{"id":178,"date":"2011-01-05T18:49:18","date_gmt":"2011-01-05T18:49:18","guid":{"rendered":"http:\/\/www.department99.com\/bobamter\/?page_id=178"},"modified":"2015-08-13T19:47:31","modified_gmt":"2015-08-13T19:47:31","slug":"case-study-ladish-co","status":"publish","type":"page","link":"https:\/\/bobamter.com\/?page_id=178","title":{"rendered":"Case Study: Ladish Co."},"content":{"rendered":"

Ladish Co., Cudahy, Wisconsin<\/em><\/h2>\n


\n<\/em><\/p>\n

Situation:<\/strong><\/p>\n

Seven days prior to Robert Amter\u2019s appointment as Chief Executive Officer of $210 million in sales Ladish, the company had defaulted on the interest payment for its $110 million in subordinated bonds. The default was forced by Ladish\u2019s bank because of its rapidly deteriorating operating and financial condition.<\/p>\n

Ladish had two manufacturing businesses and 1,900 employees:<\/p>\n

Cudahy Forgings Division<\/em><\/span> with a 1.7 million square foot plant in Wisconsin.\u00a0 $160 million in sales of highly technical forgings sold to jet engine, aerospace and missile original equipment manufacturers.\u00a0 9 unions.\u00a0 Division was a heavy money loser and negative free cash flow business.<\/p>\n

Industrial Products Division<\/em><\/span> with two 300,000 square foot plants in Kentucky and Arkansas.\u00a0 $50 million in sales of corrosion resistant valves and butt-weld fittings sold to pipe, fitting, and industrial mill supply dealers.\u00a0 Division had a positive cash flow and 12% operating income margin.<\/p>\n

Problems:<\/strong><\/p>\n

Losing $2.2 million in operating income each month for six consecutive months.<\/p>\n

The forgings division\u2019s performance was poor with high delivery delays, costly preproduction engineering and manufacturing mistakes, and high rework and scrap costs.<\/p>\n

Prior management had offended the management of General Electric\u2019s Aircraft Engines Division, a $24 million per year forgings customer, resulting in Ladish being terminated as its jet engine component supplier more than one year earlier.<\/p>\n

Other customers were concerned with Ladish\u2019s default and were threatening to terminate contracts.<\/p>\n

The collapse of the jet engine market had resulted in excess forging capacity and ferocious price competition.\u00a0 Ladish was not the low cost producer.<\/p>\n

The NASA and military budgets declined reducing missile and rocket sales by almost 50%.\u00a0 These were Ladish\u2019s most profitable products.\u00a0 Prior management had alienated the heads of NASA\u2019s and Lockheed\u2019s ASRM (Advanced Solid-propellant Rocket Motor) project.<\/p>\n

Employees were demoralized: Salaried employees had been subjected to a penal colony style of management. Hourly employees in Wisconsin were organized into 9 unions.\u00a0 Prior management had alienated union members by not being credible for several years. Unions were hostile.<\/p>\n

There was no strategic focus.\u00a0 Managers were working on 47 priorities\u00a0 –\u00a0 most of which were trivial and not central to the company\u2019s core and turnaround. The company was managed through systems.\u00a0 It did not have a hands-on people, customer and product manufacturing orientation. It had under spent annually in capital expenditures and equipment maintenance.<\/p>\n

Corrective Actions & Results Achieved:<\/strong><\/p>\n

In June 1992, just three months after being appointed Chief Executive Officer, achieved a positive operating profit after 6 straight months of losses<\/p>\n

Actual (000$)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Total for Prior 6 months\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Average Month \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Month of June 1992\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Month of July 1992 \u00a0<\/span><\/p>\n

Sales\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $94,891\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $15,815\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $18,029\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $19,601<\/p>\n

Operating Profit (Loss)\u00a0\u00a0\u00a0\u00a0\u00a0 (13,537)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (2,256)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0 512\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,256<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 % of Sales\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (14.3)%\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (14.3)%\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0 \u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 2.8%\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 6.4%<\/p>\n

The primary action taken to turnaround the company was the development of \u201cteamwork and coordination of the operating functions”<\/em>. Open two-way cross-functional communication was the catalyst in developing synchronized, coordinated operations. But the elimination of the penal colony culture was just as important. We developed a metric but rational atmosphere with candid, open give-and-take communication at all levels. People who just months prior had their noses rubbed in the dirt were working feverishly to fix the company.<\/p>\n

We were insolvent and might go out of business. We did technical things such as installing synchronous manufacturing. And purchasing sub-scale equipment to eliminate scrap by testing highly complex forgings prior to full-scale production. Intensely worked to get General Electric back as a customer. But the change in communication, the culture and attitudes was critical.<\/p>\n

The cost reductions we effected:<\/span><\/p>\n

\u00bb Reduced salaried employee headcount by 125 and 26%. Reduced direct labor content 6%.<\/p>\n

\u00bb Closed the California forgings plant for a $1.4 million annual overhead reduction.<\/p>\n

