Segment, Segment, then Segment Again 

Start with sales, margin and inventory data from the past 12 calendar months, then segment that data from a variety of perspectives. For example: 

  • Segment your SKUs by sales volume and volatility 
  • Segment your customers by margin contribution 
  • Segment your sales by SKU velocity and customer size 
  • Segment your raw materials by sales volume

You get the point. 

By slicing and dicing the data into the 9-Box framework, you can encapsulate on one-page some powerful details about your business. Instead of KPI dashboard, the 9-Box framework allows executive leaders to answer tough questions like: 

  • Which of my customers are the most profitable and which should be fired? 
  • Are inventory levels correct and in line with industry benchmarks? 
  • Are we pricing our products correctly, or are we leaving margin on the table? 

One Size DOES NOT Fit All 

Invariably the 9-Box framework will identify large variations between categories of SKUs, customers, raw materials, margin contribution, etc. When variations are large the processes to manage these components should NOT be the same. One size definitely DOES NOT fit all. 

For example, if 80% of your profit comes from 10% of your products, then those products should be forecasted, planned and managed differently from the other 90% of your products. Similarly, if 20% of your products generate little or no profit to the business, shouldn’t you evaluate in detail whether keeping those products in your catalog make sense? 

Be Smart

Smart executives recognize the need to focus company efforts on the most strategic activities. The 9-Box framework allows everyone in the organization to clearly see where the “biggest bang for the buck” will be and to focus their efforts accordingly. It also exposes inefficiencies and areas where capital can be redeployed more effectively.  In short, it is one of the most effective and valuable tools in maximizing enterprise value. 

In our next and final post in this series, we will dive into some specific, real-world examples where 9-Box analysis led to enormous EBITDA gains, working capital improvements and operational efficiency.

Leveraging “9-Box Insights” to Find Hidden EBITDA: A Three Part Series

Strategic Decision Making in the Era of Abundant Data

In this month’s Hidden Value blog series we will dive deep on how proactive CEOs and their Private Equity sponsors are effectively using data to identify opportunities for growth and drive operational improvements. We will start by exploring the challenge of strategic decision making in the era of abundant data.

Scottish Wisdom

Leave it to an old time Scotsman to lay down some business wisdom over a century ago that still rings loudly today:

“[He] uses statistics as a drunken man uses lamp-posts – for support rather than for illumination.”
– Andrew Lang, Scottish poet and novelist, 1910

Unfortunately, many modern business executives do just that, using data to support recommended actions rather than identifying insightful actions from the data.

The Dashboard Trap

Businesses are awash in more data than ever before. Today’s modern software tools provide a wide variety of ways to gather, aggregate and present data. Dashboards track every KPI imaginable, highlighting trends and variances for executive leaders to review and digest. With a few clicks, executives and managers can dive deep on what is happening in the company and where problems may exist.

Dashboards and visualization tools are great. They are enormously powerful, allowing “real-time” access to metrics that just 10 years ago would have required dozens of Excel spreadsheets and taken a team of people days, or even weeks to gather. This near-instantaneous access to data makes managers more effective at finding and fixing problems before they become major issues.

But dashboards typically only “look in the rearview mirror,” allowing you to REACT to the latest operational results and course correct as needed. While dashboards help you manage today’s business, they rarely help you INDENTIFY NEW OPPORTUNITIES FOR GROWTH or to STRATEGICALLY TRANSFORM THE BUSINESS.

Strategic Decision Making in the Era of Abundant Data

Another unlikely source of business wisdom comes from classical guitarist and native Scotsman, David Russell, who noted:

“The hardest thing in life is to know which bridge to cross and which to burn”

Echoing that sentiment is famed management consultant and educator Peter Drucker (not a Scotsman), who commented that:

“Management is doing things right. Leadership is doing the right things.”

No truer leadership challenge faces today’s mid-market CEOs and their PE sponsors. With no shortage of strategic initiatives to invest in, how do you make sure you are “crossing the right bridges” and “doing the right things”?

