Building Better: The Transformation of Industrial Construction Operations

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Initial Assessment

Our initial evaluation revealed that a small fraction of customers (3%) contributed to 80% of the company's revenue ($68M), while five customers led to a total loss of $1M in job margin. The cash flow was also impacted due to high AR days and low AP days. The company's value-added margin stood at 53%, and 20 employees (3%) were not optimally deployed. These issues led to an opportunity for margin improvement and operational efficiencies that could yield a recurring $8M in earnings improvement and cash flow.

Objectives

Our engagement aimed to refocus the company's operational practices towards customer-centric services, enhance profitability to retire senior debt, and implement practices that drive long-term sustainability and increased valuations for the ESOP participant owners.

Strategies Implemented

1. Consolidation: We recommended combining similar operations into a single service business. This would eliminate duplication and maximize resource utilization.
2. Zero-based Budgeting: We proposed a zero-based budgeting approach for overhead costs to control spending and improve efficiency.
3. Pricing Model: We suggested a comprehensive value-added and contribution margin-based pricing model, offering a balance between competitive pricing and profitability.
4. Optimization: We identified the need for optimization in leasing vs. buying decisions and the maintenance process for equipment life cycle process.
5. Process Improvement: We recommended the implementation of a robust standard operating procedure (SOP) system and performance-based incentive structures.
6. Employee Training: We introduced an employee training, skills, and performance matrix to help manage, monitor, and reward employees more effectively.
7. Customer Profitability: We worked to enhance customer profitability through various performance improvement initiatives and better contract management.
8. Project Management: We recommended the deployment of professional project managers to train company personnel on better project management practices.

Results

By implementing these strategies, the company was able to see significant improvement in various key performance metrics. The first full year saw a $14M positive impact on cash flow, with $8M in recurring earnings improvement. The company reduced its AR days from 41 to 30, improving cash flow by $4M, and increased AP days from 39 to 45, freeing up another $1M in cash. Additionally, the new value-added model and pricing strategy resulted in a contribution margin improvement from 19% to 25%, adding $8M in annual recurring income.

Conclusion

The company is now on a path towards improved operational efficiency and profitability. By focusing on customer-centric services and investing in process improvements, the industrial construction company is set to enhance value for its customers, employees, and the community. The strategic changes implemented promise to bolster the company's performance and ensure its long-term sustainability.

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