Case Study: Springfield Precision Instruments Inc. : Robert Amter

Case Study: Springfield Precision Instruments Inc.

Springfield Precision Instruments Inc.,

Wood-Ridge, NJ

Robert Amter was appointed Chief Executive Officer of Springfield by its owner The CIT Group/Private Equity Investments Inc. Springfield was a CIT leveraged buy-out from Sunbeam Corp.

Situation:

$20 million in sales Springfield is a manufacturer of household and garden analog and digital thermometers and timers. Thermometers have been manufactured for over 40 years and timers for over 20 years. Sell to the big-box retail channel segment including Wal-Mart, Target, Home Depot, Tru-Serv, Sears.

» Of 9 total product lines, 5 incurred operating losses in CY1999, a 6.7% operating loss.

» Of 62 customers in CY1999: 30 had pre-tax losses totaling $1.0 million. Overall the 62 customers incurred a pre-tax loss of $706,000.

» In CY1999, 12 customers accounted for 80% of Springfield’s sales. In total, the 12 customers had pre-tax losses of $684,000 a 4.2% deficit.

Problems:

» Incurring Operating Losses.

Actual
(000$) CY2000

Sales $21,854

Operating Profit (Loss) (276)
% of Sales (1.2)%

EBITDA 457
% of Sales 2.1%

Enterprise Value $2,742

» Unqualified Chief Executive Officer.

» Poorly focused strategically and operationally.

~ Trying to do too many projects at the same time. Trivial many versus vital few error.

~ Knee jerk reactions and decision making. Rush to judgment. Did not do their homework, evaluations were superficial.

~ Not focused on profit. Focused on sales. Controller is excellent, but not involved in decision making.

» Absence of the interactive process of cross-functional communication which created silo management. CEO did not have meetings which included managers at all levels at the same time to discuss issues and problems. There was no openness, financial information was restricted to three people. Met alone with each functional manager and issued direct orders. As a result, made a lot of mistakes.

» Below market selling prices. Ran scared faced with any customer demand. Springfield did not use fully absorbed costs. Use contribution margin pricing (i.e., direct material + direct labor + 50% of direct labor for manufacturing overhead).

» High cost New Jersey manufacturing operation. Teamsters union.

» Absence of marketing. Sold a dated and bland product in a fashion, style and innovative industry.

» Poor product planning and development. Too many stock keeping units (SKUs). The money losing clock business is a prime example. The product line was incomplete and not a factor in this highly competitive industry.

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Corrective Actions:

» Closed USA manufacturing plant. Built 100% owned plant in Shanghai, China. Operated in CY2001 in leased facility in China to train and develop staff and hourly employees. Construction of new plant completed in May 2002.

» Implemented fully absorbed prices. Stopped contribution margin pricing. Only the Chief Executive Officer and Controller had price approval authority – a change from prior practices.

» Transitioned customers’ assortments into higher price point and more profitable merchandise. The planogram presented in a product line review included new high gross profit SKUs which improved the set’s overall pre-tax profit margin.

» Reduced SKUs 64% from 906 to 324.

» Exited the clock business.

» Contrary to most turnarounds, increased salaried headcount, did not reduce it. The marketing, sales and offshore procurement departments were too small.

» Rebuilt the company employed sales organization. Replaced several manufacturers’ rep firms.

» Increased market share by adding 13 new customers. Including replacing Timex as Target’s timer vendor with newly designed, innovative timer line.

» CIT invested $1.5 million of equity capital into Springfield.

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Results Achieved:

Actual
(000$) CY2000 CY2001 CY2002 CY2003

Sales $21,854 $20,649 $18,743 $17,847

Operating Profit (Loss) (276) 94 462 1,847
% of Sales (1.2)% 0.5% 2.5% 10.3%

EBITDA 457 730 1,004 2,224
% of Sales 2.1% 3.5% 5.4% 12.5%

Enterprise Value $2,742 $4,380 $6,024 $13,344

Robert Amter operated as chief executive officer of Evenflo Co. and Burke Industries Inc. while CEO of Springfield Precision.

Reason I wrote my book “Learn to Whisper”

Click on this link for a more complete description of “Learn to Whisper”

The reason I wrote “Learn to Whisper”:

My conclusion after operating as a Turnaround Chief Executive Officer for more than twenty-five years is that the majority of this country’s top management is far from first-rate. In fact top management, particularly at the chief executive officer level, is at best average with a large number that can be rated mediocre. This lack of management competence has seen this country’s market leaders lose sizeable market share to foreign manufacturers able to export better quality and lower cost products to the USA. It has seen manufacturing and service operations unnecessarily moved to foreign countries. All of which has negatively affected the economy, severely damaged former blue-chip corporations and seen quality jobs lost.

It is quite common to discover that companies struggling with this inability to compete with foreign companies have been simply mismanaged. The once successful business deteriorated because of an incompetent chief executive officer and weak senior management

Why doesn’t this nation have first-rate management? Inadequate training. Chief executive officers and vice presidents learn “on the job”. A number get promoted based on personality, political connections and drive – not merit. They are not carefully screened for the potential to become successful at managing. For some all that is needed is a well-written resume, the right interviewing style and the inability of a new employer to accurately assess skills, performance and potential.

Compare this to the process doctors go through. From medical school to internship to residency to a senior role after years of education, experience and continuous training their progress and capabilities are constantly monitored even after they become senior in the profession. Generals and Admirals go through a similar protocol. They must prove themselves in low-level assignments before they are judged qualified for senior positions. Unqualified applicants in both professions are culled out. What can be done to improve management competence? Education, on-the-job training and job performance monitoring. My book will educate people on the subject of managing. Its 101 management lessons are separated into the 17 subjects managers need to know.