Private Equity

At the core of what we do is to develop and implement innovative new process designs for each acquisition’€™s major value streams. These designs dramatically reduce operational waste in order to create superior performance gains and accordingly higher valuations. We emphasize low-capital improvements with rapid payback and strong return on investment. Our contributions go beyond the formulaic solutions that many consultants in this arena provide. Examples include manage-to-standards approaches as well as the common practice of targeting points of excess labor. The latter is typically followed by orders given to management on where and how much to cut, but with no clear guidance on how to put the pieces back together again. Although they are build on sound ideas that we subsume in our own methods, these approaches generally squeeze only modest cost savings out of operations while leaving both management and front line personnel exasperated. In contrast, we identify the wastes and opportunities that others don’t see or understand and we develop effective, often novel and approaches to eliminate them. Subsequently, we work hand in hand with floor leaders and internal experts to design and implement the future state. We teach them, earn their respect and confidence and we work together to deliver the results. In sum, we create operational value by putting much smarter ways to do the work into practice.

We work in partnership with our private equity clients across the entire ownership timeline from due diligence to exit. Up front, during the initial restructuring phase, we focus on the smooth implementation of aggressive and high-impact change. As we continue to learn more about the business and operations, substantial new improvement opportunities will continue to become evident. Implementation of these improvements – at this point largely the responsibility of the internal leaders whose skills we have developed — will proceed under a structured improvement program. Accordingly, value creation occurs at a strong rate throughout the ownership cycle.

Although major EBITDA improvement is a critical goal, we deliver the full package as needed to truly build a better business. Specifically.

We apply ILS System™ using a special version that has been specially designed to meet the needs of our private equity clients.  This methodical approach is designed to:

The process begins during due diligence where we conduct a thorough operations assessment for the potential acquisition. The organizational culture and management personnel and systems are reviewed. The goal is to identify change leaders and key technical resources; obstacles to restructuring; and improvements that will be needed in operations management for effective operational planning, resource deployment, performance measurement and problem solving. Preliminary work content and cycle time measurements are taken and historical performance data are collected to understand labor and machine capacity utilization and operational run ratios. Overtime, cost of quality and other significant operational costs. Major operational problems are identified and reviewed, assessing their impact on performance and any capital needs to fix them (e.g., tooling disrepair). The operations are carefully observed with a trained eye to identify all forms of waste. They are compared to ideal lean models that we have developed for similar classes of operations and the gaps are noted. The operations are reviewed from a value stream perspective to identify systems level wastes. Promising, practical and affordable countermeasures for eliminating these wastes are devised. We then synthesize an achievable future state design that promises high performance gains. Our goal, at stage in the process, is to identify improvements that can be readily implemented at low cost and will, effectively, improve the performance of the company by 1½ to 2 letter grades. For multi-site or bolt-on acquisitions, opportunities for consolidation are also assessed. The work is broken down into individual projects and we quantify the impact in financial terms. This information is available to the due diligence team for incorporation into the financial analysis and valuation of the acquisition.

Normally operations restructuring will commence immediately after closing. Rightsizing would be executed first in cases where necessary, with appropriate communications plans, implementation monitoring, transition services for separated employees and efforts to rebuild morale of the stayers. Internal leaders of the restructuring activities are identified and these individuals will take ownership of the improvement projects. A number of management tools are put in place, including:

A restructuring war room will be put in place. This room will identify each project, giving project ownership, current and future state, implementation schedule and plan, KPI tracking with goals, completion status, identified problems and problem solving documentation to resolve those issues.

Operations leaders and restructure team members will commence a daily plant walk through, both to support the daily management system that is focused on normal production and to understand progress and issues related to the restructuring projects.

