SITUATION
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- Investment group purchased $400 million (annual sales) integrated commodity
flat rolled steel facility financed 100% with debt
- Company was profitable
during initial three years; profits were reinvested in plant and equipment
and were used to service debt
- In year four, steel demand and prices dropped
drastically causing net operating loss in spite of successful cost reduction
initiatives
- Company faced impending inability to meet lenders’ covenants
and next debt payment
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RESULTS
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- In sixty days costs were reduced by $1 million per month and a plan
for future reductions was agreed upon by investors, operating management
and lenders
- In six months actions were implemented achieving total annual
cost reduction of $35 per ton
- The cost reduction resulted in the client
company being the lowest cost integrated flat roll producer and combined
with an improved market, this resulted in sustained net profits in excess
of $60 per ton
- The investor group sold the business two years later for
$200 million, netting over $160 million after payment of outstanding debt
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ACTION TAKEN
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- Reorganized the company into three customer-facing self-contained business
units
- Restructured salaried work content and processes; reduced staff through
early retirement package
- Restructured/reduced plant (union) workforce through
unilateral job combinations and elimination
- Implemented multiple plant productivity
initiatives requiring no capital investment
- Reduced cost of purchased goods
and services by aggressive application of strategic sourcing methodology
- Achieved
additional plant workforce reduction through negotiation of new five-year
labor agreement
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