Maximizing Return On Assets

1. Background The Client is a global provider of equipment for home and commercial applications. Facing both a shrinking market share due to high product prices and significant erosion of profits, the client had launched a major cost reduction initiative. However, there was significant concern about the viability of goals and the pace of progress. SPG’s Consulting Assignment The client asked SPG, Inc. to: Validate the financial projections and plan for implementation. Assist in managing the implementation. Provide assistance in selected key areas to ensure targeted benefits are achieved. SPG’s Business Analysis Findings The primary asset of the business was brand equity. Initial financial targets were attainable, but fell short of potential opportunity. Management had inadequate visibility of financial and performance results and trends. Significant disconnect in operating strategy to build-to-demand and processes focused on build-to-stock. Inadequate skills, practices and processes to manage cost and productivity. Organization structure had expanded beyond the needs of the business. SPG – Project Approach SPG recommended that the company restructure the implementation approach, schedule, and financial targets. An integrated approach was developed utilizing 28 different teams over a nine month timeframe, and financial targets were increased by 35%. These teams were under the governance of the Executive Steering Committee, which was responsible for guiding the process, eliminating internal barriers and constraints, reviewing recommendations, and making decisions. Project Management Teams focused on communications and financial results measurement Site-Specific Teams working issues such as organization redesign, vital few business metrics, operations flexibility, manufacturing competitiveness review, purchasing effectiveness, common product platform, and 17 teams focused on improving productivity and cost management of indirect functions Division-Based Cost-Reduction Teams targeted on improvements in advertising & incentives spending, warranty costs, freight costs, and SG&A. Results and Quantitative Benefits SPG consultants partnered with client employees over a 38-week effort to complete the implementation. The focus was to deliver tangible benefits and the foundation for continued improvement. Initial accomplishments included: A revitalized set of business goals and metrics in four categories; people, quality, order fulfillment, and profitability. A redesigned organization structure aligned with the needs of the business. A new process for monitoring results, communication, and performance improvement. An enhanced set of tools and skills to better manage productivity and cost and complement an existing capability to manage quality and delivery. A revamped process for sales and operations planning that includes forecasting, production scheduling, inventory management, as well as supplier flexibility & response. Redesigned processes for warranty management, and targeting sales with incentive programs to increase the lift and leverage of spending. An enhanced process for reducing purchased materials costs. A new methodology for consolidating LTL shipments and selecting lower cost distribution patterns. Significant financial gains. These resulted from implementing changes in the client’s operating structure and practices. Financial results include: Net cost reduction of more than $65M. 19%+ increase in operating return on assets. These results are net of more than $15M in unexpected cost increases. Maximizing Return On Assets • Schrudder Performance Group, LLC. Proprietary Information - 1001