A $150 Million Secondary Wood Products Manufacturer
Workout with existing lender
HAMSTREET ROLES: Interim Management, Operational Turnaround, Financial Restructuring
SUMMARY: Shrinking timber supplies and inefficient business practices in an increasingly competitive market forced this formerly successful company into the red, exhausting the lender’s patience and threatening bankruptcy. Hamstreet caught the problem, crafted a unique solution, and implemented it with such success that the bank chose to stay with the loan.
THE BACKGROUND: A major local employer in Central Oregon, this company manufactured wooden parts for windows and doors. In the late 1980s and early 1990s, environmental restrictions dramatically reduced the supply of quality timber. Businesses like this one, which relied upon a steady supply of lumber, found their costs soaring. Spurred by the resulting recession in the wood industry, and magnified by inefficient manufacturing operations and lack of clarity concerning its profit margins, the company began to lose money, defaulted on loan covenants, and failed to develop a workable payment plan.
THE CHALLENGE: Seeking a way out of what it viewed as a bad loan, the lender turned to Hamstreet. We rapidly located and corrected several problems. We streamlined the manufacturing process, introduced more effective cost analysis, promoted profitable product lines while eliminating non-performers, and worked out better pricing policies. We also identified a larger underlying issue: the recently-ended era of cheap raw material had led to wasteful practices. In the past, when labor was the greater expense, sacrificing material to increase productivity made economic sense. Now, with rises in material costs outpacing labor, it became necessary to find a better balance.
THE RESULTS: Hamstreet was one of the first organizations to recognize and understand this new shift in cost relationships. We came up with a flexible and ingenious three-variable equation to address the new conditions. By means of an incentive plan that placed value on yield, quality control, and productivity, we re-educated the work force to use raw material more efficiently without sacrificing quality or productivity. We showed the company that by allowing the labor force to work on an incentive basis, it could make $4 for every extra dollar paid to workers. After six months, most employees were making $1.50 more per hour, with some making as much as $3/hour more. Morale soared and the company became so profitable so fast that the lender decided to stay with the loan.