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Manufacturing
A Supply Chain crisis

Background

The business was a national window manufacturer and installer.  At the time, the business was manufacturing 6,000 windows and doors every week. 

The key raw material used by the company was PVCu profile.  Window companies cannot swap and change their PVCu extrusion suppliers because the window fabrication machinery that they use to manufacture windows and doors is set up to the exact specifications and dimensions of their chosen profile.  It requires detailed planning and a significant amount of production downtime to switch from using one extrusion profile to another.  It is not a decision that is taken lightly by window companies.

I was already working a different assignment within the business when I received a call to go and see the Group Managing Director immediately.  It turned out that the company’s vital key supplier had just appointed Administrators.  That threw the supply chain for the vital raw material (PVCu extrusion) into crisis.  If the company could not source PVCu, it could not manufacture windows.  The potential hit to cashflow was £2.9m per week.  The lead time for changing to a new PVCu profile supplier was estimated to be 6 to 8 weeks.  Customers would not wait a further 8 weeks for their windows.  The cashflow at risk was £23m.

The Brief

The Group Managing Director, the Buying Director and I were immediately despatched to meet with the Administrators.

The objective was to:

  • Immediately purchase all available stock from the administrator, and
  • Negotiate a 3m supply agreement with the Administrator for them to keep extruding on our behalf for a period of three months in order to buy time to be able to plan and execute the move to another PVCu extruder

The Administrators recognised that they had the company in a very weak negotiating position.  They refused to commit to any production requirements beyond a two or three week timeframe.  They would not dedicate production to just one customer.  Their intention was to cease production, sell off the existing stock and to collect the outstanding debt.

The brief then changed to:

  • Buy the extrusion business from the Administrators
  • Operate the business to secure the supply chain and protect the company’s ability to manufacture 6,000 windows per week
  • Find a different extrusion supplier and commence a project to transfer production to the new extrusion profile
  • Sell the extrusion company once the window company had adequate supplies to continue operations without any threat of interruption

Assignment

The project commenced and the profile extrusion company was acquired from the Administrator.  The immediate plan was solely to extrude profile for one company.  That meant that heads and functions that were not contributing directly to that objective were surplus to requirements and they had to be terminated.

For the next couple of weeks, a fleet of wagons travelled continuously 24/7 week between the extrusion company and the window company transferring the stock purchased from the Administrator together with the newly extruded stock to the manufacturing plant.  Slowly but surely, the extrusion stockholding grew.

In parallel to this, we had to ensure that the flow of pvc granules used to extrude the profile was in good supply and that the suppliers of this key raw material were able to keep pace with the sudden increase in activity levels.  This was not an easy task given that the company had just been rescued from administration and, in many cases, the supplier had lost money due to the Administration.

A project team consisting of credit controllers and customer service advisors was formed to maximise collections as quickly as possible and to manage the expectations of customers many of whom were chasing product deliveries that were not scheduled for production / delivery.

Following in depth discussions with the shareholders, it was decided that the Group had no desire to permanently own and manage an extrusion business.  It was deemed to be outside the core activities of the main window business due to the technical aspects of running an extrusion business.  For that reason, efforts were increased to negotiate a potential move to a new extrusion company. 

There was plenty of interest from market leading extruders in winning a new account representing 6,000 windows per week.  It was identified that ‘our’ extrusion business was of more value to the potential buyers than it was to our company.  It was therefore decided that the cleanest route out of our problem was to persuade the competing extruders to buy the business from us in order to secure the future business of the window company under a long-term supply agreement.

After complex negotiations the objective was achieved and the extrusion business was sold and a long term supply agreement was signed.  This achieved two goals namely (a) removing what could have been a messy and potentially expensive millstone around the company’s neck and (b) moving profile extrusion to the industry leading PVCu extruder.

Conclusion

The business found itself in a sudden and unexpected crisis.  During the period of that crisis, manufacturing levels of windows and doors were maintained at required numbers and service levels to the public continued to be first class.  At the end of the crisis, the business had moved to a higher class extrusion company and secured a five year supply agreement at highly competitive rates.

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