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This case study was made as this client started with a concept and then systematically built his company to a thriving operation. However, as any business owner knows, the path to success is not an easy one.  This business owner enlisted help to develop his concept and proactively navigated the many issues common that most startups experience throughout their infancy as well as their growth. It is through this development and navigation that this case study provides benefit to the reader and aspiring entrepreneurs. I have attempted to summarize the variety of topics and how those matters were identified, considered and ultimately addressed for a successful client representation.

This client hired me initially to address some matters related to his existing business, three Tai restaurants located Ohio. Soon after, he contacted me regarding the pursuit of a new business opportunity, the import of seafood from his native country of Thailand to the United States.

Section 1. Background, History and Owner

The owner, I will call him James, is from a fishing village in Thailand where his family works with some of the largest and most established fish farms in the region, breeding primarily shrimp, tilapia, catfish, and carp.  He came to the United States in 1999 to pursue his education and has remained since.  James opened the first of three Thai restaurants in 2005 and two additionally in 2010.  While operating the restaurants, he encountered some issues related to his food purveyors and enlisted my help with the matter. It was through working with James on his restaurant issue that he had the comfort and confidence in approaching me to assist him with establishing and growing a new business, importing seafood from Thailand to the United States to be sold wholesale to both big box stores as well as seafood distributors serving 12 states throughout the Midwest.  James brought forward three individuals that had invested in his restaurants, one being an accountant and the other two solely financial investors.

Section 2. Legal and Tax Considerations and Compliance

After looking at the legal and financial pros and cons of various forms, it was determined that forming the business as an Ohio limited liability company would be the most beneficial from the standpoint of compliance, cost to form, tax advantage, and personal liability. The business’s principal place of business is in Ohio so is made sense to have all contracts designate Ohio as the jurisdiction and venue for any legal issues. After registering the name of the business with the Ohio Secretary of State, I assisted with filing all necessary forms with the appropriate government agencies for State taxes as well as worker’s compensation. Accounts needed to be established with federal agencies for withholding taxes, social security, and other deductions. One of the most important issues addressed at the formation stage for a business is its structure. It was formed as a limited liability company and upon registration with the IRS it was designated a multi-member limited liability company taxed as an S-corporation. This was chosen for two reasons: 1. a large portion of the owner’s compensation could come in the form of dividends as opposed to salary thereby reducing taxes and 2. Dividends could be paid to the owners in amounts defined in the operating agreement, not according to ownership of shares (like in a C-corporation).  James was bringing his relationships for product, his management experience and an investment of $100,000. He would also be working at the business full-time as he sold his restaurants. The accountant member was bringing his experience in accounting and would be working at the business full-time in a CFO capacity as well as making an investment of $100,000.  The other two members each made an investment of $150,000 and neither would be working directly for the business.  It was agreed that James would be the President and a Director, the accountant would be the Treasurer, CFO and a Director and the other two members would be Directors; each Director would have a single vote as to all matters decided by the Board of Directors with the caveat that James break any ties with his vote. James and the accountant each would receive salaries of $48,000 annually and each of the four members would receive 25% of all dividends. An operating agreement is not required by law, but all businesses should have one; even a business that is owned by a single owner (using a declaration in lieu of an operating agreement to address the same matters) should have a governing document. James opened a commercial bank account with him and the CFO as signatories (the bank required a copy of the Secretary of State registration, a notice from the IRS granting the company its federal tax identification number, a copy of the business’ operating agreement and a corporate resolution authorizing James to do so).  As the Company was going to be selling to clients in states other than Ohio, the Company’s name was registered with the Secretary of State in each of those states. James established new emails, letterhead, website and business cards.  Upon completion of all the aforementioned materials registrations and set up, James was finally ready to start operations.

Section 3. Logistics of Importing Product

James faced many logistical issues related to his importing seafood from the farms in Thailand into the United States.  He was prepared for many of these, but some were a complete surprise to him; he was not prepared for both the cost of the newly realized issues as well as that the issues themselves even existed.  The primary issue was James had to work with the sellers to agree on price and quantity of all products, when it would be delivered, how it was going to be transported as well as specifically where it would be delivered. Another consideration was how payment would be made to the seller, when payment was due and who was responsible for the quality of the delivered product.  I assisted James with negotiating the quantity and price of the various products and we determined the ideal delivery structure was a first delivery in 90 days with subsequent deliveries to be made every 60 days.  It was agreed that products would be delivered via ship and delivered to New York.  I arranged for a lawyer specializing in customs representation to assist with a smooth international delivery in New York.  Payment for the product is an interesting topic; the seller wanted either to be paid in advance or be assured that he would be paid upon delivery.  I contacted three large U.S. banks and initiated the process of getting a bank letter of credit; this is the bank’s promise to pay the seller if the client, James, does not.  We needed to put a comprehensive due diligence file together for the banks in order to obtain the letter of credit; The information required for the letter of credit included a credit report, balance sheet of the business and James individually, letters of reference and an indemnification agreement.  The seller could now deliver and be confident that he would be paid so long as the product is what was agreed upon.  James obtained a business property insurance policy so there would not be any gap in coverage between his receipt of the product and shipment to his customers.