\u00bb Reduced forgings division\u2019s scrap and rework costs 26%.<\/p>\n

\u00bb Reduced selling, general and administrative expenses 23%.<\/p>\n

Improved working capital:<\/span><\/p>\n

Actual\u00a0 (millions $)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1992\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1993\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 % Improvement<\/span><\/p>\n

Average, month-end working capital\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $69\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $39\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0 57%<\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 % of Sales\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 30%\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 19%<\/p>\n

Inventory was reduced 13%. Accounts receivable days sales outstanding were reduced from 44 days to 41 days.<\/em><\/p>\n

Realigned the forgings division\u2019s organization:<\/span><\/p>\n

\u00bb Assigned the best engineers to the Forge Shop.\u00a0 These engineers had been working in non-engineering administrative jobs.<\/p>\n

\u00bb Moved the cost accounting department to the manufacturing floor. Its offices had been located on the third floor of Ladish\u2019s office building with little involvement with manufacturing supervisors and engineers.<\/p>\n

General Electric Aircraft Engines Division.<\/span> After several meetings and conversations with GE’s Division management, it was certain that Ladish would not be reinstated as a supplier. We next met with a Wisconsin Congressman who was Chairman of the House Armed Services Committee. Our presentation emphasized that Ladish was not asking General Electric to give it any business. We advised that Ladish was justified in bidding for GE business because:<\/p>\n

First,<\/em> we are only asking to be permitted to submit a competitive bid for the business\u00a0 –\u00a0 on an equal basis with other manufacturers.<\/p>\n

Second<\/em>, we are the lowest cost Isothermal forging manufacturer.<\/p>\n

Third,<\/em> we are the only manufacturer with zero quality defects and no in-service failures. This was particularly important to single engine military jet aircraft.<\/p>\n

<\/h3>\n

Ladish regained General Electric as a customer. Our first opportunity to bid for forging orders resulted in a $31 million award to be shipped over three years.<\/em><\/strong><\/h3>\n

Started developing new sources of sales with higher profit margins:<\/p>\n

\u00bb Just 45 days after Ladish defaulted on its bond interest payment, purchased shear forming equipment to begin the development of a new jet engine product\u00a0 –\u00a0 thin wall turbine cases.\u00a0 In addition, put a $250,000 deposit on $3 million of used shear forming equipment needed for production.<\/p>\n

\u00bb For the Industrial Products Division, started to expand sales coverage in existing and into new channel segments.\u00a0 Hired commission manufacturers\u2019 reps that specialize in the pipe, fittings and industrial mill supply channel segments.\u00a0 In the past, the division relied solely on six company employed salesmen which was not effective sales coverage.<\/p>\n

The best strategic alternative that management proposed to the new owners was to have merged Ladish with the $125 million in sales Cameron Forgings Division of Cooper Industries.\u00a0 This would have been a complementary merger of Ladish\u2019s titanium technology and hammer equipment with Cameron\u2019s nickel and press equipment. It would have given Ladish a dominant supplier position with aircraft engine manufacturers.<\/p>\n

The owners could not be convinced of the merits of this merger. Subsequently, Wyman-Gordon Company, a large forgings competitor, merged with Cameron.<\/p>\n

Achieved the improvements at Ladish without bringing in new management:<\/p>\n

\u00bb By regaining managers\u2019 self confidence.<\/p>\n

\u00bb By installing the management process that emphasizes cross-functional communication.<\/p>\n

\u00bb By developing disciplined strategic focus using an organized approach to complete a limited number of priorities.<\/p>\n

The officers and managers of Ladish are some of the finest educated and experienced forging engineers in the world. Although fixing Ladish was difficult, partly due to the lack of cash but also because of the conflict between bondholders and equity holders, this very talented management group made it somewhat easy to effect the operational improvements.<\/p>\n

Ladish was not able to cure its debt default. To force one large bondholder who would not voluntarily convert from debtor to equity owner, we used a prepackaged Chapter 11\u00a0 bankruptcy resulting in the following net worth:<\/p>\n

Actual (000$)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1992\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1993\u00a0\u00a0\u00a0<\/span><\/p>\n

\u00a0Net Worth\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 ($22,141)\u00a0\u00a0\u00a0\u00a0\u00a0 $32,657<\/p>\n

 <\/p>\nTweet<\/a>","protected":false},"excerpt":{"rendered":"

Ladish Co., Cudahy, Wisconsin Situation: Seven days prior to Robert Amter\u2019s appointment as Chief Executive Officer of $210 million in sales Ladish, the company had defaulted on the interest payment for its $110 million in subordinated bonds. The default was forced by Ladish\u2019s bank because of its rapidly deteriorating operating and financial condition. Ladish had […]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"open","ping_status":"open","template":"page_full.php","meta":{"footnotes":""},"class_list":["post-178","page","type-page","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/pages\/178","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bobamter.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=178"}],"version-history":[{"count":20,"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/pages\/178\/revisions"}],"predecessor-version":[{"id":1546,"href":"https:\/\/bobamter.com\/index.php?rest_route=\/wp\/v2\/pages\/178\/revisions\/1546"}],"wp:attachment":[{"href":"https:\/\/bobamter.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=178"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}