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.

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