The client is a well-known company in consumer electronics, with its own retail and a wholesale business. The retail business is all over Spain, but the wholesale business did not cover the whole country. The general manager of the wholesale business made a business plan to rollout quickly through Spain, which has not been a success.
This plan has caused the company significant losses in its wholesale subsidiary. Instead of increasing turnover, it has been falling for three years and the expenses have been increasing. The wholesale company had been losing money in the last 4 years. The previous general manager had tried to reverse the situation by making a flight forward. Which resulted in making the situation even worse. As a result, the warehouses are full of merchandise, of which a big part is obsolete. Additionally, there are significant debts to key suppliers, and these threaten to stop to supply.
The previous General Manager refused to change the strategy and demands more time and capital to try to improve the results. For this reason, the Board of Directors decided to ask him to step down.
The challenges that the company faced were:
- Lack of credible strategy.
- Deteriorating financial situation.
- Problems with the suppliers.
- The shelf life of products in this segment of electronics Is 7 days.
- Obsolete stocks.
- Very high operating costs that made it impossible to return ever to profit.
The board of the company decides to incorporate a CEO with the aim of refloating the company within 12 months and, if this is not possible, to liquidate it in an orderly manner.
Once the initial analysis has been carried out, it is concluded that the company, with another business model, is viable.
To implement it, the following decisions are taken:
- Closure of unprofitable regional offices. Transform the company from a national distributor to a regional distributor.
- Changing the purchasing policy. The articles are sold every day are acquired at the end of that day.
- Changing the business model in a way that the salesmen sell products during the day that are bought by the company in the evening from its vendors. The vendors sell the articles in 24 h. to the clients
- In this way the company does not incur in shipping costs and has no articles in stock.
- Closing of regional offices. The salesmen have a home office. Warehouses are closed.
- Replacing the management team and reducing its number.
- Adaptation of the computer system to communicate directly with suppliers. This allows to purchase rapidly and the clients receive their articles within 24 hours.
- Opening new lines of business with a different model that provide better margins and less seasonality.
- Reduction of costs by layoffs.
- Liquidating the obsolete stocks at any price the company could get. This caused onetime losses but recovered part of the cost of the merchandise.
- Cleaning-up the accounts receivables, which also caused onetime losses.
- Forcing the auditor to recognize the hidden losses they helped to cover up in the last years and to change the financial statements of the previous 5 years. This in order that the company could start with a clean record.
- This caused a conflict with the auditor, which was solved when they understood that they would lose a lawsuit and get a huge negative publicity.
Results after 12 months
The general manager provided by QMT obtains big improvements in all the areas, the most outstanding being:
- Reduction of the cost of logistics by more than 50%.
- Reduced personnel cost by 30%.
- Savings on overhead, excluding staff, by 26%.
- 94% stock reduction.
- The savings allowed freed up cash to settle outstanding balances with suppliers.
With all this, and despite the closure of some regional offices, which produced an initial sales decline of 5%, after 5 months, the company reached break-even, and after 12 months, the company operated, with a viable business model and was very profitable in its industry.
Currently, it is generating enough profits and cash-flow to have an optimistic future.