It is not uncommon for sales volume to be regarded more highly than margin. Many under-performing companies begin their downward spiral by chasing sales, often at the expense of margin. Many of these companies employ an incremental pricing strategy, based on the premise, that new business can be quoted more competitively once fixed overhead has been covered.

Even though sales are the lifeblood of a company, uncontrolled growth can lead to its demise. Growth often requires equipment that increases debt, funding required for accounts receivable and inventory, and additional infrastructure to satisfy customer expectations. In some cases, new opportunities add complexity that further erode margins.

Our turnaround approach emphasizes margin over sales volume. Capacity Value Analysis provides insight into the most lucrative products, customers and combination of processes. A data-driven turnaround plan enables B&A to accurately project the value of the turnaround in advance of its implementation.

Our six step approach is outlined below:

Step 1: Analyze Products and Customers

B&A utilizes a patent pending financial tool, Capacity Value Analysis, to determine the most lucrative uses of capacity. CVA identifies under-contributing products and customers that need to be jettisoned or receive price increases.

Step 2: Adjust Capacity

Capacity is typically the most significant investment and should be adjusted to accommodate profitable customer demand. Excess capacity may be reserved for new opportunities that yield increasingly higher Capacity Values, or be liquidated to reduce debt.

Step 3: Implement Lean Manufacturing

Capacity Value Analysis is based on the assumption that manufacturing processes are lean and efficient. When new manufacturing processes are implemented, unfavorable operating variances are eliminated and contribution margin increases.    

Step 4: Right-Size the Organization

A leaner, more focused, organization assumes a broader scope of responsibility within a smaller business unit. The approach typically fosters ownership and synergy within the company as well as improves customer responsiveness.

Step 5: Restructuring the Debt

A primary objective is to optimize cash flow to service and reduce debt. If cash flow cannot service the company’s obligations, B&A negotiates repayment plans with creditors that cash flow will support.

Step 6: Continuous Improvement

Capacity Value is the metric that takes into account market conditions, customer relationships, and operating performance. The ongoing focus is to increase Capacity Value by assigning ownership to those having greatest control.