Manufacturer of outdoor leisure products adopts new manufacturing advisory framework

Business challenge

A mid-sized private equity ownership team approached Baker Tilly for assistance in a recent acquisition of an outdoor leisure product company. The outdoor leisure product company, which had been a staple in the industry for 50+ years, before the acquisition had been experiencing significant revenue growth due to shifting consumer preferences amplified by the pandemic.

While the company’s revenue was exponentially growing, it lacked a robust manufacturing costing system. The profitability calculations of individual product lines were unreliable, creating a challenge for leadership to make strategic planning decisions.

Due to the inability to make strategic inventory and production plans, capacity was quickly reached at their manufacturing facility without the ability to decide which product line to prioritize. Simultaneously, suppliers in Asia were becoming unreliable due to pandemic closures, causing stock-outs of critical materials needed in the end product. If materials were restocked, they were expedited overseas via air freight (ten times the cost of ocean containers). This series of events prompted the management team to seek out Baker Tilly’s industry expertise to improve the accuracy of costing data with their raw materials, freight, tariffs, labor and overhead activities.

How Baker Tilly helped

Manufacturing line activity costing

The manufacturing advisory solutions team began work promptly, knowing that time was of the essence to correct the challenges identified through diligence. A virtual site visit was conducted to create a process flow map of the facility and begin identifying cost drivers.

Baker Tilly worked with the client’s operations team to identify and map rich production assembly data in a homegrown manufacturing execution system (MES) that provided valuable information for throughput rates by time stamping production scanning activity. In other areas of the plant where the product was not serialized, we conducted time studies from production room security footage, resulting in time savings at a fraction of what would’ve been required for an onsite analysis.

Material costing – freight and tariffs

Upon review of the company’s financials, we found that a significant unfavorable variance had accrued within the company’s freight and tariff accounts. Historical financials showed that this activity was rarely noticed at the total company level. However, at the time we reviewed the data, the freight and tariff variances had become almost five percent of sales due to the disruptions in the supply chain.

We worked with the company’s enterprise resource planning (ERP) system to identify a method to label specific broker invoices where freight and tariffs were incurred at the individual material level. With this visibility, costing of raw materials from overseas would tie directly to the end products and pricing was updated to ensure product margins were maintained when annual pricing action could be negotiated with customers.

The result

Within six months, the new management group was able to restore profitability and focus on expansion and investments into increased manufacturing equipment efficiency that would reflect in the throughput of the product by over 20% without requiring additional operators – a key constraint in a competitive labor market.

The department level costing analysis identified departments that lacked cost competitiveness, therefore outsourcing those functions and reassigning current resources. These actions resulted in increased throughput and reduced operational costs.

The incremental EBITDA (earnings before interest, taxes, depreciation and amortization) generated by optimizing the product portfolio and improving operational efficiency is planned to be invested in opening an additional manufacturing facility to continue growth of the business.