Change Management and Managing Underperformance

Background:

The client is a packaging company owned privately with ambitious plans to penetrate new national markets as well as expand into international markets profitably. The company employs 20 staff (full time equivalent).

To distribute its products to the consumer the client is using a distributor, contracted for 5 years on an exclusive basis. The distribution company has however only been able to generate 30% of the planned sales in the previous 6 months period. To facilitate sales the client had agreed to promotions in the past year which have eroded the profit margins forecasted. Unfortunately the reduced prices had not generated the expected sales quantity, on the contrary, the distributors inability to sell fast enough has filled the shelves in its warehouse. This means that no orders are received continuously (sometimes a gap of 8 weeks). With commitments to pay staff and overheads the client had been operating at loss. All of this is putting a lot of pressure on the business and the delivery of its plans.

Intervention:

We were called upon to act as an Interim Operations Director to solve these problems and bring the business and its profits back on track.

First we diagnosed the situation. We analysed the sales figures and identified that although the cumulative sales figures presented by the distribution company was higher than the cumulative sales figure for the previous year (this is the basis upon which the distribution company was reporting) the sales had been dropping for the last 6 months. This was also demonstrated in the lack of continuity on orders received from the distribution company and also lack of the planned quantity. We met with the distribution company, only to find that they did not have a plan on how to close the gap in sales. They were acting irresponsibly and not taking ownership of the problem. We also used the meeting to assess the competence levels of the sales directors, their teams and the ability of the company to be competitive in the market place. We identified very quickly that the distributor was the biggest obstacle to remaining in business and achieving the growth plans. The relationship with the distributor needed to change.

To remain in business the company had to make decisions very quickly and regain control over sales and the market. One option was to set up the sales infrastructure for in-house sales team which was going to take longer than the cash position could allow. The other option we suggested is to change distributor, which was actually the preferred option. We defined the criteria of an ideal distributor considering the business needs and culture, assessed the performance and the business models of all distributors in the market, approached the shortlisted ones and managed to sell them the benefits of becoming the new distributor. We carried out this exercise with discretion so not to jeopardise the relationship with the existing distributer.

Regarding increasing profitability we assessed the current efficiencies of the production department. We identified that the client’s continuous fire fighting was wasting a lot of effort and time resulting in inefficiencies. We started working with the production team on streamlining the processes, designed and implemented a planning system with real time reporting and restricted the department to make it more efficient. We also upskilled the supervisory team so they are able to maintain the system put in place.

Outcome:

We helped the client switch distributor, one that could help them achieve their growth plans, nationally and internationally. The new distributor is also keen on getting in partnership for product expansion which will increase the value of the brand too.

The production is now operating with efficiencies generating a higher contribution (gross margins) with happier and more engaged staff.

Conclusion:

The intervention has put in place the foundations and the framework upon which the business can implement its growth plans profitably.

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