Case Study Strategy & Business Profitability

We were invited to a meeting to discuss a new product launch for anestablished company involved in the packaging industry. At the meeting a number of issues arose with the management team whereby the logistics manager was concerned where he could keep the stock as all his three warehouses were at capacity and the sales manager was concerned where the new products would fit with their existing 900 product range. As the new products were of superior quality there was a concern that old similar stock would become obsolete and they had a considerable quantity of it.

It was clear to us that the business had organisational and operational issues and that it would not be a good time to introduce more products until these issues were addressed. We voiced our concerns and recommended that we would carry out a strategic review which the management team agreed to. As part of this review we analysed the Company’s accounts and met with management team individually to ensure we can a good knowledge of the Company.

Our financial review revealed the following facts:

Average Stock days were 96 with some product stock days in excess of 300.
Debtor Days were 96.
Bank Overdrawn despite substantial profits in the Balance Sheet.
Profit 2.10%

We then conducted a full day SWOTO analysis with the management team and captured the Strengths, Weaknesses, Opportunities and Threats facing the business. In addition, we used this meeting to share with the team our financial analysis findings which were a surprise to some. The logistics manager informed us that he needed to keep stocks high to protect his customers from price increases and would need the review process to recommend the acquiring of an additional warehouse space.

The SWOTO exercise revealed to us the extent of what was wrong with the Company so we put in place a strategic action plan to address the issues and to maximise the opportunities identified by it. As part of these actions we reduced the number of stock lines from 900 to 300. We ceased the practice of holding stocks for customers to protect them from price increases and in fact implemented a 7% price increase across the product range. Not one customer was lost as the competitors were charging the market rate which was driven by petroleum prices so our Client’s increased price was still competitive.

We achieved a stock days reduction of 61 days by using up the stock in hand and stopped ordering new stock for three months as it was not required. As a consequence, we were able to cut the number of warehouses required to 1 and due to the reduced level of working capital required in Stock we eliminated the overdraft and cut out the need for invoice factoring which the business previously relied on. Debtor days were reduced by 18 days and profits increased by over 7%.

This substantial change did not happen overnight and in fact was achieved in six months. During this time, we attended monthly management meetings with the Company and checked Individuals actions allocated in the strategic Action Plan against the target dates. This ensured that actions were completed. This Company continues to trade successfully 6 years on and is a typical example of what we can do for your Business or Organisation.