How Flow Consulting Impacts Private Equity Holdings

Impacting Private Equity Holdings

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What Sets Flow Consulting Apart

Flow Consulting uses a distinctive model to bring talent and insight to client engagements !  Experience

  All of our consultants have deep business and management experience

!  Data-Based Analytical Approach   Our assessments leverage data to objectively identify opportunities for cost

savings and upsides

!  Partnership – We work as team members with our clients   We teach client associates to gather initial data to make us cost effective   We facilitate and partner in planning (e.g., kaizens) but ensure the client

owns solutions and implements to achieve results   We work with our clients as necessary to ensure they achieve the expected

results

!  Knowledge Transfer – We transfer knowledge and skills to our clients to help them become as self sufficient as they desire to be

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Investment Based Clients Riverside Company (Exclusive ‘Toolkit’ Provider)

Hampshire Equity Partners

Odyssey Investment Partners

Ulysses Management

Founder’s Equity

Citic Provident

Icahn Holdings

Dogwood Equity

Cortec

Century Park

Wincove

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Experiences with The Riverside Company – Page 1 Experient – Conference Services Company !  Integration of three companies into one

GreenLine – Fresh Green Bean and Herb Thyme Packaging and Sales !  Site consolidation and operational improvement

Richter – Pumps and Valves !  Due diligence and post close activity

Vokes Air – Industrial Air Filters !  Operational improvement and mentoring

Moss – Large Display Solutions for Trade Shows !  Business process analysis with focus on cycle time

WaterJel – Medical Burn Solutions !  Lean Manufacturing Assessment

Eemax– Instantaneous Hot Water Heaters !  Due diligence and operational improvement

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Experiences with Riverside – Page 2 Diatron – Medical Testing Devices - Hungary !  New product introduction cycle time

Veritext – Legal Deposition Scheduling and Reproduction !  Site consolidation analysis and recommendations

Thibaut – High End Wall Paper Manufacturer and Distributor !  Inventory reduction analysis and recommendations

Monesson Hearth – Fireplace and Woodstove Manufacturer !  Facility and business integration

Polar Windows – Weather Resistant Door and Window Manufacturer - Canada !  Operational improvement

KeyCast – Metal Castings !  Operational improvement

Sigg – Metal Water Bottle Manufacturer - Switzerland !  Operational improvement

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Additional Clients

Cameron – Oil Field Drilling Equipment

Gulf States Toyota Distribution – Five State Regional New Car Distributor

SPX – Industrial Products

Lockheed Martin - Aerospace

Nokia - Telecom

SCJohnson – Consumer Goods

Unilever – Consumer Goods

Syncrude – Oil Recovery from Tar Sands

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Defining the Way We Work

Discovery – from the first visit to taking ownership !  Snapshot – during the first visit, develop our perspective on the

potential issues and opportunities within operations

!  Due diligence – developing the next level of issues and opportunities in the following areas

Diagnosis – Understanding the issues and opportunities !  Performed in an ‘operational baseline’ with key leaders in the business

!  Ownership is transferred from Flow to the leadership team

!  Develop the agreed upon priorities, timing, and ownership for an operational strategic plan for the next 18 months

Delivery – Assisting the leadership team in delivering the operational plan !  Transition from a high support role to a reduced role over

18 months

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Operations Assessment During Due Diligence

First look, first visit, the ‘30,000 ft view’, our Snapshot !  Inventory levels – is inventory too high, is there an aging issue

!  Labor levels – are there opportunities to significantly reduce using Lean Six Sigma tools

!  Supply chain – are their apparent logistics savings opportunities, is the materials acquisition department being run professionally and strategically

!  Capacity and capital investment issues – can apparent capital needs be deferred using lean tools and product flow improvements, is more floor space really needed, or can the total footprint be reduced

!  Operating systems – is it stable, is it helpful, does it need to be replaced

!  Operational stability – is there chaos, is there a large past due backlog, are there significant customer quality issues, is the product flowing smoothly

Surface obvious issues, and surface obvious upside

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Next Step – More Detailed Discovery- Inventory

Is there too much – raw, WIP, and finished goods, and why

Is there an aging issue – is it building, and why

Diligently locate ALL storage, ALL warehouses, ALL inventory (nearly 100% of the time extra space has been found AFTER the deal) – get all leases and get all owned or leased property documented

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Labor

Perform random work sampling – estimate percentages of wasted time – movement, transportation, walking, searching, waiting, reworking, sorting – not adding value

Can labor be separated by product categories to understand product profitability after ownership

What is the turnover rate, absentee rate

Are there critical work force elements, especially tied to the bottlenecks, nearing retirement

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Supply Chain – Purchasing Focus

Is there professional well trained leadership responsible for sourcing the materials needed to feed to product lines

Get a pareto chart of spend by supplier

Understand the significance of any single source issues

Is there benefit in a ‘low cost country’ sourcing aspect that is not being considered

Is there kanban linkage to the floor on key high volume items

Is there too much effort being extended in PO documentation versus long term agreements

Are there any supplier contracts and commitments for key materials and components

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Supply Chain – Logistics Focus

Has there been a third party professional analysis done on the costs of logistics support

What are their logistics costs compared to industry benchmarks

Is their logistics leader well trained and up to date on the latest trends

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Capacity and Capital Investment Issues

