Interstate Resources

Thinking out of the Box Brings $2 Million Profit Improvement for Corrugated Manufacturer.

The six-month assignment of an interim turnaround manager, sourced by leading fast-track recruitment agency Executives Online, has brought a staggering $2 million profit improvement for corrugated box manufacturer, Interstate Resources.

Part of the Indevco Group, Interstate Resources Inc. has 15 plants in the US. It was experiencing problems with some of its corrugated box making because it was struggling to compete with some of the giant international paper companies which tend to adopt an integrated business costing model, whereby they subsidise their converting operations in order to retain a large share of the market, in order to realise huge profits within their volume paper mills. Being a smaller player in the market, Interstate Resources could not sustain such a strategy indefinitely and as such, its box making operations were suffering as a result.

Dan Sassi, the company’s VP of HR located in the US headquarters in Virginia, contacted Executives Online in March 2005. He explained that they were seeking an MD-level turnaround expert to deliver dramatic profitability improvements to their operations.

"We needed someone to take the first glimmer of inspiration from John and make it become a tangible business. We are sales people not marketers, so we chose the interim route because we needed a quick injection of skill and experience."

"The person had to have deep experience and knowledge of corrugated cardboard manufacturing," explains Anne Beitel of Executives Online. "And they specifically wanted a British or European person, because the corrugated sector here has already gone through the sort of restructuring that would be beneficial in the US."

"We chose the interim route because we needed a quick injection of skill and experience."

Anne Beitel and the Managing Director of Executives Online met with Georges Frem, Interstate Resources’ chairman and Andrew K was among the first candidates Executives Online presented for the role. He was chosen his turnaround experience, operations focus, consultative approach and especially because he had worked for several other corrugated cardboard manufacturers in a similar capacity.

A heavyweight turnaround consultant with a 10-year track record, Andrew has worked globally on multi-site locations, has achieved interim Managing Director status and has coached and mentored senior management to deliver step change improvements to operations and profitability. With key skills in operational analysis, results planning and implementation at pace, he was just what Interstate Resources needed.

His first task was an analysis of three sites, the largest flagship site and two of the poor performing ones. Over four weeks he looked at management systems and processes and used feedback to identify savings, to the tune of $1.3 million for the smaller plant.

He was then asked to work on site at one of the plants on the Eastern shore which was facing a particular challenge. Its output was 35 million square feet of box a month but it had the opportunity to go through bids and win a large body of work which had the potential to take production up to 55 million square feet.

The key objective of the assignment was to position the plant for growth whilst improving cost performance, specifically increase the volume / throughput capability, labour productivity and raw material efficiency. In short, the challenge was how to increase capacity on site in order to deliver on the new contract whilst also curbing the costs of what was an inefficient organisation.

The issues were compounded by the fact that the work was due to come on stream in February but the extra business would outstrip the capacity of the wax coating machine. A second machine was purchased for refurbishment but it wouldn’t be up and running until April, and even then it wouldn’t be able to keep up with demand.

Andrew K came up with a solution, but it was necessarily drastic and not the easiest sell. He encouraged the management to think about the product mix which was causing the throughput choke and adding complexity, as well as addressing the other bottle necks in logistics and warehousing.

"I had to persuade them to be brave," Andrew K explains. "I wanted them to sublet some of the work, which was something they had never done before."

They trusted him and followed his suggestion, reducing the mix, and therefore simplifying the workload. By contracting out 15% per cent their problematic mix, one of the plant’s converting lines, trebled.

After providing this short-term fix, Andrew then directed their attention to longer-term strategies of mix dynamics, focusing on everything from internal logistics to warehousing and paper optimisation. It seemed a tall order, but the goal was to increase capacity by 60% whilst simultaneously reducing costs.

The route Andrew suggested was through improvement of material flow, reorganisation of the warehouse and establishing clear responsibilities. Central to all this was implementing a management control system and Key Performance Indicators (KPIs). Instigated on a monthly basis for senior management, these were applied weekly or even daily on the shop floor, to give clarity and drive timely decision making and a framework for continued improvement.

Andrew’s work was a huge success. In fact Chad Brown, finance manager, says they "have never had a better year, meeting all our milestones" – record sales and record sales volume, record production and record corrugation productivity, the best profit and loss rate in 2.5 years and the lowest waste rate in 2.5 years.

Andrew worked under a success-linked scheme where he earned a bonus at end of the assignment, on delivery of what he said he’d do at the outset.

Yet the $2 million profit improvement surpassed even his expectations.