Due Diligence

Sample Project

WISE INVESTMENT??

The Client
The Company is a large U.S. manufacturer of bed & bath products servicing North American retailers. It’s manufacturing facilities are located in the U.S. and various sites in Asia.

The Need
The client had approached its prime lender for additional financing due to challenging & changing market conditions. The lender asked SCS to provide an opinion on the strength of the client’s operations and supply chain.

The Situation
The Company was about to add several key customers and it found that additional sku’s were required in order to satisfy demand. As well, labour costs had created the need to establish primary manufacturing in Asia which extended lead times significantly. The lender wanted to understand what remediation was necessary to mitigate its risk.

Our Approach

In conjunction with the sales & marketing and the finance consultants, SCS reviewed:

  • KPI’s related to warehousing, transportation, and inventory management
  • Internal processes
  • Industry best practices & trends
  • Impacts on the business plan
  • Future plans
  • Strength of the management team

The Findings

Several key “risks” were uncovered. They included:

  • Long lead times from Asia
  • SKU proliferation
  • Disproportionately high levels of unproductive inventory
  • Extremely poor forecast accuracy
  • High warehouse labour costs due to inflexibility in work force.
  • Excessively generous and poorly managed return policy
  • Out of date and homegrown technology

We ranked all the risks found based on severity and amount of effort /cost required to remedy. Implementation plans were developed for each risk and presented to the Company and Lender.

The Result
The remediation and implementation plans allowed the Company to make improvements that would ensure its long term viability. The financing was approved and this due diligence exercise was scheduled to be repeated the following year.