Monier

Rapid turn-around of $500 million construction materials business, following unprecedented collapse in demand

Time and again our improvement targets were greatly exceeded due to Rick and his team’s creative, outside the box thinking. They changed how I think about managing our outside spend... ... Just one example shows what that kind of thinking can deliver. We were operating in an underutilized capacity situation and Rick had an idea to work the plants on nights instead of days. This obviously not only saved money due to lower electricity rates, but also enabled us to “double shift” our mobile equipment enabling us to halve our needs in that area. Further, the night-shift idea enabled us to cut down on our third-party security needs. Rolling out these ideas across an expansive plant network enabled millions to be saved.- Derek Taylor | Chief Financial Officer

Situation:

  •  The company experienced an 80% drop from peak demand after collapse in end market demand 
  • The management team took a number of decisive actions:  smartly reduced personnel costs, closed 2 plants and scaled back to one shift at the remaining open plants, reduced raw material costs where possible….
  • …  Still, the company was using cash at an unsustainable rate

Insights and actions:

  • Detailed review of purchasing revealed substantial price and demand management opportunities in most categories.  In addition to realizing 15-25% savings in improved price realization through reverse auctions and multi-round tenders, we identified several non-obvious opportunities that were captured including:
    • Moving plants to the night-shift enabled lower energy costs by participating in off-peak power plans, eliminating night shift guards for many of the plants, and reducing the number of forklifts in operations
    • Meticulous accounting of material handling equipment and corresponding contracts revealed several opportunities to return underutilized equipment
    • By identifying and creating a credible alternative source of supply from the clients plant in Mexico, we were able to renegotiate dramatically lower ocean freight costs from the west coast of the United States into Hawaii.  This was key as the incumbent supplier enjoyed near monopoly rents as a result of the 1920 Jones Act that sought to secure freight from US flagged vessels on the West Coast of the United States into Hawaii.
  • Analysis of supply/demand and cost analysis of the full product range suggested that 2 fewer plants could meet demand for the foreseeable future.  However, it did require exiting unprofitable tier 2 markets – something the management team and shareholders had not considered.  Management elected to close both production facilities at a substantial savings and boost to profitability.
  • Demand elasticity and price analysis suggested that a handful of product lines were relatively price in-elastic yet had been discounted as part of broad price concessions that were a result of rapidly falling demand.  By selectively holding price firm on targeted SKUs we were able to further boost profitability.

Impact:

  • Increased EBITDA $12M, returning business to profitability within 12 months of project kickoff.