Introducing systems and sales opportunities to turnaround a declining steel fabrication business

Background/ Situation

We secured our client, a steel fabrication business, as a result of a MACHUS Solutions direct marketing campaign. The business had already succumbed to market conditions and had recently called a Voluntary Administrator. However, the assets had been sold to a new entity which allowed the business to keep trading.

The owner/MD was well known in the market and was a highly experienced steel fabricator. He was also entrepreneurial but had difficulty managing the business within a formal corporate framework. Given the prevalent management style many employees refrained from using their talent in full due to fear of being questioned about their actions. At the business level, the volume of work was reasonable but there was cash-flow and debt issues. The business also needed to boost sales and improve profitability in what was and remains an extremely competitive industry.

Initial Findings

Upon engagement, MACHUS Solutions undertook a preliminary investigation of the business. The investigation revealed:

• The level of debt supported by the business was extremely high. It had made large purchases of plant and equipment in addition to servicing bank loans that had secured its premises
• Employee arrangements were poorly structured and there was no clear line of authority at operations level
• Quality control was deficient and a great deal of orders were subject to extensive and expensive re-works
• Management was largely undertaken by the owner/MD and there was evidence of poor delegation and micromanagement
• There were no formal planning processes in place
• The business relied on highly volatile order patterns from resources mining, but it needed additional work to balance these fluctuations
• Aside from the owner’s relationships with some clients, there was no marketing or promotional programs in place to secure leads for additional orders
• Accounting was inaccurate and needed updating and extensive reconciliation
• Reporting was poor and lacked accuracy

Solutions, Strategies and Recommendations

MACHUS Solutions recommended the following strategies:

• Design a formal structure for all business activities, including manufacturing
• Upgrade marketing and sales
• Appoint a purchasing manager, as purchases absorbed too much of management’s time
• Structure all employees so they are part of a coherent team with clear lines of authority and responsibility
• Re-structure debt and ease servicing requirements
• Seek work that would utilise the spare capacity
• Upgrade the Quality Assurance System and obtain external certification for ISO 9001:2000
• Hire a competent bookkeeper who would bring accounting up to date and generate periodic financial reports
• Change some management practices which undermined efficiency
• Consider selling vacant land to reduce overall debt

Implementation and Results

The majority of recommendations were implemented. Management tried hard to promote sales outside the resource industries and had some success. Quality Assurance was implemented including certification. The client was pleased with our recommendations. Consequently, MACHUS Solutions was engaged to provide additional services that included taking action against a defaulting debtor under the Queensland Payments Act.