Industry
Primary: Manufacturing
Key Contribution
Direct intervention in a major product dispute with the business’ largest customer led to a negotiated settlement, a subsequent review of business unit performance, and its disposal to refocus the group on core business which improved cashflow.
The Business
A local manufacturing subsidiary of an NZX listed global entity involved in food and beverage retail with some local processing and manufacturing.
The Challenge
The company struck an issue with a container export to Japan being identified as containing contaminants (stone fragments). The order was put on hold while further testing was conducted, as well as a temporary halt on any further exports to the Japanese client. Payment for the contaminated order and all other amounts owed by that client to the company were put on hold. This situation was made worse by the fact that this one client represented a significant portion of the manufacturing entity’s repeat business.
The Assistance Required
The local business managers struggled to move quickly on resolving the relevant issues around insurance, testing to determine the cause of contamination, and negotiating with the client’s local NZ agent to mitigate the extent of damages. The relationship with the businesses largest client was deteriorating rapidly with legal action looking increasingly likely.
The Approach
The CEO directed its contract Chief Financial Officer (CFO) to intervene as a commercial trouble-shooter to ‘right the ship’ before it sank and to do so as quickly as possible.
The contract CFO:
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Took over responsibility for liaising directly with the Insurance broker who was managing the assessment of two related claims associated with the Japanese export client;
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Pushed for the assessments to be completed as soon as possible and unravelled one of the principle issues associated with determining the point in the supply chain where ownership shifted from one party to the other;
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Worked with the Factory Manager to look beyond finger pointing and instead determine the most likely point that the contaminant entered the supply chain;
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Moved quickly to address the inadequacies in factory quality assurance processes to meet the standard required for export orders and reassure its clients of its ability to meet these standards;
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Entered into direct negotiation with the NZ agent for the Japanese buyer to develop a plan to address the losses incurred as a result of the contamination and to reassure them of the measures being taken to ensure the issue never occurred again. This approach was effectively a recovery exercise to reclaim the confidence of its major customer and mitigate damage to the business for forward export orders.
The Results Delivered
Key results delivered during this engagement included:
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Resolved with the insurance broker the outstanding insurance claims associated with the product supplied to the Japanese manufacturer. One was accepted and paid with urgency, while the main claim associated with the contamination failed;
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Concluded the likely source of contamination related to the factory packing processes and worked with the Factory Manager to fix these and purchase intermediate capital equipment necessary to achieve this;
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Completed negotiation with the NZ agent and agreed final compensation, partly covered by insurance money and partly offset by way of discount on future export orders. Liaised directly with the NZ agent’s MD for the final settlement of their claim and the release of outstanding monies they were withholding until such settlement had been achieved;
Once the ‘ship had been righted’, the Group’s Board sought an assessment of the future viability of the business and the options available to them including cost/benefit analysis. After discussion of these options, the Board determined to return to core activity and dispose of the manufacturing company. Local interest in purchasing the business was low, so the contract CFO entered into negotiations with the local Factory Manager for a management buyout of the business. Terms were agreed and the sale concluded approximately two weeks after the original target date (year-end) for disposal.
Client Testimony
“I have worked very closely with the contract CFO on a day to day basis and relied heavily on him for both financial and broader commercial advice and guidance. The disposal of our NZ manufacturing entity was a case in point of a project where he firstly worked as a trouble shooter to resolve a contamination issue threatening to destroy that business, then worked subsequently to negotiate the disposal of the business to the satisfaction of the broader Group”.
