The foreign subsidiary of a leading wholesale and distribution company had slipped deep into the red after years of success. As a large medium-sized company, the subsidiary was the market leader in its home country. The local management seemed overwhelmed by the situation. A hectic pace of day-to-day operations had taken hold. The management did not seem to have the necessary distance to quickly create a coherent concept for sustainable EBIT improvement and implement it effectively.
The current interim manager was a member of the management and partner of the family office whose portfolio included the company to be restructured. The family office had appointed him as a restructurer. He was tasked with developing a concept for the turnaround as quickly as possible, restoring confidence in the organization and creating a new basis for professional growth.
Causes for the imbalance identified in almost all sub-processes
In his number-based analysis of the company's situation, the interim manager identified numerous causes for the unsatisfactory financial situation. For example, the rented distribution site was no longer technologically up to date. The handling of goods did not correspond to the best practices of value stream logic in inbound logistics.
In addition, the workforce was clearly oversized and the working methods were not optimal. The inbound and outbound processes were not suitable for handling logistically complex product groups in a cost-covering manner. In general, there was an almost incomprehensibly low level of cost awareness in view of the poor economic situation. This extended to the management, which did not react appropriately to the very high material costs in the benchmark. In addition, the product range did not reflect demand behavior. This led to a high number of "slow-moving items" in the warehouse and a disproportionately high use of working capital.
Restructuring plan developed with a mix of top and bottom line measures
The interim manager worked with the CEO and CFO to develop a viable restructuring plan in just a few weeks, which essentially focused on 5 areas:
- Reducing the number of employees in core functions by around 30 percent
- Reducing non-personnel costs to the minimum in line with a "zero-based" approach
- Adjusting the organizational and process structures to benchmark level
- Concept for new distribution site and immediate initiation or Implementation
- Reorientation of the product and service portfolio according to commercial aspects
Adjustment of the workforce in the inbound logistics area during ongoing operations
Adjusting the workforce downwards by around 25 percent - especially in the inbound logistics area - was like "open-heart surgery". As with any distribution company, it was essential that the day-to-day business in this core area continued to run smoothly.
The interim manager therefore carried out site visits during day and night shift operations to gain a precise picture of the processes and a necessary target organization in order to be able to handle the business efficiently both now and in the future. The target organization, including the dimensions, was defined together with the managers on the basis of these "on-site analyses". In addition, the interim manager collected benchmarks from sister companies.
Personnel costs also reduced by mutually agreeing to cancel special benefits
In consultation with the parties involved, the current interim manager also reduced personnel costs by mutually agreeing to cancel special benefits. This concerned, for example, the fees for fitness club memberships or home office equipment for company employees for whom working from home was only possible to a limited extent or very difficult due to the range of tasks. The company car fleet also bore no relation to the company's difficult economic situation. Around 15% of the total workforce had company cars. The interim manager reduced this proportion to around 3 percent.
Product portfolio aligned with benchmarks
In the next step, the interim manager realigned the product portfolio with economic, sales and logistical aspects. For example, he identified around 10 percent of all products that were no longer in demand among customers. At the same time, he showed that certain large-format products could not be stored and retrieved efficiently with the existing warehouse equipment. He also proved that agreed price ranges were not covering costs.
Greenfield analysis developed for a new distribution center
In a subsequent project, the current interim manager dealt with the greenfield analysis for a new distribution center. He developed the concept together with a specialized service provider and then coordinated it with the management. The new building proved to be the perfect solution. The product range can now be physically stored and moved efficiently with an optimal warehouse layout and precisely tailored tools for inbound and outbound logistics. This implementation opened up prospects for additional growth at a global standard level for the company beyond the short-term restructuring.
Cost adjustments result in a significant leap in earnings
After around 12 months, the company was profitable again and achieved a further leap in earnings thanks to the subsequent opening of a new distribution location. The new structure also proved to be efficient and resilient during the transition period.