Following ILS System™, we execute many of the projects through a form of highly effective operational improvement workshops called bootcamps. We carefully prep for bootcamps, completing the activities necessary to ensure rapid and effective operational restructuring during the bootcamp event, which typically lasts from 3-5 days. This might involve gathering data, conducting analyses, lining up resources, fabrication, moving equipment, etc. During the bootcamp, teams learn the principles, practices, tools, techniques and underlying theories behind everything we do. They then design, pilot, implement, problem-solve and confirm the effectiveness of the improvement projects. The days are long and the work is intense. But by teaching the participants, they understand, contribute to and enthusiastically support the change. We set high goals and objectives and push the teams to achieve exceptional results. (Seven figures in annualized cost savings have often been realized during a single bootcamp activity.) They gain confidence in the change that is happening in their organization and their support and enthusiasm grows. They leave equipped to continue driving improvements later in the ownership cycle. Note that bootcamps are often attended by individuals from multiple portfolio companies, not just from the site and/or company where the bootcamp is held. The individuals from outside companies will be expected to apply what they have learned in the bootcamp in continuous improvement projects at their own facilities and these projects are carefully managed. Other engagement models such as value stream design workshops are employed depending on the nature of the projects. Note that the projects will include full implementation of lean tools including 5S, standardized work, visual control, etc.

Often there will be a need for special problem solving efforts addressing issues such as quality problems, run ratio concerns, scheduling problems, etc. These efforts will be integrated at appropriate points in time in the restructuring program. They are often foundational to the other restructuring projects.

As restructuring phase progresses, the daily management system will be strengthened. Standardized work, in particular, will be emphasized and strong systems put in place. We insure that run ratios are brought at least to at least standard industrial benchmark levels and structured problem solving will be undertaken as required to achieve these goals

ILS will report out weekly in a standardized format to private equity leadership. In additional, all improvement projects will be thoroughly audited with direct participation of these leaders. Successful re-audits and closure of corrective action lists will be expected. Attainment of financial performance goals will be confirmed with appropriate operational data, especially the productivity calculator mentioned above.

Restructuring generally takes 180-270 days. During that time, there will be major operational improvements with results flowing to the bottom line, strengthening of management systems, resolution of key operational problems and internal skills built for continuous improvement. As noted earlier, the company’s letter grade for operational excellence will have risen 1½ to 2 grades. There will also further collaborative learning, identifying more wastes and opportunities to improve.

At this point, ILS would conduct a second operational assessment to identify additional improvement opportunities. The assessment would inform the company’s second year budget. A plan would be made for implementation, incorporating the improvement results into the budget. ILS would lead certain projects, particularly the more complex and challenging ones and the company would assume responsibilities for the others. In general, the results of this assessment are very substantive and it is very important to continue to capture these opportunities for operational value creation.

Hoshin planning would be introduced during this budget cycle as a mechanism where the company establishes and takes full ownership of a strong continuous improvement program. Top management will set improvement targets for KPIs and each department or operational team will define their contributions to these goals and the means they will pursue to achieve them. In so doing, they assume full ownership of the continuous improvement program and are accountable for achieving the results. This program will be carefully nurtured throughout the remainder of the ownership cycle. It will create significant value and help to build a culture that is highly desirable to future ownership.

Seven to eight months prior to sale, a final operational assessment is undertaken as part of exit strategy planning. The investment firm will make decisions on whether to capture some or all of these improvements prior to sale or to inform the future owner of the potential. Those selected for implementation will be implemented during the final six months of ownership. In addition, there will be a strong campaign of 5S and visual control and a focused effort to strengthen the standardized work and daily management system. These areas have strong influence on operational reviews by new potential owners.

An Example of Operational Problem Solving

Company X is an acquisition of a major private equity firm. ILS was leading operations restructuring at the facility and it quickly became clear that production scheduling was a major barrier to success for its large aftermarket division. The problems included:

This problem, that had been a nemesis to the business for years, clearly needed resolution. It was detracting from customer service rates, reducing average margins, increasing holding costs, wasting labor and preventing the company from realizing full benefits from many of the other improvements it had implemented.

As part of our engagement with this firm, we developed a much stronger scheduling process that overcome most of these performance issues. It involved: