The Problem
The company has been active since the 50s in the printing machines sector. For some years now it has belonged to a multinational group.
Up to 2004 it was the only company in the group to work with three product lines, and for the last six years it has made losses. When the group acquires another company in Italy, and transfers most of the company’s business to the newly acquired firm, the need arises to redesign the product portfolio and to restructure company, its organization and management.
In order to identify the nature and causes of the company’s difficulties, and to decide what steps should be taken to assess the feasibility of a turning the situation around, the group asks Contract Manager to conduct a thorough check-up.
Solution
Check-up
The Contract Manager team completes the entire check-up in six weeks and presents the results to the group’s Board.
The main findings of the analysis may be summarized as follows:
- the business lacks focus
- image, quality and market share are not consistent with those of the group and its main business
- serious management shortcomings
- serious weaknesses in the production area
The chosen strategy is to restructure the company and to achieve a turnaround.
Turnaround plan
The plan is deemed feasible on the following conditions:
- the group must be willing to redesign the company
- strategic choices must be shared
- financial coverage of restructuring costs
- firm, constant support provided by the group
The main points of the plan are:
- to focus on their traditional product line
- to reduce headcount from 220 to 100
- to shift from a Make To Stock model to Make To Order
- to rationalize plant layout
- to adopt a new organizational structure, appointing a temporary manager with a background in production management as General Manager
- to sustain revenues
- to break even within 2 years.
Implementation
The group accepts Contract Manager’s turnaround plan and a partner of Contract Manager is appointed General Manager. He has an impressive background in general and operations management in machinery manufacturing and plant engineering. He is tasked with the mission of completing the restructuring within 18 months. Not a day longer.
In the early months of the assignment, all the actions required to achieve the above objectives are set in motion. Of these, the most important one is the signing of an agreement with the trade unions regarding redundances. The new management team manages to build enough trust for restructuring to proceed smoothly and headcount is reduced by 50 %.
The end of the first year sees the achievement of all set goals, especially those regarding maintaining the previous year’s revenues and halving losses. This allows them to prepare an ambitious but realistic budget for the second year, with revenues up by 16% and the goal of reaching break-even, in line with the turnaround plan.
At the same time, they work on the management front, preparing for the longer term and the post-interim management phase. This requires identifying the new management structure, scheduling the transition and organizing handovers.
Main points of the operation
- Business plan presented to the trade unions; commitment to cooperation in finding new employment for those made redundant.
- Definition and reallocation of roles and responsibilities; new organizational chart grouping all activities in 4 areas: Technical, Commercial, Operations, Administration. This replaces both the previous vertical (product line) and horizontal (production and service) divisions.
- Technical Department given responsibility for the following tasks: drawing up the BoM for each order, providing a project manager to look after technical issues connected with the order through to acceptance, conducting machine testing and issuing release documentation after checking that machines meet contract specifications.
- Order confirmations to be issued by the Commercial Department, with the involvement of the Technical Department, Operations and Administration. In a kick-off meeting for each order, they agree to the commitment the company is undertaking by accepting the order.
- Operations made responsible for the whole production process, from purchasing of components through to assembly in the plant and commissioning on the customer’s premises.
- The Project Management Department acts as a support function reporting directly to General Management. It controls and coordinates all order management, from order confirmation to acceptance.
Back in May 2006, at least 10 machines were in production on customer premises, without acceptance documents ever having been signed for them. This resulted in costly after-sales service.
Today, all machines the company sells are covered by proper, unconditional acceptance documentation, with no open points requiring after-sales service.
Installation, start-up and acceptance now require between 1,100 and 1,200 hours as a standard, 30% less than previously quoted (and always in practice overrun).
In February 2007 the company obtained ISO 9001 certification (certifying body DNV).
The foundations are now laid for project optimization, greater efficiency of assembly in the plant and tougher control of suppliers. Next up is the direct supply of standard modules, making for a significantly higher contribution margin.
After 18 months of hard work, the assignment closes and all objectives set by the group’s Board and agreed with the Contract Manager team have been achieved.
It serves to prove that ambitious objectives can only be achieved under specific conditions: that the owners completely share the restructuring approach, that the interim manager is fully sponsored, that restructuring is given adequate financial support and that the interim manager is given the powers to do the job.
A few days from now, a new, young General Manager with a background in sales and marketing, will take up his position, replacing the interim manager.