The company grows 12%, reduces inventory by 14%, improves cash flow by 300% and boosts annual profit by 181%
Haakon Ekrheim felt that his family-run company had entered a dead end - or perhaps more correctly; stood on the edge of the cliff. He was general manager and third generation in one of Norway's 5 grocery companies. And it looked anything but bright. This is the story of how the company managed to turn around.
In 2009, the Norwegian economy suffered a setback, which was the case in most other parts of the Western world. In addition, an important customer threatened to leave the company in favor of one of K. Ekrheim's competitors. Profitability and turnover in the company were already under pressure and this customer would be difficult to replace.
Key customer demands better service level
K. Ekrheim's dissatisfied customer had complained that K. Ekrheim did not provide good enough service. And, quite rightly, K. Ekrheim's level of service was down the line, and despite stock levels rising. Haakon Ekrheim knew that if the company failed to solve this problem, he risked not only losing an important customer, but in fact his entire business. As general manager of K. Ekrheim AS, a company with proud origins dating back to 1924, he decided that the company should not go over with him at the helm.
Traditional instruments did not work
Haakon and his purchasing team traditionally sought to improve the level of service. But most of the measures only led to increased inventory levels without increasing the level of service.
The company's purchasing team acted without the necessary focus. "When in doubt, they simply bought more stock," says Håkon. This behavior led to a considerable strain on the company's capital situation and profitability. And it certainly did not contribute to more satisfied customers.
Inaccurate forecasting of demand was a significant part of the problem, says Haakon: "We could just as well have been without forecasts at all".
Inventory Investment presents a high value and low risk solution
K. Ekrheim contacted Inventory Investment AS, partner of Blue Ridge in the Nordic region, for help in solving their problems.
Haakon and his team evaluated the solution for forecasting, purchasing and supply from Blue Ridge. An important element of the evaluation was also the elaborate educational program as well as the support and support he and his management could benefit from.
For Haakon, solution, project and consultancy were seen as a solid approach to how the company's business could be changed, and then at low risk. Haakon had no time to lose, so implementing the solution in as little as 90 days also played a key role in the evaluation.
K. Ekrheim was also able to use the software at a very reasonable cost and completely standard technology.
The system could also be implemented without further investment in hardware and expansion of IT staff.
In order for the company to survive, Haakon knew he had to perform a total turnaround. And what Inventory Investment could offer from Blue Ridge's solutions and methodology really seemed to be what it needed.
Management is investing in a turnaround plan
Haakon Ekrheim saw the relationship with Inventory Investment and Blue Ridge as valuable that he put his head on the block: He knew the fate of his family's company was sealed and that he could not continue in the company if the board did not approve of his recommended solution and plan.
He got green light.
In collaboration with Inventory Investment AS and Blue Ridge, K. Ekrheim implemented Clarity Replenish to manage its forecasting, purchasing and supply of goods in mid-2009. The project was implemented within plan and budget. The system was implemented in about 3 months.
Loss of important customer increases pressure
Of course, everything did not go smoothly. .
In the fall of 2011, a dominant customer decided to leave K. Ekrheim. By then K. Ekrheim had Clarity Replenish in operation for two years. It was not the customer who first threatened to leave K. Ekrheim who now disappeared; this one was even bigger. This customer left K. Ekrheim due to a change in the market situation and at the same time K. Ekrheim had gained closer ties with another major customer.
K. Ekrheim quickly found himself in a situation where one could end up with large overlays. And with the loss of lost customer revenue, the company's cash flow could come under further pressure.
Hakon Ekrheim and his team threw the task with glow and intensity; everyone understood what was at stake. They now used all their insights and knowledge, supported by Clarity Replenish and expert advice from Inventory Investment and Blue Ridge. They made sure to force inventory levels down without compromising the service level of the remaining customers.
Focus leads to results
This is a positive story, even though it is far from over. The company's efforts turned out to work - and they produced quick results.
Forecast accuracy increased, inventory levels decreased and earnings increased dramatically, freeing up significant capital. The level of service increased and the company began to grow significantly faster than the Norwegian economy otherwise. And the annual result has increased dramatically.
Here are some of the key factors that the company has improved since 2009:
- Revenue increased by 12 % despite the loss of a dominant customer in 2011.
- Inventory levels are 14 % lower. The warehouse turnover has increased from 21.4 to 24.6.
- The capital flow went from negative to positive and was improved by over 300 %.
- The service ratio improved by 1.4 percent from 2009 to 2011, from 97.0 % to 98.4 %. Haakon's new target is 99 %.
- Operating expenses have been significantly reduced as measured by the turnover present. Although not intended, the results have been achieved with a 60 % reduction by the purchasing team.
- The annual result increased by 181 %.
Both cash flow and profit have continued to increase every year since 2009 and out of 2011.
Haakon Ekrheim considers his relationship with Inventory Investment AS and Blue Ridge to be crucial to saving the company from the edge of the cliff, as he felt back in 2009.
Download the article in PDF format: K.Ekrheim Case Study Norwegian September 2012