of Major Client
A manufacturer of specialty automotive parts was struggling to absorb the financial impact of losing a major client due to competitor offshoring.
The company’s management and its investor lead board did not agree on the appropriate strategy to address the financial impact of the client loss. One suggested course of action was the implementation of a severe cost cutting initiative. An alternately proposed course of action would require sourcing of investment funding to diversify the company’s product offering. Each course of action was supported by segments of management and the board with little willingness for compromise. Discussions became combative as the different factions were entrenched in their positions and relations between the board and management were severely strained. With no corrective actions being implemented the company’s financial position continued to deteriorate.
The company engaged SBC to assist management in formulating a two-pronged comprehensive plan directed at addressing the immediate needs and the longer-term strategic business issues. SBC performed a review of the direct and indirect cost structures of the company identifying areas for near term cost reductions. A cost rationalization plan was proposed to stabilize the balance sheet. The plan included adjustments to levels of temporary workers, incentive compensation plan changes, facilities consolidation as well as other areas for cost reduction. Additionally, specific direct costs associated with the lost client were identified for immediate elimination. Secondly, to address the longer-term financial issues, SBC assisted the company in putting together alternative investment strategies for product and client diversification opportunities. To assist in evaluating the strategies, SBC prepared financial projections which included a quantification of investment requirements. The comprehensive plan was brought to the board for discussion and debate after which joint agreement was obtained on the appropriate course forward. As a result of SBC’s expertise in managing similar turnaround challenges and assistance as an intermediary between the board and management, the company was able to begin the process of strengthening its balance sheet, and to begin implementation of a longer-term investment and diversification strategy. The stress between management and the board was alleviated and relations were significantly improved.