Section 4. Logistics of Holding and Maintaining Inventory and Shipment to Buyers

James decided that he would operate his venture from offices in Columbus, Ohio.  I assisted James with locating and negotiating with a landlord for warehouse and office space at a cold storage facility.  I worked with several trucking companies that could bring his products from New York to Columbus for storage and distribution.  Regarding distribution of his products to retail locations, I facilitated getting leases on 20 box trucks and started the human capital development process to get potential drivers. We collectively worked on transportation schedules to meet client demand in the various markets throughout the targeted sales area. Hiring drivers required a whole new level of compliance and attention. To start, I prepared an employee handbook with supporting forms and disclosures.  Additionally, James had to establish accounts with the IRS and other agencies to remit withholding amounts as well as to obtain insurance for both the new drivers and vehicles.

Section 5. Accounting and Cash Management

I advised James that the business was well capitalized for day-to-day operations but did not have any extra capital for growth (additional drivers and trucks, sales and marketing, cashflow, slow paying customers, etc.); he responded by communicating this to the other members and each contributed an additional $100,000 of capital.  This did not change any of the structures described in Section 2.  The other member that was an accountant acted as the day-to-day CFO.  He managed the payroll, cashflow, the reporting, prepared and filed the taxes and developed the relationship with the bank.  Effective cash management is critical to businesses new and old, but especially those in the active process of growing.  I provided the accountant with several tools to evaluate the business’s overall finances and cash management such as deriving the cash conversion cycle and establishing kpi’s for production using best practices.  Accurate forecasting of sale and cash flow (minimizing receivables, etc.) are of paramount importance to managing the overall health of the organization.  Additionally, we evaluated more specific issues such as buying versus leasing of the capital equipment and the box trucks.  In the chart of accounts, we formed a category of assets turned receivables, but I communicated how important it is to not allow receivables to remain uncollected for long periods of time. I advised that anything over 90 days needed to be recategorized as uncollectable and the accounts suspended, while people may see that as overly aggressive, I believe it is very important when a business in new to strictly manage cashflow so as to avoid loss of customers when supply is slow or\even non-existent

Section 6. Sales and Marketing

James decided to focus on making two broad targets his customers, 1. Wholesale distributors; and 2. Big box retail stores.  I made sure that he understood that he would need significantly more inventory to supply his customers and more cash to carry the business because of both slow receivables from distributors and big boxes that routinely paid 60-90 days.  These two types of customers presented a unique challenge, anticipating tremendous growth, how could the company increase its inventory while simultaneously shortening its cash cycle.  I assisted James with the sales and marketing effort.  We contacted distributors that weren’t the largest in their region, but ones that had been in business the longest and had deep relationships; this stability would help ensure that our customer would be able to pay our bill much quicker. As far as the big box customers, I had relationships with buyers of two large retailers, Anderson and Whole Foods; these relationships allowed James to get his foot in the door and present his products.  After a few months of nurturing those relationships, both organizations gave James a chance to provide products to be sold in their stores.  James understood that he would only have one opportunity; he needed to maintain his available inventory, his agreed price structure (each company drove down his profit margin significantly based on volume purchasing) and the quality of his products.  It took a full year of cultivating relationships with the right distributors to solidify that line of business as well as to manage the big box store model.  At the end of year one James was in a position to bring on sales professionals that could maintain the business he had worked so hard to develop; making the decision to bring on a sales force allowed James to focus on the big picture and manage the business’ daily operations to meet long term objectives.

Section 7. Succession Planning and Buy/Sell Structure

I worked with James and the other members to put a succession plan in place.  Some people may wonder why we would address this issue so early in an organization’s formation/development; that is precisely the time to think about the short-term as well as long-term plans for the business as events may occur which require an immediate solution as opposed to a more methodical, protracted approach.  There are four members with both a collaborative position for the business as well as a personal one, so it is imperative that a plan be put into place that allows for the continuation of the business as well as protects the investment of each member.  To formulate short and long-term plans require assessment of factors such as cash investment (debt or equity), work performed (paid market wages, relationships), time investment, personal guarantees for letters of credit, members’ being married and/or having families, tax implications and age of members among others.  Short term plans contemplated events such as the death, incapacitation and/or divorce of a member.  We put in place key man insurance policies for the two members working in the business to provide funds for the hiring of suitable replacements and whole life insurance policies insuring the life of each member with the company as the beneficiary to allow for the company to purchase the interest of the deceased based on a predetermined calculation of his respective interest.  We contemplated both sides of someone wanting to buy an interest in the business as well as a member wanting to sell his respective interest; I suggested that an offer to buy an interest be brought to the members and each member have the opportunity to sell a prorated share and should someone want to sell all or a portion of his interest, the interest for sale first be brought to the other members with any new member being required to sign and agree to all terms of the company’s operating agreement.  The aforementioned terms would be in in the operating agreement while anything related to a particular scenario be memorialized in a minute of action and corporate resolution; this includes all substantive company business as well as director-level decisions.  I suggested that in the long-term, the members collectively determine an exit strategy such as selling the business to a larger competitor and/or evaluate whether any family members desire to be involved in or purchase the business.  Understanding these issues early will only help to make any decision later smoother and more beneficial to the members.

Section 8. Conclusion

This case study has outlined the various issues common to a new business startup.  A newly formed organization must focus its development on best practices for both compliance as well as for its short and long-term growth goals. This case study also demonstrates the breadth of expertise required to achieve success by many of our clients at any stage of their growth. It also highlights the need to reach out to experts and obtain professional counsel to help ensure your success.

Planning and Scheduling

Planning and scheduling are different but united aspects of managing a power station that produces energy. Planning chiefly deals with selecting the appropriate strategies and processes to achieve the objectives of the plant. Scheduling converts the plan for capacity, time, service, cost, and quality into an operational timetable. Together with the plan and budget, the schedule becomes a significant tool for power stations.