If you’re like many CEOs, strategic planning consists of a series of brainstorming sessions held in Q4 with the executive team to review past performance and establish new performance targets for the coming year (e.g. grow revenue by xx%, reduce costs by yy%, increase production by zz%, etc.) All options to achieve these new targets are discussed and hashed out, then detailed plans are developed. Empowered with reams of historical KPI data, managers come to the table with specific change initiatives supported by objective historical data, cost analyses, and budget projections. Balancing competing interests and funds to invest, the CEO and team select a series of change initiatives and set the action plan in motion.

This top-down strategic planning methodology is flawed because it generally assumes the company is already “doing the right things” and fails to ask the right questions in advance of the planning effort.

Examples of questions that are rarely addressed in strategic planning sessions include:

  • How can we best increase enterprise value?
  • Should we expand / exit this line of business?
  • Who are our best customers and why?
  • How do we get more customers like our best ones?
  • Should we fire some of our customers?
  • Why are our customers buying our products vs. competitors?
  • Do our sales and marketing messages align with our customers needs?

Be Smart

Leading CEOs and their PE sponsors don’t set company goals in a top down fashion. Instead, they avoid the dashboard / KPI trap and adopt the following framework to drive their decision making:

DATA ➔ INSIGHT ➔ ACTION ➔ RESULTS

In Part 2 of “Leveraging ‘9-Box Insights’ to Find Hidden EBITDA’” we will explore the 9-Box Framework in detail and offer suggestions to successfully implement this approach in your company.

Buzzword Overload!

Lean manufacturing, strategic sourcing, spend management, value stream mapping, Kanban, Kaizen, quick changeover, Six Sigma, ISO … AGGGHHH! There’s no shortage of methodologies and best practices to improve your operations and deliver results. Just do a quick web search and you will find hundreds of scholarly articles and case studies touting the benefits of these powerful techniques.

But if you’re a private equity sponsor or a C-level executive at a private equity backed company, it’s not about learning the latest trends in process improvement and deciding which one is right for your organization. The overarching, ever-present goal is to increase enterprise value … period, full stop.

In this month’s Hidden Value Series, we focused on Past Due Orders, one of the most complex, multi-faceted obstacles faced by many mid-sized manufacturing firms. In Part 1 of the series, we showed how to identify a Past Due Order problem and how it will present itself to management and the board. In Part 2 we covered different techniques to drill down on the problem and identify root causes. In today’s final article in the series, we will cut thru the buzzword bingo and use real-world examples to show how solving this complex business challenge leads to enormous gains in enterprise value. And in the end, isn’t that the goal?

Creativity Before Capital: Many Past Due Order problems present themselves as a capacity issue, and the commonly proposed solution is to add equipment, facilities, labor, etc. to increase capacity and eliminate the backorder problem. In addition to being costly, adding infrastructure to a flawed set of processes and procedures is like building a new house on a bad foundation. Before committing to costly capex, build a foundation that will scale as the company grows.

Without diving into the alphabet soup of process improvement methodologies, each have their purpose and will deliver beneficial results when implemented successfully. The most important thing to remember is that Past Due Order problems are nuanced and can arise from a variety of inefficient processes. A “one size fits all” solution is not the answer. Creative analysis and bringing the right tool/methodology to the table is the key to success.

What is possible? The following summaries are provided to highlight the potential benefits you can achieve when focusing the right people on the right problem with the right tools and the right management support.

