A Dilemma – What’s Causing the Operating Losses?

TypeFresh Pair of Eyes
Quick Facts$20 million niche printer (“PrintCo”) - one of five separate business units within an integrated journal, book, and magazine printing company.
ChallengesAs part of a planned expansion/modernization program, the company moved to a new production facility equipped with new state-of-the-art presses. Soon after the move, PrintCo began to lose over $100,000 per month. How could this happen?
ApproachThe Board felt the losses were from the wrong customer mix; they wanted McHugh & Company to “identify the ideal customer” and chart a sales direction to enable PrintCo to quickly grow volume. However, after a quick due diligence, we determined that the decline in profitability came from a number of interrelated issues. We completed a detailed review and analysis of:
  • the existing customer base
  • the quoting process used to price jobs
  • the job cost system (this was not really functional)
  • the major business processes and how costs were accumulated
  • production scheduling and existing daily, weekly, monthly and quarterly bottlenecks (volume growth would not be possible unless the production bottlenecks were resolved)
ResolutionWe concluded the losses were due to:
  • historically weak pricing practices (pricing low to win contracts, no comparison of quote to actual, no cost history to support the quote process)
  • start up problems with the new press
  • the ‘front end’ and ‘back end’ of the production process both continued to utilize old, inefficient technology; the old, smoothly running press equipment in the old plant covered up these weaknesses
  • money losing contracts
  • customers who put excessive and inappropriate demands on the plant; these clogged the front end and contributed to scheduling delays

Action steps and projects were set up to fix each of these issues. The company ultimately returned to profitability; a later acquisition of a competitor enabled the two plants to shift/share production and management practices.

Links to the other fresh pair of eyes cases:
  1. Restoring Profitability in a Business Unit
  2. Operational Inefficiencies Hurt Cash Flow

To view a list of all McHugh & Company Case Studies, click here.