Industry

Electricity was generated by a nuclear reactor for the first time in 1948 at the X-10 Graphite Reactor in Oak Ridge, Tennessee, which was the first nuclear power station to power a light bulb. In 1954, the world’s first nuclear power station to generate electricity for a power grid, the Obninsk Nuclear Power Plant, started operations in the Soviet Union. The world’s first full-scale power station, Calder Hall in England, opened in 1956.  

According to the U.S. Energy Information Administration, “Nuclear power comes from nuclear fission. 

Nuclear power plants heat water to produce steam. The steam is used to spin large turbines that generate electricity. Nuclear power plants use the heat produced during nuclear fission to heat water.  

In nuclear fission, atoms are split apart to form smaller atoms, releasing energy. Fission takes place inside the reactor of a nuclear power plant. At the center of the reactor is the core, which contains uranium fuel.

The uranium fuel is formed into ceramic pellets. 

Each ceramic pellet produces about the same amount of energy as 150 gallons of oil. These energy-rich pellets are stacked end-to-end in 12-foot metal fuel rods. A bundle of fuel rods, some with hundreds of rods, is called a fuel assembly. A reactor core contains many fuel assemblies.

The heat produced during nuclear fission in the reactor core is used to boil water into steam, which turns the blades of a steam turbine. As the turbine blades turn, they drive generators that make electricity. 

Nuclear plants cool the steam back into water in a separate structure at the power plant called a cooling tower, or they use water from ponds, rivers, or the ocean. The cooled water is then reused to produce steam.” (Nuclear Explained, 2020, April 16.)

Scheduling at 100% Capacity, measuring daily to capacity and Schedule Adherence, effectively engaging with the craft by supervision, and identifying / removing barriers causing Lost Time enabled this client to successfully solve problems they had been struggling with for years.

This nuclear power plant is located in the Midwest of the U.S. and is owned by a larger energy corporation. The reactor is a boiling water reactor design and is one of the largest BWRs in the United States. The client was concerned about the site getting enough of the planned work completed to maintain quality and safety. 

Challenges

During the Discovery phase, we found ineffective scheduling of work as the Maintenance Departments (Electrical, Mechanical, I&C, and FIN) were not fully loaded (craft loaded at 50% daily). As a result of this lowered expectation, Pacing and idle time was observed throughout the Maintenance Departments. There was no sense of urgency as the craft habitually waited for work to come to them as there were no Backup Assignments. Managers and supervisors exhibited a Passive Management Style with overall Proactive Engagement with the craft (coaching, training, setting expectations, effective following up, etc.) at only 11%. They spent 33% of their time Idle, 34% of their time doing Administrative tasks, 17% solving Problems (firefighting), and 5% performing Employee Work.    

Conservations with the Supervisors, managers, and craft revealed that there were problems with many of the planned work packages, both content and the way it was scheduled, but no Feedback Loop was in place to communicate these problems to the Planning and Scheduling Department. The craft continued to live and work with these problems as there was no robust Barrier Identification and Resolution Process. 

A diagnostic assessment on their view of supervisory skills was administered to the supervisors and managers. The results revealed that the management team scored “unsatisfactory” in 40% of the basic skills including: planning, work assignment, assigning and following up, reporting, and change potential. This meant that there would be much work to do training and coaching these frontline leaders to execute their Roles & Responsibilities more effectively.   Obviously, there was a gap in the capacity of the plant to get work done as the craft was only loaded to 50%. This led to sub-optimal management of the resources, both manpower and materials. Exacerbating this lost capacity was the lack of engagement throughout the day by the frontline leadership with the craft to verify and correct actual performance versus planned performance. Late starts, early quits, and long lunches and breaks were rampant in the plant. Expectations for performance were set very low in the Planning and Scheduling Department.

Instead of taking the lead in planning and scheduling the required work to keep the plant operating optimally, this department planned the very minimum and took a subservient role and allowed the Maintenance Department to decide what would be done. They were not adhering to their Roles and Responsibilities. They were not loading the craft to their capacity and creating a schedule that would ensure all maintenance work (Preventative, Corrective and Elective) were being planned and scheduled.    

Their operating system needed an upgrade to increase throughput, recover lost profit through low productivity, and maintain a quality and safe product. In order to meet the deliverables, the current culture (behaviors) needed to be upgraded and changed.  

Keys to Success

• Improve Schedule Adherence by following up on assigned work
• Daily measure to Capacity and Daily Schedule Adherence and hold accountable
• Establish a sustainable and repeatable systematic process and environment conducive to attaining performance improvements (Continuous Improvement)
• Train the Supervisors and Managers through workshops and one-on-one coaching on the floor
• Improve Planning to schedule the craft at 100% Capacity that would meet and exceed the site’s goals

Solutions

Workshops were created and customized for the training and development of the supervisors and managers. Specific assignments were given at each workshop with on-the-floor training to reinforce the targeted behavior. Frontline leaders were challenged to be more engaged with their craft. Utilizing real-time data these leaders began making decisions while the work was in process to improve performance.

Observations were performed with the client to determine accurate work-to-time estimates. It was observed that current estimates were inflated by 45%. To say it another way, the craft was performing 55% under capacity due to lowered expectations, under scheduling, and barriers causing Lost Time. Expectations were reset and the Planning and Scheduling Department was requested to load the craft at 100%. Daily expectations were set with the craft by the frontline leaders. A sustainable systematic process was installed that prompted the behaviors of the management team to identify and reduce or eliminate the barriers causing Lost Time.  

