The business was a small, profitable company specialising in low volume bespoke items incorporating high added value.
Objectives and Scope of Health Check
The objectives agreed for the check comprised identification of opportunities for and constraints to profitable growth and high level recommendations as to how these may be managed.
The scope of the check included financials, marketing and management functions.
Abio used a well proven diagnostic tool in the form of a questionnaire completed in a face to face meeting with the client. Outcomes were compared to the “norms” for the sector allowing the causes of the company’s strengths and weaknesses to be analysed and root causes identified.
To provide a crucial “user’s” view of the company, abio undertook a customer survey based on their perception of product, delivery, administration and communications.
The company was well managed, profitable, customer orientated and held a reasonable order book.
However, some weaknesses were identified.
1. Some 85% of customers provided only 10% of the turnover which resulted in a high volume of low revenue/profit jobs.
Further analysis revealed a number of interrelated issues behind this weakness:
- No strategy for increasing high value sales amongst these customers
- No strategy for accepting/declining low value jobs
- A pricing methodology that did not recognise small jobs were relatively resource hungry and so costs were not fully recovered thereby resulting in lower profitability
- The high volume of low value jobs made scheduling more difficult which contributed to protracted lead times and late deliveries. (These performance areas scored the lowest ratings in the customer survey of the service).
- Delegation was underdeveloped. The Managing Director personally undertook most of the job scheduling. Given his other priorities, monitoring was patchy.
2. Over 60% of turnover went to two customers.
The company recognised that this degree of reliance was not tenable in the medium and longer term. However, there were no firm plans to address this issue.
3. Customer Survey – Untapped Sales
The survey of existing customer perceptions of service indicated the potential for increased sales. However, no attempt had been made to exploit this. (Communications with the customer tended to focus exclusively on the “job in hand” and not “digress” to sales opportunities).
Whilst the company was aware of the importance of the service, it was surprised by its comparatively low rating for lead and delivery times.
Abio made a number of outline recommendations, including:
1. Formulation of a marketing plan whereby sales to existing customers (bar the top two) might be increased and sales to new customers achieved by carefully targeting sectors whose requirements were matched by the company’s aptitude and skills
2. Review and amendment of pricing methodology to improve quotation accuracy for low value jobs
3. Development of criteria (using accurate costings) within the marketing plan for judging the strategic benefit realised by accepting low value jobs
4. Further review customers’ perception of service and take steps to improve areas with relatively low scores e.g. delivery
5. Review Managing Director’s daily activities (including those relating to job scheduling) to identify tasks for potential delegation. Define skills and aptitudes involved, match those with available staff and train/develop where appropriate.
These recommendations were designed to allow the company to define it’s marketing objectives, plan for increased sales (whilst reducing its relative dependency on the current top two customers), price with accuracy whilst eliminating low value jobs providing inadequate strategic benefit, improve service levels and free up the Managing Director’s time whilst improving job schedule monitoring and the development of staff.
The result – greater stability and profitability.