Find the bottleneck(s) – observe the bottleneck and work to gain information on operating percentages, shifts worked, maintenance program, quality output

Study the work space – is there wasted areas, is there a lot of walking, is there storage of noncritical support items or files, illustrate with digital photos

Is there an effective well run preventive maintenance program in place. If not, are key pieces of equipment at peril for imminent replacement

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Operating Systems

What is the system, is it up to date, is it helpful, does it have

reports that help to manage the operations

Will the system need to be replaced or significantly enhanced within the next 3-5 years

If multiple sites, are they all on the same system and are the connections seamless

How easy is it to get data or reports, can users get data or only the IT guy

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Operational Stability – Lack of Chaos !  Is the operations manager a professional well trained and open minded leader

!  Are there process improvement personnel that are well trained and open minded for improvements

!  Is there an S&OP (sales and operations planning) process linked to operations capacity and sales trends

!  Are schedules clear, and are the schedules held

!  Are the schedules clearly communicated or are the schedules central to one key person

!  Are the schedules where they need to be on the operations floor and highly visible

!  Is there a daily detailed scheduled meeting and a weekly higher level schedule meeting

!  Are there too many ‘production control’ and scheduling / move expediting personnel on the shop floor

!  Is there an effective root cause and corrective action process leading to continued improvement of quality – operations, logistics, sourced product, warranties, etc. Is there a professional quality manager

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Outputs and Next Steps – the Deeper Dive

Outputs !  Key issues/concerns that needed to be factored into the potential

purchase of the company

!  Upside potential ranges that may help in a competitive bidding process

The outputs may surface the need for a Deep Dive in one or more of the operational areas? !  Narrow the range of the estimated upside

!  Better understand the risks

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Diagnosis - If the Acquisition Proceeds Past Due Diligence

Prior to close: !  Estimate the consulting effort and the subsequent return on that effort

!  Set the consulting effort aside as a reserve for the leadership team

!  Give the new leadership team goals and incentives tied to the improvement objectives identified

Just after close: !  Work with management to develop the 12-24 month operating strategy

and plan to reach the identified goals

!  Set the consulting budget and schedule

!  Plan the level of transfer of knowledge needed after the consultants finish

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Delivery – Focus on the First 18 Months

Agree upon the action plan that focuses on the highest priorities !  Impact to EBITDA

!  Impact to customer delivery issues and quality

!  Impact on inventory to free up cash

Typically run 2-4 kaizens while coaching and training the internal leadership to ‘fish’ themselves

Activity tapers from leading the kaizens to coaching the internal team to run the kaizens

Many clients end with training programs on critical lean and six sigma tools that are most applicable to their business

Reese Bourgeois

reesebourgeois@flowconsulting.com 386.208.6146

www.flowconsulting.com

CONFIDENTIALITY NOTICE: The contents of this document including all words, graphics, and other materials contained herein are the exclusive confidential and proprietary property of Flow Consulting, Inc. No portion of the enclosed may be copied, reproduced, transmitted, disseminated, or used in any manner without first obtaining the written permission of Flow Consulting, Inc. Live Oak, Fl, USA.

Tell me and I forget; Teach me and I remember; Involve me and I learn. - Ben Franklin

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Case Study Background

New York Based Private Equity Firm

Had Signed Letter of Intent – Truck and Fire Engine Equipment Manufacturer

Board Member and Existing Client Recommended Flow Consulting to Study Operational Opportunities

Four Day Intensive Assessment Revealed the Following: !  Potential for 75% reduction in cycle time on largest product line, which

was 50% of their business !  Potential for 40% increase in labor effectiveness on largest product line !  Potential to increase capacity by at least 50%without brick and mortar,

which the newly acquired company stated as a dire need !  Opportunity to reduce costs by at least 15% on 40% of their purchased

commodities through strategic sourcing

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Results

First Project – data collection and 2 kaizens !  Increased capacity in largest production from 65 units/shift to over 90

units/shift with a reduction of 2 employees

!  Manufacturing cycle was reduced from 5 days to 4 hours

!  The hourly crew was able to devote an hour nearly every day to continuously improve by implementing the 150 action items identified in the 2 kaizens

Second Project – data collection and 1 kaizen !  Increased capacity on second largest production line by 33% on one

product and 20% on second product

!  They accomplished this with the same number of employees

!  Manufacturing cycle decreased from 1 day to 2 hours

!  Internal operations team performed at least half of the kaizen facilitation

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Results

Purchasing Initiative !  Lean procurement was implemented with 10% price targets for over

40% of the purchases

!  Increased payables from 10 days to 30 days to free up $600k in cash

!  Trained all purchasing personnel and engineering personnel in negotiations training and vendor contact controls

Training !  Trained all operations, finance, purchasing and material control

personal in Lean Sigma tools

!  Trained one process engineer to Black Belt status in Lean Sigma

!  Sold licensing fee for perpetual usage of Flow Consulting Lean Sigma training materials

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In Conclusion

Within two years: !  Profitability increased by 20%

!  Hourly productivity ultimately improved by 40%

Our client exited earlier than their targeted three year cycle, but:

$9 million investment by our client turned into $30 million in less than three years. Client grew sales while

we added nearly free capacity