Planning and Scheduling properly loaded the schedule by increasing the Load % from 50% to 100%. A feedback loop was created whereby the craft could communicate with Planning and Scheduling any work package issues. The leadership team, within Planning and Scheduling, was developed which improved the entire plant as they took the lead in areas they needed to be at the forefront.  

Communication improved at all levels. The management team communicated more effectively within departments and between departments. Senior Leadership’s expectations were communicated with specific deliverables for follow-up, all focused on driving process improvements to the floor.

Key Results

• 176% increase in Scheduling Productivity
• 74% increase in Maintenance Productivity
• 25% increase in Engineering Productivity
• 33% improvement in Schedule Attainment
• 66% decrease in the amount of time to Plan each package
• 45% increase in Load percentage
• $12.9M in annual savings

When a client was faced with stagnating sales metrics after maintaining steady growth for 20 years. Cogent Analytics was able to help them increase their sales through better sales management. This case study describes the client’s situation, and the solutions that Cogent Analytics helped to implement in the company, and the impact that the solutions had on the business.

Client Information:

The company highlighted in this case study is a multi-generational family-run business. The company distributes janitorial supplies to its customers, with a holistic approach to provide and meet all their customers’ janitorial supply needs. Operating from their warehouse facility, the company utilizes its delivery staff and company-owned delivery trucks to ensure quality from sales to direct delivery.

Situation:

The company has enjoyed continued growth over the past 20 years and has retained a large and loyal customer base in which to sustain that growth. However, in more recent years, the company’s sales have been stagnant, with sales management not truly providing the proper vision or displaying enthusiasm to move sales growth. The overall complacent sales force performance and the lack of sales management leadership were a concern for the owner, who knew that changes needed to be implemented; however, I was not sure how to go about these changes. The company needed an overhaul in terms of an accountability framework within the business to improve sales. The sales team was not seeking sales opportunities, and sales management leadership was not providing the guidance, direction, drive, or commitment to move the sales team ahead. The sales team was operating as more of sales order takers instead then proactively working with current customers to seek additional sales opportunities or trying new accounts to obtain new business.

The client was determined and committed to taking the business to the next level and knew that additional sales opportunities existed, however, was unclear of all the proper steps needed to reach that next level.            

As a result, it was discovered that there was a need to establish necessary accountability and organization infrastructure: by assessing and realigning roles and responsibilities, creating and implementing standards and expectations, and developing performance-based job descriptions. The job descriptions were tied to real objective, performance-based employee evaluations. Also, proper communication channels were not in place that provided the sales team with the positive and proactive leadership, vision, and direction necessary to motive and drive the sales team to take ownership of their territories and grow sales within those established territories. 

Solutions:

Early observations and detailed skill assessments confirmed that a change in the current sales management was necessary. Sales meetings did not have set agendas, and sales management was not providing realistic sales goals and projections. Also, sales management leadership was not being offered in terms of coaching, mentoring, monitoring, and giving feedback to the sales team. The meetings being held stated, “Here were your goals; you did not hit them- do better.” Also, the lack of monitoring and measuring sales performance did not provide ownership with the ability to track the daily/weekly sales activities and performances truly.  

A new sales manager was selected from the sales team, upon assessment of each sales representative’s skill sets. Discussions were held with the current sales team on the development of Key Performance Indicators (KPI’s) that would allow both the sales team and management to monitor and measure daily, weekly and monthly performance levels. The sales team was directly involved in the development of these KPI’s to confirm their ownership and commitment to the established KPI’s. Also, realistic sales goals were established for each sales representative and corresponding sales territory. These goals were developed based on prior history and by established sales growth budgets that were implemented as part of a thorough analysis with the company owners and the growth potential for each area.

The sales meetings took on a different approach. The meeting agendas were established to provide staff with an overall vision, direction, purpose, and a “how do we get there” leadership style. The tone of meetings changed from “here is what you did not do” to “here are the opportunities we have in our reach, and these are the specific items we are going to do to reach these goals.” As the sales team operates on commission, they began to see and believe how their actions could genuinely benefit them personally and financially moving forward. These fundamental changes and focus set a new tone and direction for the sales team and provided them with “new life” and prepared them for the additional future changes necessary to deliver sales growth for the company as a whole and other commission opportunities for the sales team individually.

The next step was the establishment of a detailed 1, 3, and 5-year business plan to achieve the desired sales growth wanted by ownership. Explicit monthly sales goals were created to move sales from the current annual 4% level to the desired 10% growth. This plan included specific action plans, who was responsible for each action item and time-definite deadlines required to complete each step. The first action item identified was the need to ensure that all sales territories were being efficiently run to foster the desired sales growth level.

When the process of evaluating each sales territory begins, the desire initially was to ensure that each rep was running their route most efficiently to maximize face-to-face opportunities with accounts. It was soon discovered that a complete redesign of each territory was needed as reps were crossing over each other to see accounts. As a result, a comprehensive analysis was conducted to show prior sales history and commission dollars for the entire service areas. Utilizing this information, sales boundaries were established that focused each sales rep into a specific geographic region. Sales staff were brought in individually to review their new territory and plan for the handoff of accounts from one sales rep to the other.

Results:

The redesign of each territory provided greater daily efficiencies for each sales rep, reducing drive time between accounts and thus allowing for a more significant selling time at each account. In addition, the KPI’s established provide ownership, sales management and individual sales reps with the ability to track daily activities, based on number of selling days in each month (actual regular sales achieved vs daily sales needed to reach monthly goal, exact overall sales month to date vs goal and CRM activities recorded in efforts to reach these goals). These KPIs are being captured and sent to all parties each day and provides timely and accurate information on where each individual stands vs. goal and what they need to achieve daily to reach the established monthly goals.  

