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 following a collapse in end-market demand.
  • The management team took several decisive actions: reducing personnel costs, closing two plants, scaling back to one shift at remaining facilities, and reducing raw material costs where possible.
  • Despite these actions, the company continued to consume cash at an unsustainable rate.

Insights and actions:

  • A detailed review of purchasing revealed substantial price and demand management opportunities across most categories. In addition to achieving 15-25% savings through reverse auctions and multi-round tenders, we identified several non-obvious opportunities, including:
    • Shifting plants to the night shift enabled lower energy costs through off-peak power plans, eliminated overnight security guards at many facilities, and reduced the number of forklifts in operation.
    • Meticulous accounting of material handling equipment and corresponding contracts revealed multiple opportunities to return underutilized equipment.
    • By identifying and developing a credible alternative source of supply from the client’s plant in Mexico, we were able to renegotiate dramatically lower ocean freight costs from the West Coast into Hawaii. This was particularly impactful, as the incumbent supplier had enjoyed near-monopoly pricing as a result of the Jones Act, which restricts freight on this lane to US-flagged vessels.
  • Analysis of supply and demand across the full product range indicated that two fewer plants could meet foreseeable demand. This did require exiting unprofitable tier-2 markets, an option the management team and shareholders had not previously considered. Management elected to close both facilities, generating substantial savings and a meaningful boost to profitability.
  • Demand elasticity and price analysis revealed that a handful of product lines were relatively price inelastic, yet had been discounted as part of broad price concessions made during a period of rapidly falling demand. By selectively holding price firm on targeted SKUs, the company was able to further improve profitability.

Impact:

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