Sugar Packaging Operation Profitability Improvement
A privately held commodity service provider (the client) was operating a co-packaging and warehousing operation for a National branded Manufacturer and marketer of organic sugar products. The facility packages and warehouses over 20 Million pounds of sugar annually, and employs 25 people. The operation had lost money for three consecutive years. The Client needed assistance developing a deeper understanding of the issues involved, a plan for reversing the losses into positive earnings, and leadership guidance for the plant management.
We first conducted an assessment that included financial reviews, data gathering, analysis, observation, and dialogue with managers and employees. This assessment identified opportunities in plant efficiency, service pricing, material yields, and relations with the Manufacturer.
Data review and analysis revealed that plant efficiency, as measured in output/hour, had eroded consistently over recent years. From the analysis, Operating Standards, Key Performance Indicators and reporting systems to share plant performance with employees were quickly put in place. In the first 4 months following this implementation, plant efficiency showed consistent and steady improvement.
To address the opportunity in service pricing, further analysis was conducted to determine standard costs on a per-SKU basis, in $/Lb. This revealed that a portion of the product portfolio was profitable, but that a segment of it was not. Predominantly correlated to the product weight, smaller (1-2 Lb.) configurations were profitable to produce, while the operation was losing money on larger products (6-50 Lb.)
Katz & Katz prepared a complete presentation, met with the Manufacturing client, and negotiated pricing adjustments to ensure all produced SKUs would be profitable. The work-up included financial opportunities for the Manufacturer in raw material yields to offset their incremental costs.
Within six months of initiating the efficiency initiative, and two months following the pricing adjustments, the Operation showed its first profitable month in over three years. The momentum continues, as Katz & Katz continues to provide services to sustain efficiency gains, participate in analysis activities with the Manufacturer, and provide occasional leadership guidance to the operation.