Besides, a complete sales manual was created to establish sales expectations and standards and ensure all reps, existing and new, are being provided with all product training materials and proper selling techniques to reach maximum success in the field. Standard Operating Procedures (SOP’s) were established for sales activities, office administration functions as well as warehouse activities. In order to gain greater control over inventory, warehouse shelf bin locations were determined, and labeled cycle counting began. KPI’s continue to be captured each day, sales meetings, with focus and direction, continue each week and staff have a new sense of direction and drive each day in the field, and warehouse controls provide higher efficiency.  

After the end of the first month of fully implementing all changes, sales reached 7.5% growth off a 3% goal.

Small business owners always have a lot on their plate, which causes stress away from the office. The following case study illustrates how Cogent Analytics was able to increase the quality of life for one business owner by helping them understand and manage cash flow more effectively.

CLIENT INFORMATION

The client is in the construction industry. The service provided by the client is lot clearing & grading, footings, foundations, flatwork, and landscape design and build. The current owner managed the business for 15 years before purchasing the business five years ago. This company utilizes both W2 employees and subcontractors to complete the work. The company’s annual sales are about $4,000,000 and have remained flat for the past several years. In 2018 and 2019, net profit was not to expectation, and the client engaged with Cogent Analytics to help manage cash flow, become more profitable, and have a better quality of life.

STATUS / SITUATION / CHALLENGES

The challenges this client faced are the following:

• Cash Flow Management-Unsure what the cash position is, so decisions are being made without financial data.
• Job Costing-Absorption (overhead) is not taken into account when bidding work and invoicing. This was producing a net profit that was undesirable.
• Lack of training to use income statements and balance sheets as a tool to manage the business-Client was not trained on how to use the two reports to understand what was happening within the business.
• Overtime doubled from 2018 to 2019-Had no idea because they were not looking at payroll reports
• Equipment and vehicle repair increased from 2018 to 2019-Was not paying attention to the income statement and balance sheet to recognize YTD expense and loan balances.
• The client has no documentation on the workflow for the business-Everything is in his head
• Quality of life-Always worrying about the unknown

SOLUTIONS

• Cash Flow Management tool was required to understand the cash flow position each week. This allows the client to have a weekly financial meeting that focuses on A/R and A/P and the weekly cash position of the company. The client can see the effect of cash flow when they have an unplanned spend, or A/R is delayed.
• A job costing tool was created to utilize for each bid and invoice. The job costing tool accounted for all expenses for each job type, whether material or labor, all equipment expenses incurred to complete the job, and finally, absorption (overhead). This allows the client to understand which services need to be examined for changes and elimination over the next two quarters.
• Training was provided on how to read and understand the income statement and balance sheet. During training, several scenarios were provided, and discussions were had on how it impacted the income statement. This provided an opportunity to see how operational issues reflected the bottom line and cash flow.
• The overtime doubled from 2018-2019 while sales remained flat. We ran payroll reports back to 2016 through 2019 and determined that overtime increased for no reason other than lack of management. Two things were immediately changed. We created a supervisor position whose primary function was to visit each job site by the end of the day. During the visit, a checklist is used to understand the current status of the job and, most importantly, have the crew end the day before overtime begins. TSheets was implemented to track time at job sites, help with scheduling and GPS.
• Equipment and vehicle maintenance doubled from 2018-2019. It went from $83,000 to $167,000. It was determined that the cause was from a lack of preventive maintenance program and having no benchmark for the end of life. We implemented a comprehensive preventive maintenance program and assigned a worker to be responsible for managing the program. We also had discussions and created a benchmark for the end of life. We met with the vehicle and equipment suppliers to learn of leasing options that included preventive maintenance and repairs to be included for the term of the lease.
• The owner had every work process in his head. The employees were all experts at their function but had no idea of anything else in the company. After much discussion, the client agreed that standard operating procedures need to be created. We created SOP’s for every job type and every critical administrative function.
• Quality of life was not to the client’s expectations. The client spent many sleepless nights and 12-hour workdays because of the above mentioned. By creating SOP’s, creating a supervisor position, installing a cash management system, and having a preventive maintenance program, the client saw that the quality of life issues could be addressed.

