Strategic Root Cause Analysis: A better way to resolve cost, profit and EBITDA goals
After two acquisitions in two years a leading global supplier needed to bring the new businesses in line with corporate cost, profit and EBITDA targets.
Although the company had conducted a strategic review of their product, market, policy and pricing positions,and had introduced some changes to align global profitability, the EBITDA targets appeared in jeopardy. The company needed to “kick-start” their profitability goals and fast.
The client utilized their newly designed Quality Program to seek robust improvement in cost savings and waste reductions to boost profits at three of their global sites – US, UK, and Canada. The charge, find $500K of savings opportunities in 30 days, resolve the issues, initiate corrective actions, and validate the savings with the corporate CFO.
A proprietary root-cause analysis (RCA) tool was, for the first time, uniformly applied across the three sites to find both chronic and acute operational issues to resolve. Each site identified 3-5 issues to address, with 90% of them existing for greater than 12 months. Separate three-day RCA work sessions were conducted with the identified issues being resolved and the corrective actions initiated. An corrective action EBITDA validation and tracking report was developed in concert with the CFO and VP of Quality. The company now had a tracking report to confirm that the previous costs absorbed from these unresolved issues was now costs saved and EBITDA improved relative to the effectiveness of the improvement actions being implemented.
- In the first pass, $500K in savings opportunities were discovered, with a second review several weeks later uncovering an additional $300K to $400K in saving opportunities.
- Within 30 days, over $500K in resolved operational issues had corrective actions being implemented.
- The CFO had tools in place to confirm that savings were attained and the ability to track future EBITDA results.
- For the first time, the quality teams of the newly merged sites worked in unison to achieve a corporate goal.
- Corporate executive leadership now had visible tools to monitor and manage EBITDA performance.