Case #1 – Pharmaceutical Packaging Company

The Problem:

  • Long production lead times
  • Significant Past Due Backlog
  • Complacent, Uncompetitive Suppliers

The Solution:

  • Implement lean scheduling process and strategic stocking levels
  • Teach root cause analysis and continuous improvement tactics to plant staff
  • Strategic Sourcing project on 6 commodities

The Results:

  • 75% EBITDA gain ($3M)
  • Gross Margin improved by 4.8%
  • 20% increase in effective capacity
  • 53% reduction in overtime
  • On time Shipment rate improved to 95%

Case #2 – Specialty Food Manufacturer

The Problem:

  • Significant new customer demand led to large Past Due Backlog (2 weeks of capacity)
  • Large customer at risk due to production delays
  • New production line planned, but space constrained to install

The Solution:

  • Implement variety of lean techniques to balance operations and eliminate bottlenecks
  • Implemented new Executive Sales & Operations Planning processes and tools

The Results:

  • > 50% capacity increase within 2 months
  • Reduced labor inputs by 28%
  • $1.4M in annualized savings
  • Eliminated past due order backlog in 90 days
  • Eliminated need for new line ($250K capex avoidance)

Case #3 – Chocolate Manufacturer

The Problem:

  • Cost increases eroding profits
  • Space constraints hindered effort to acquire a business and absorb into current facilities
  • Failed project to consolidate US and Canadian operations
  • Equipment downtime was elevated and impacting results

The Solution:

  • Removed obsolete equipment and conducted Six Sigma project to eliminate downtime
  • Changed line layout to improve flow
  • Expanded operating metrics and dashboard to focus performance
  • Implemented numerous lean techniques (Kaizen events, 5S,
  • Quick Changeover, etc.) to streamline operations

The Results:

  • $1.5M EBITDA gain due to cost reductions
  • $2.4M decrease in working capital
  • 75% increase in output from existing facility
  • Equipment uptime increased 50%
  • Reduced labor by 20%
  • Consolidated 3 plants into one existing facility avoiding large capital expenditure

Key Takeaways:

  • One size DOES NOT fit all. Past Due Order issues are multi-faceted and nuanced. No one tool or methodology fits every problem, so be creative and flexible in devising solutions.
  • Don’t build on an unstable foundation. Before embarking on costly capacity expansion projects, make sure you streamline current operations and establish a strong foundation for future growth
  • It’s not about the methodology, it’s about the people. A corporate culture stressing continuous improvement and openness to new ideas, combined with a supportive management team and experienced resources to guide the effort can deliver amazing results.

The ProAction Group promotes Doug Blanchard to Partner

Doug BlanchardThe ProAction Group is pleased to announce the continued growth of its team with the promotion of Doug Blanchard to Partner. Since joining the firm in 2003, Doug has had a significant impact on client service, team leadership, process and tool development, and overall growth of the firm.  In particular, Doug has led the firm’s Lean, Quality, Sales and Operations Planning, and New Product Development work for our clients across many industries.  With his extensive background, commitment to client satisfaction, and overall leadership capabilities, Doug has had a major impact on the firm and its clients.  We are honored to welcome him to the Partner team and look forward to his continued influence in the firm while he continues to deliver clients the exceptional service they have come to expect.

Prior to joining ProAction, Doug worked for Lexington Home Brands as COO/Executive Vice President of Operations, where he was responsible for a $450 million division with 15 plant locations. Prior to that, Doug worked for Emerson Electric, where he had P&L responsibility for a $300 million division. Doug also has experience at Darling Store Fixtures, Tenneco Automotive, and Goodyear Tire and Rubber. Doug has a BS in Industrial Engineering and Management from the University of Akron. 

Welcome to the ProAction Team, Greg Hayward

Dear Guest:

I am pleased to announce that Greg Hayward has joined The ProAction Group.  As you would expect from ProAction, Greg brings over 30 years of leadership experience in manufacturing and operations.  We very much look forward to integrating Greg’s ITW strategic planning, commercial, engineering and operation experience; M&A skills & experience; and the focus that the 80/20 mindset brings into our client work.

Greg began his career almost 30 years ago and rose to a General Manager role at multiple ITW divisions. During his time there, Greg had full P&L responsibility including strategic planning, financial planning/accounting, sales/marketing, distribution and direct channels, manufacturing, R&D/engineering, new product development and team building/talent development. Since leaving ITW in 2011, Greg has been providing consulting services in a variety of short and long term capacities.

For Greg’s complete bio and the ProAction website, please follow this link.

Please join me in welcoming Greg to the ProAction family!