RESULTS

• The cash management system proved to help understand precisely the cash position of the company. This is a tool that the client never had and, once trained and followed, proved to be a significant asset. The client is now driving the business and was able to begin repaying the line of credit every week and set up weekly savings for an emergency fund. We also trained the administrative staff to keep the Cash Management System up to date. Now the client has weekly financial meetings and discussed A/R, A/P, and weekly cash position. Everyone contributes to the conversation, and together decisions are made for collections and payables. This has created a different awareness throughout the company, and everyone is working hard to protect the cash position. 
• Now that the client understands the income statement and balance sheet, they can review in the weekly financial meeting and begin to see when the business needs attention in a particular area and manage cash flow better. 
• We agreed to immediately cut overtime by 50% ($32,000) to resemble the years 2016-2018. This was accomplished by creating the supervisor position and installing TSheets. TSheets is a mobile time tracking, scheduling, and GPS application that is installed on each crew member’s smartphone. Between these two changes, overtime is quickly moving to the target amount. 
• Fleet maintenance was severely lacking, and there was no policy on when to replace a vehicle or piece of equipment. We reached out to the equipment vendor and had the preventive maintenance schedule for each type of material delivered and created a plan for maintenance. We also decided to learn about equipment leases that included repairs and preventive maintenance for the life of the lease. It cost an additional $6,000 to add these items to each piece of equipment. This was far cheaper than paying for the repairs over a 3-4-year period. The client decided to replace the piece of equipment that met the end of life criteria. There will be no other repairs and maintenance fees associated with that piece of equipment, and when others reach the end of life, decisions can be made correctly. 
• Standard Operating Procedures were created, and employees were trained on the ones that pertained to them. Immediately the team had greater insight into the process and how their work impacted the rest of the group. They were now able to forecast when issues could arise, based on any number of factors, and take action to make changes in the workflow to prevent the problem. This has improved the quality of life for the client because they are not required to solve every issue that comes up on job sites daily. The team interacts better with each other and has a new sense of purpose within the organization. 
• The client measures quality of life by how much or little sleep he gets at night. The client stated that the quality of life improved within two weeks of implementing changes and continues to grow. After the 3rd week, the client indicated that he got the most uninterrupted sleep (in the previous night) than in the past three years. 

In this Case Study, Cogent Analytics discusses how a client was experiencing issues with their operations and work flow, which caused them to be severely inefficient and miss deadlines and back up production on new repair requests coming in.

CLIENT INFORMATION:

The company highlighted in this case study is a maintenance, repair, and operations (MRO) company that completed significant repair and upgraded on large commercial aircraft. The company is a worldwide company with five domestic locations spread out within the United States. This case study focuses on 1 of these locations that continuously did not meet local or company objectives and profitability.

SITUATION:

Imagine your company staying stagnant with no growth in revenue and losing net profitability month over month and not knowing why. That is the case for this hangar, which primarily focused on significant aircraft upgrades and modification, with mid-level services required.

The local hangar continues to lose profitability due to jobs not getting done on time. The hangar believed that they did not have enough skilled technicians to do all of the work; therefore, they thought by adding more employees with specific skill sets that they would be able to turn more aircraft on a weekly/monthly basis. However, what took place was that they added more hours on each plane, causing the issue to increase and multiply. Not only were aircraft still not going out on time, but now more hours were put on the airplanes causing profitability on each on to decline significantly.

The client was unsure what else they could do because they felt that they were trying everything they could to make a positive change in the organization. Therefore, they looked for alternative methods to resolve their issues, one of them being this one.

SOLUTIONS:

Gaining Understanding

To gain a better understanding of the operations, we created a process-flow from receiving an aircraft to when a plane was released back to the airlines. After several minor tweaks and changes to the process flow, we wrote out what the “Reasonable Expectation” (RE) for specific tasks should be and then compared them to the actuals. This exercise was the first eye-opening experience with my client because they had never looked at their data in hours per step, but an overall “Effective Labor Rate” per aircraft. They felt that as long as they were within the hours provided through the contract that they were doing “good”; but never thought about looking at each step to determine if they could make the process better and reduce the time to gain profitability.

Addressing the Challenges

This brought us to our first challenge; how do we address these steps? Do we focus on all or just the significant steps? To address this issue, we created a Pareto (analysis using the 80/20 rule of decision making), breaking out each step into descending order based on the average time per activity. The client then realized where to focus their efforts but had to be provided with the right approach because they immediately started discussing technical issues vs. the operations and people side of the activities. To overcome this issue, several assignments and tools were provided to guide them through the step-by-step approach for potential process improvement.

We started with observations of the process. This included writing out each step, identified barriers, and time associated with the action. After each observation, the client was asked, what they saw, what were the issues, and what is the next step. At which time, they realized they had to make changes and help their mechanics by eliminating or mitigate the barriers they face daily.

Establishing Measurements

The observation process also allowed us to start discussing Key Performance Indicators and what metrics were essential to understand if we were having a good day or a bad day (week). KPI’s that were implemented were Productivity, Plan Adherence and Attainment, OT%, and time allocations between departments (Interiors, Structures, & Airframe and Powerplant).

Creating Consistency

Once the observations were completed, the client created Standard Operating Procedures (SOPs), which outlined each step-by-step process, the number of mechanics for each step, and the time associated. These SOPs were introduced to all mechanics during their morning huddle to make sure all mechanics received the same message and that everyone agreed with how to accomplish specific tasks.

Tracking Workflow

To focus on the continuous improvement process, the client started to provide specific work assignments to each mechanic. Mechanics were introduced to production sheets to track barriers and the time associated with those barriers. Additionally, my clients started bi-hourly Short Interval Follow-Up Tours that allowed them to track on and off schedule conditions and determine any additional issues affecting the work being performed. The data from the production sheets were used to feed that data in the client’s KPI / Metric Dashboard to provide added traceability in how they were performing day over day and week over week. Based on all of the information, my clients now had they were able to start developing an Action Items Log and create Action Plans to address cross-departmental or long-term issues. This allowed them to mitigate or eliminate barriers that were previously seen as “part of the job.”

RESULTS:

The solutions that were implemented resulted in significant operations improvements throughout the facility, not only for the company itself but also for the mechanics. The mechanics understood what they had to accomplish for the day by being provided specific work assignments, and they were also building a stronger relationship with their management team by being involved in the process and having a clear 2-way communication channel set up with the management team. The managers and planners knew what was involved in each step and how long each step should take, allowing them to ask the appropriate questions to address any potential issues. Lastly, the company saw the improvements not only in the morale but actual dollars being saved.

