Manufacturing Case Study
From Operational Mayhem at a Loss to Streamlined Profit that Financed an Acquisition
Within two years of learning the profitable strategies and tactics in ProfitU™, a $40M privately-held kitchen cabinetry manufacturer generated strong enough financials to finance an acquisition and became a profitable, $100M company.
But before they started ProfitU™ there was nowhere to go but up. They were losing money and their CFO had done a lot of conventional cost cutting. Unfortunately, dealer and customer relationships had suffered as a result and the anticipated bottom line improvements had failed to materialize.
The CEO had hired Lean Consultants at a cost of over $300K, and yet manufacturing timelines had almost doubled, quality was extremely poor, and, as a result, 18 of the 100 employees per shift became non-revenue generating, dedicated full-time to rework efforts. A revolving door of Production Managers failed to make any headway. Between scrap, labour and materials, this was a $4M per year problem for this $40M business.
A new Sales Director had added over 100 new dealerships in the previous year in an attempt to grow the top line, but most of them had never made a sale despite receiving costly sample packs, training and in some cases full kitchen installations worth $20-50K for their showroom.
Conventional approaches to driving profitability were having exactly the opposite effect until their team engaged with ProfitU™.
They committed an internal cross-functional team of ten employees at various levels from the CEO to the shop floor to spend 90 minutes once per week focused on the ProfitU™ curriculum, and in a short period of time, they achieved three major profitability breakthroughs:
On the very first day, a 21-year-old Accounts Clerk was involved in an exercise to evaluate customer profitability, not on the basis of conventional accounting, but based on the customer and internal behaviors that were eroding profits. She realized that all of the aging receivables were a significant cost to the company, and although she’d been dutifully making collections calls she had an AHA! Moment that there was a better way. She started making her calls in the spirit of partnership, finding a win for the dealer at the same time as there was a win for the company. Within 30 days, A/R was completely current… and stayed current. With hidden-and-take-for-granted financing costs eliminated, profits improved.
The Sales Team took the initiative to stop the bleeding with the dealers. They learned how to put together a qualification form to ensure that they were attracting ideal dealers who would properly represent the brand and effectively sell it, and learned how to create a business case before any costly sample kitchens were approved. Sales and margins increased approximately 20% the following year.
On the shop floor, the team learned a simple technique for identifying the root cause of costs that shouldn’t even be in the business. Using nothing more than colored Post-its they discovered five specific areas for improvement and diagnosed the underlying issues which had remained hidden by the more complex Lean practices they’d been using. When they tackled the first one, which was rework caused by scratches in the paint or varnish finish, they traced the cause back to worn padding on the shelves outside the paint booth. For an investment of less than $100 in padding, they were able to reduce rework costs by over $1M.
We took our Customer Profitability Ratio from 2:1 to 5:1 within 1 year – a huge boost to profitability. When you helped us involve our entire team in the process, they got it instantly and made the commitment to take this to 100:1 with our biggest 100 customers... and did!
President, Large Privately Held Custom Kitchen Cabinet Manufacturer