Logistics


Summary:

To re-establish profitable growth whilst organising a complete site move, achieving elegant separation of the business’s key client and preparing the company for sale

Date:

2005 (6 Months)

Assignment:

International logistics services business, wholly owned subsidiary of a major FTSE plc: business turnaround, re-establishing medium/long term profitable growth whilst preparing for sale.

Role:

Interim Managing Director

Assignment Length:

6 months

Background:

The company, at c.£150m sales is a wholly owned subsidiary of a £1.5bn t/o FTSE plc.

At the end of June 2005, Group shares were de-listed from the FTSE as a consequence of the successful take-over by a FTSE 100 company with sales of £33bn+.

The business had 3 sites, 2 in the UK and 1 in France, operating with c.350 employees marketing and delivering a full 3rd party logistics services offering, principally to the vehicle (commercial and automotive) after-markets.

For 3 years, discussion had taken place between the business and Group main board over the cost benefit of moving from its old, inefficient Head Office site, to a purpose built facility, where modern logistics practices could be effectively incorporated. During this period, the business had lost 2 key clients (activity taken back in-house as a result of client acquisition by international entities). Even so, the business delivered excellent cash-flows and operating profits of 14-17% ROS in 2003 and 2004. In fact, the organisation had been run as a “cash cow” for some years.

In 2004, a third client, Paccar (U.S. company that had bought the original client), representing c.35% of business, gave notice to terminate the contract as its global policy was to service these requirements in-house. It was agreed to conclude the contract at the end of September 2005, with a significant terminal bonus (£13.5m) for smooth handover. In November 2004, Group board approval was obtained for the new site, with a gross project cost of c. £20m.

A change programme had started to re-invigorate the business in mid 2004. Analysis showed that if nothing else was done, a forecast 16%ROS in 2005 would collapse to a £3m loss in 2006. Alongside this, Distribution Centre (DC) operations performance had been allowed to deteriorate, resulting in regular client complaints and the business not fulfilling the service level obligations laid out in the key client contracts. By the year end it was clear that the effort needed to accelerate and deliver this change required the appointment of a senior interim MD.

The Brief:

Phase 1

The initial brief was to secure the changes already initiated, principally the move of site and the smooth hand-over of the Paccar business, without prejudicing the 2005 P&L. At the same time, and with the same P&L caveat, new business needed to be developed both through existing contracts and new client acquisition. To enable this to happen, DC operational service levels needed to be brought back under control. Failure to achieve this could have resulted in client loss rather than business growth.

The overall purpose was to establish a financially secure business based on the existing clients going forward and to overlay new, growing and profitable activity.

Phase 2 – Changing Circumstances:

By June, it was clear that the offer made for the Group in March by the FTSE 100 plc would be successfully completed. At that time, the purchaser announced that the logistics business was “non core” to future operations and would be sold in due course. Further discussion revealed a challenging disposal timeframe of year-end 2005, in spite of the business’s non-optimal operation at that stage.

The brief was changed to frame the work done in the context of the preparation for sale.

The Initial Position:

Analysis of the 2005 operating plan showed that it had been based on significant underestimates of the resource required and the time necessary to achieve the site move programme, the business re-engineering activity required for cost base reduction and achieving the imperative turn round in DC operational quality of service.

The uncertainty caused by these factors was being allowed to undermine and delay existing client sales and margin growth and was causing serious difficulty in programming new client business wins.

A skills audit was also undertaken and revealed a gap between need and in-house supply with significant capability gaps that required filling to enable the business to deliver its targets.

The circumstances of the business had lead to poor employee morale in spite of regular communication forums to all employees by the board (at least monthly).

The Achievements:

1. DC Operational Service Levels, Existing Clients Sales and Margin Growth

  • Achieved consistent weekly overall performance >95% for each client, based on cumulative scores for part availability, on time picking, error free picking and damage, and on time delivery.
  • Completed successful re-negotiation of the contract with one of the world’s largest car manufacturers (£4.5m+ margin contribution) as a result of the repatriation of the UK car franchise.
  • Re-negotiated contracts with a UK and a US client to reflect a “shared profit” approach, delivering c.£1m in additional margin contribution and bringing the US partner to client level profitability for the first time.
  • Resolved long running availability issues with a Japanese truck manufacturer to cater for new parts needs from dealerships with a short turn round time, despite supply from Japan, keeping >95% availability.
  • Initiated shared office facility for a UK based client from the French site to act as a launch pad for growing into their European wide operations.

2. Business Process Re-Engineering

  • Achieved on-time handover of the parts activity to Paccar, securing the £13.5m terminal bonus.
  • Built a strong team of professionals to ensure the required business benefit in the BPR function and DC operations.
  • Introduced a perpetual inventory counting technique, raising stock accuracy from 56% to 72% in the first 2 months and then consistent rising levels.
  • Initiated stock rationalisation activity, scrapping and writing off c.£3m
  • Set up solid BPR procedures for project evaluation and initiation, delivery, plus signed off embedded business benefit.
  • Invested in the use of “6-sigma” and project management (SPM) methodologies throughout the business (>£0.25m training investment).
  • Achieved firm forecast and delivered annual cost savings of £1m, with a further £0.9m identified

3. Site Move

  • Constructed the new site move programme (c.£20m) into 12 work streams, each resourced appropriately to achieve a July 2006 relocation and £1.4m annual cost savings.
  • Established the new DC operating model and a pilot new site in the existing facility to fully commission work practices and technology.

4. New Business Development

  • Speeded up the prospect conversion process whilst maintaining contract quality
  • Won new clients (BMC, Tesco), bringing over £1m additional margin in year 1.
  • Produced a unique industry service offering for a water company, worth £2.75m margin contribution
  • Set up heads of agreement with roadside recovery organisation for parts procurement and supply bringing £2.2m margin contribution
  • Established strong new business pipeline, currently estimated to achieve at least £7m and £12m margin contribution in ’06 and ’07 respectively.

5. Overall Short Term Performance

  • Delivered monthly OP to budget.
  • Managed a headcount reduction of 19% with union cooperation.
  • Maintained tight balance sheet control.

6. Preparation For Sale

  • Prepared Information Memorandum (IM) and approved by new corporate owner.
  • Established “Due Diligence” data room.
  • Issued IM to key interested parties.

 

The Final Position:

The permanent successor was appointed from within the management team, having been groomed as part of the assignment

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