Through this process, while on the project site, the company saw an improvement of 67.56% in their “Effective Labor Rate,” which translates into a difference of $37.16 per hour. With each aircraft having ~1,200 hours associated with it, this resulted in an overall savings of $980,964. This was accomplished by focusing our efforts on workforce utilization, understanding the process, setting reasonable expectations, following-up, and eliminating barriers on significant portions of the operations.

The use of time tracking is important for measuring production, it allows for increased efficiency, productivity and increased profits. This case study focuses on a situation where a Cogent Client did not have accurate time tracking in place, and how the client increased production once the solution was implemented.

The Client

The company is a metal fabricator that has manufacturing software for the business. However, the software was mainly used for estimating the product for a prospect/customer, but not tracking time for production. This software was very much underutilized. The company was barely breaking even and often shipping the product late. Therefore, we looked at the most controllable cost of any business, labor.

The Situation

Upon review of the software capabilities and the estimates created in the system by the estimator, the data was available to compare the actual time per operation to the estimated time for the operation. The estimates were quite detailed, but they were not being used in the shop. The next step was creating a process for employees to log in and out of jobs on the computer when they started and finished an operation. The estimated was set up for set-up time, a fixed time for the part, and the run-time, which is variable due to the number of parts to be run. Overall the tracking of time was a simple task since the system is set up for tracking time, and it was a detailed estimate. But it took time for 100% compliance on the shop floor with all employees following the newly established procedure, and it took a lot of time of the Foreman coaching the employees in the new process. As compliance with the process, the information became more accurate and yielded better results for further analysis

Some of the challenges of compliance were:

• Always identifying and logging in separately for set up time and run time.
• To log out of the job for their morning and afternoon breaks, they had previously clocked in and out for lunch, so that was not an issue
• Ensuring the proper count of the number of ‘good’ parts produced, scrap, or bad parts were not counted before.
• Flagging delays in the process correctly, machine break down, lousy material, etc.
• The dwell time between parts is now being tracked, but that does not go to a job.

The employees quickly learned that they were being held accountable for their time, and the data must be accurate, and all exceptions noted adequately. With this realization, the accuracy of the data being collected greatly improved.

The Solution

Once the data was collected and analyzed, management was able to focus in on areas that required attention for improvement. Some of the areas they found: Some employees struggled with set up time; it was taking them much longer than allocated. The Shop Manager spent time with those employees to improve skills in the set-up process; this became a training issue.

The data also showed there were variances with the run-time. This is an age-old question, was it estimated correctly, or was it a shop employee problem.

Further analysis often showed that material handling was part of the problem. Management worked with the employees to develop better processes for moving material in the shop. After meeting with the employees, the company made additional investment in equipment to make the process easier for the employees — less movement, bending over, etc. which all takes time. The Foreman also coached employees on better ways to layout the material to be more efficient in producing the part with their machine.

Not all the time variances for actual time to estimated time were from the shop floor. With collecting data over a period, some of the estimated time per operation was increased because the original time was unrealistic from the time tracking. This also gave them a more realistic ship date for the customers because the old estimate did not account for a proper amount of time to produce the part. 

From the beginning of this process, we explained to the employees; this new process was to gather information to determine areas that were going to plan and areas that require improvements to be more productive and that are based on facts and not just a gut feeling. When material handling was shown to be an issue, and everybody met to discuss ideas for improvement and management committed to investing in equipment to make work easier for them, the company solidified buy-in from the employees. With the added coaching from the Foreman, it indeed became a team effort, and in the end, everybody wins.

The Results

With time tracking and improvements from the new processes because of better data, the company is below their budgeted labor costs. This is close to a 12% reduction in their cost. This payout made both the employees and management very happy. Also, the employees know they are being held accountable for their time.

People do what is inspected, not expected. With a gain sharing incentive plan in place, the employees last quarter receive a payment that averaged an $0.83 per hour worked bonus.

Other results have been improvements to meeting the ship date; this is up to over 90% on-time from 70%. The company also has a more accurate count on ‘bad’ parts since all parts are counted and tracked.

With shipping on time, the company can also increase their throughput because it is taking less time than before to produce the parts. Therefore, they have more shop time to sell.

The next step for the company is to fully utilize the purchasing and inventory modules of their software to ensure the material cost is within the estimated value.

At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:

What would happen if you were suddenly not able to be a part of your businesses day-to-day operations? The question is often asked, “What would happen if you were hit by a bus today?” What follows is a real example where the owner was suddenly and unexpectedly gone from the business, and why the company continued to thrive in his absence.

THE CLIENT:

The business is a second-generation, family-owned petroleum distribution company in the Midwest. They enjoy strong sales and have grown from a small home heating oil company of three trucks to a full-service, petroleum distribution company with tank wagons, semi-tractor transports, and a host of other supporting vehicles. They had grown to a point where they were able to secure non-interruption agreements with their largest wholesale suppliers of fuel.

They service just about anyone who needs fuel from small farms to large businesses and construction sites with multiple pieces of equipment requiring daily replenishment as well as several local gas stations. As part of their full-service offering, they provide specialty race fuels and attend various races around the state, promoting their name.  They also have a large assortment of packaged petroleum products and bulk oils. They can blend products to make custom items. They are indeed a full-service petroleum distribution company.

THE SITUATION:

The business had grown, but the profitability had not kept up with the amount of revenue they enjoyed. Knowing in his heart they needed help, but not knowing where to go or how to get started, the owner accepted an invitation for an assessment and a follow-on consulting engagement.

