Smart businesses are always looking for ways to increase operational efficiency and maximize company value. After performing hundreds of operational assessments over the past two decades, The ProAction Group has become adept at identifying hidden EBITDA opportunities for our clients. We all know every business is unique. Some of these indicators may pique your interest and others may represent areas where your business is strong. Still, reviewing this list can help you consider where some meaningful improvements may be made.
Signs Hidden EBITDA May Exist
- The Sourcing Strategy is undocumented, poorly defined or under-utilized.
When companies do not have thorough, documented sourcing strategies, they may be missing opportunities to improve costs on goods purchased. Spend may be set-up or managed by untrained buyers who without defined strategies and training may lack skill in negotiating with suppliers. Is the strategy for frequency of competitive supply bidding well defined? Is supplier performance measured? Are individual sourcing agreements documented?
- Inbound freight fees are “included” in product costs.
“Freight is Free” is a signal to dive deeper. Often suppliers build profit into freight charges. Companies not unbundling freight fees from product costs should investigate to see if cost efficiencies may be gained here.
- Manufacturing variations aren’t measured or addressed.
Measuring plant performance is critical. Tracking performance – and variations in performance – can highlight problem areas. Management should be tracking things like safety, quality, cycle times, scrap, schedule attainment and on-time delivery. Businesses that identify and measure variation in these can make strategic decisions about changes to employ. When variation is reduced, costs go down.
- Sales forecast is not effectively managed.
Sales organizations that do not forecast well put unnecessary burden on operations in the form of downtime, expediting costs, overtime, E&O inventory (see below) and more. Do sales forecasts regularly align with actual closed business?
- Excess and Obsolete inventory is growing.
Companies often do not pay close attention to E&O soon enough, yet avoiding E&O can bring significant cost savings to an organization. Is E&O tracked and measured? Is E&O root-cause analysis performed with corrective action identified? Does aging of inventory show balances that exceed the amount held for reserves?
- Invoice accuracy, denials and chargebacks are not measured or tracked.
Inaccurate invoices, denied claims, chargebacks and credit memos all indicate potential opportunities for improvement. When these items are not actively tracked and measured, it is unlikely that they are well-managed.
Many manufacturing businesses have operational blind spots (some more than others) that negatively impact enterprise value. This article shares some signs for potential hidden EBITDA, but the list above is far from exhaustive. We hope it gets you thinking about areas for improvement in your manufacturing operations.
Contact us if you’d like to further explore your business’ best opportunities for uncovering hidden EBITDA. We can share with you how The ProAction Group 9-Box Framework leverages your operational data to identify the efficiencies that will make the greatest EBITDA impact on your business. For further reading, see “Leveraging 9-Box Insights” to Find Hidden EBITDA: Turning Data Into Insight.