Our relationship started like so many; the owner was fearful of the unknown and grateful to have some help. The complexity of product offerings combined with the company’s strong growth had overwhelmed the systems and tools in place that were once sufficient when they were a tiny home heating oil supplier but were no longer capable for the size of the business to which they had grown. Processes were lacking, and everyone was working very hard and doing what they thought was best for the company, but could not make any headway.

THE SOLUTION:

Over ten weeks, we delved into every aspect of the business and had to create reporting metrics on each. These Key Performance Indicators (KPIs) became instrumental in separating the critical few from the trivial many. New processes were developed and formalized for just about every aspect of the business. The implementation of new metrics and processes required training so the individuals would know how to work differently to be more productive and to interpret the information they were seeing.

The very first thing we did was train the owner and key individuals some fundamental financial concepts such as understanding and calculating Break-Even, profit versus mark up, and how to review and understand financial statements. The charts of accounts were reorganized to reflect an accurate picture of the Cost of Goods sold versus Indirect costs. We streamlined the information received so the business could be reviewed entirely with just a few key reports.

The initial two reports were a one-page financial summary showing Cash on Hand, Receivables, Payables, and a review of the last 12 weekly deposits. The weekly sum of deposits became critical because it provided us an accurate estimate of revenues we could expect to come in each week. The other financial tool was the 12-week Cash Management report, which is a forward-looking cash projection. The Cash management report provides the business owner the opportunity to look forward and address potential issues before they become a crisis.

Once the basic Financial reporting was up and running, we were able to see some significantly old receivables needing to be collected. The owner took a personal interest in this activity, and past due payments started coming in.

The next activity was to find a way to measure the fifteen Tank wagons and four transport vehicles. We discovered, in the system, they already owned and used an imbedded tracking tool. This provided the raw data needed, which was easily exported into Excel, to create simplified reports showing a profit (or loss) by the driver as well as miles, fuel consumption, and other critically important information. Combined with the financial statements, we could now view the entire business on three sheets of paper.

THEN WE DISCOVERED ANOTHER MAJOR ISSUE:

One huge issue we found was the sheer number and value of bulk oils and Packaged goods inventories. Between the two, we conservatively estimated there was an excess inventory of $350,000.  These initial findings were met with quite a bit of suspicion. A week later, the individual responsible for the inventories told me he had conducted his own research and thought the $350,000 of excess inventory was probably too conservative, and the actual amount was much higher. We now had a champion for this cause.

THE SOLUTION FOR THE NEW-FOUND ISSUE:

We decided to start with the Bulk products as they were fewer in number, fifteen, as opposed to over 300 for the packaged goods. The bulk items were also consolidated in a single location and were easily inventoried. While training the individuals, we found the individual responsible for the bulk goods inventory would purchase three times the minimums required to satisfy the demand to save on trips. He was well-intentioned, but he did not understand the cash impact of purchases as much as $2,500 of excess inventory on a single product to save a $60 trip. In some products, they had over 26 weeks of the amount of product to meet demand, even though this commodity was readily available. Showing the individual this number was a huge eye-opener, and he became a disciple in working with us to reduce the inventories while ensuring customer demand was met. This activity started us on a path of establishing reorder points to be purchased and maximum inventory to have at any one time. The concept was executed by reviewing the highest single sales within a replenishment cycle of the product, then only ordering that amount. This reduced inventory while providing an adequate product to cover customers’ demands.

Over the weeks that followed, inventories of these bulk items started coming down until they were brought into the ranges of reordering and maximums. Now every week, they monitor the number of items and their value products that exceed the maximums. This provides targeted items for further reduction. They now have tools so they can see their inventory in a much simpler way and manage hundreds of items by managing the few that are the exceptions.

Typical, the initial weeks of the engagement were putting these tools and processes in place with the last few weeks being training and coaching the team how to use the tools properly. This was accomplished through a weekly meeting of the key leaders of the company. Early meetings were carefully choreographed to cover the key elements of the business with any issues being raised to be solved outside this meeting.

 THE RESULTS:

The engagement came to its natural conclusion, with all the team having full knowledge of their expectations and the reporting tools to manage the business. It was like a symphony with the owner now conducting the team, and they were making some excellent music with just a few off-key notes now and again.

Three days after the engagement concluded, the owner was involved in a severe vehicle accident and was lucky to survive the ordeal. The result of the accident was the owner was now suddenly and entirely out of the business; no one knew for how long or even if he would be able to return.

The Operations Director stepped in and became the de facto conductor. The team rallied behind him, and they stayed on the path they had been shown and continued using the tools they had learned. They kept their weekly meetings, reviewed the metrics, and stayed true to the processes that they helped develop.

The company not only thrived but weathered another major adverse event when their major supplier had a disruption at the refinery, causing a severe shortage of refined petroleum products.

While the owner continued to recuperate, the team carried on. I made my weekly calls to check in with them and was extremely pleased with how they carried on in spite of the difficulties they faced.

One month after the owner’s ordeal, the company set a record for the amount of fuel delivered and the profits earned. They had redeployed some idle assets turning them into profitable resources.

During one call, I was delighted when the Operations Director commented on how lucky they were that the accident happened after they had gone through our work together. He said, “we don’t know how we would have weathered this without the guidance you provided and the tools you put in place.”

The real take away from this experience is; it is critically important for a business to have formalized processes and metrics. The structure we put in place allowed this business to not only survive but thrive during a time of catastrophe.

Their success continues to this day.