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H&K International Board Presentations

H&K International Board Presentations. August 21, 2007. McDonald’s Sales. Mike Azhadi. Sales Administration. Tim Guthrie. Sales Administration Team. Commercial Opportunities. Enhanced plan to support increased volume Key focus areas: Item shortage review Contract revisions Invoicing

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H&K International Board Presentations

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  1. H&K InternationalBoard Presentations August 21, 2007

  2. McDonald’s Sales Mike Azhadi

  3. Sales Administration Tim Guthrie

  4. Sales Administration Team

  5. Commercial Opportunities • Enhanced plan to support increased volume • Key focus areas: • Item shortage review • Contract revisions • Invoicing • RMA’s • Accountability • E&O and S&D focus • New reporting tools to support being proactive not reactive

  6. Short Lead-time

  7. Corporate Sales 2007

  8. Change in Corporate Sales Philosophy • Fewer Customers • Focus on Details • Improved Margins • Reduced E&O • Reduced A/R • Reduced Warranty • Minimal Engineering / Manufacturing Resources • Consistency • Production Runs

  9. Change in Corporate Sales Philosophy • Future Customer • Established brand • Consistency • International potential • Partnership • Fab as a buyout item • Single Items: • Pizza Prep Table for Pizza Hut • Costco • Little Caesar's Pizza Rollout • Atlantic Food Bar

  10. Existing Customers • Aladdin • Applebee’s • Braum’s • Costco • IHOP • Jason’s Deli • Subway • Whataburger • Pret a Manger

  11. Potential Customers • IKEA • Little Caesar’s • YUM • Popeye’s • Arby’s

  12. Key Area’s of Focus • Sales / Margins • Warranty • E&O • Reduction of Engineering Support

  13. Fab Sales / Margin / Expenses Sales 2007 Estimate 8.5M Margin YTD 27.2 Expenses 2007 Estimate <125> Book of Business would be 31.7% margin with normal ppv

  14. P&L

  15. Excess & Obsolete • 2006 – • 2007 – • Review of E&O weekly • Outside Buyers (i.e., Rush) • Accountability

  16. Reduction of EngineeringSupport • Standardization • Additional architectural tools • Review of all PRF’s • Outsourcing • SLP

  17. Open Discussion

  18. H&K Norwood David Spain & Rich Blauvelt

  19. H&K Canada David Spain

  20. Operating Result YTD

  21. Remodel Opportunity • Major opportunity to develop remodel sales in East & West • Need to focus effort of local team • Drink systems • Fryers – upcoming promotion • Grills – 3 platen grill • UV Systems – working with Ventmaster to align with our Hoods

  22. Order Desk - Opportunity • YTD sales of $3.917m compared to $2.759m for same period last year • For the month of July we took 1,836 orders over the order desk, on average 18% of these orders were from the western market • Provide extended hours in warehouse and order desk to cater for Western market K24 • We have been taking estimated 15 per day • Opportunity to further develop K24 • Ability to pay on-line • Order confirmation (stock is available)

  23. Sales by Province by Customer - YTD August 10, 2007

  24. IKEA • Global strategy to develop Corporate Accounts • Developing relationship with IKEA Canada together with John Egan • Working with H&K Ireland & H&K Dallas to ensure standard Fab equipment manufactured in Mexico • Equipment testing scheduled for Aug/Sep ‘07 • Recruited a local Project Manager to manage the account • Tax effective structure using Irish Branch

  25. Mexico Project Guy Wade, Josue Paredes & Colin Burns H&K Group

  26. Project Team • Guy Wade • Josue Paredes • Colin Burns • Mark Hogan • Ed Hudson • David Spain

  27. Organization Chart

  28. Achievements in last 12 months • Full implementation of Orion and related systems; • All IVA Returns are now current; • Received 2006 tax refund ; • Pitex solution in place for historical and current; • Audit 2006 has been completed; • Tax Effective Supply Chain in place for Contract Manufacturing;

  29. Achievements in last 12 months • Controls have been implemented in KE in the last 12 months which have had a major positive influence on the business: • All goods scanned in and out leading to improvements in inventory control, purchasing, sales invoicing, margins, and shipping; • Purchase orders controls in place which helped with the opportunity to take advantage of rising surcharge rate; • Moved to US$ only invoicing to McDonalds in Mexico reducing the number of invoices required and aiding AR and margin control; • Tighter management of steel utilisation for nesting producing a gain of $187k in 2007 compared to a loss of $517k in 2006;

  30. Hours Sold • Increase in Std hours from 94k July ’04 YTD compared to to 220k in July ’07 YTD, increase of 134%; • Increased hours sold YTD July 2007 by 45% compared to same period last year;

  31. Sales • Domestic sales now account for 17% of KE’s total sales • Surcharge and scrap account for $5,494k sales in 2007 compared to $1,201k in 2006; • NA market (excluding Mexico) accounts for 33% of sales excluding surcharge; • Australia, Rugby and International accounts for 27% excluding surcharge;

  32. Gross Profit / Contribution • Steel utilisation has improved from loss of $517k last year to gain of $187k YTD; • Surcharge recovery of $656k in 2007 compared to under-recovery of $(47k) in 2006 • Better management of Scrap and negotiation of rates resulting in $600k; • Adverse Contribution variance presents the biggest challenge costing $505k YTD compared to contributing $197k in 2006, adverse swing of $702k.

  33. Productivity

  34. Productivity - Challenges • Productivity has reduced as headcount has increased; • YTD 2007 productivity is running at 61% (May was 58% and June & July were 55%) compared to 68% in 2006, • Strategy in place for management restructuring to improve all areas of production • Nearly 7,000 hours have been outsourced YTD – aim to increase to 50,000 annually • Standard hours per week have averaged 7,605 – strategy to increase to 9,000 hours per week

  35. Valuing Potential Opportunities • The potential Group wide savings from opportunities in Mexico are valued at $5m made up as follows: • Productivity Factor to 70% $1.000m • Steel Utilisation 80% (on target) $0.750m • Overtime reduction 50% of current $0.500m • Increased Group PPV from 1,000 extra hours per week $1.500m • Additional 500 outsourced hours per week $0.750m • E&O improvements $0.150m • Other costs savings $0.350m • TOTAL POTENTIAL GROUP WIDE $5.000M Note: PPV is based on $30 per standard hour saving exclusive of landed factors for Europe and Australia.

  36. KE Opportunities • Main area of opportunity to improve Productivity; • Increase in productivity factor from 61% to the 70% budget target reducing the contribution variance currently running at a loss for the year $505k YTD which is pro rata $1m per year potential gain from current position; • Improved steel utilisation using new laser and continued focus; • Significant reduction in overtime which has cost $442k YTD; • reduce hidden costs arising from inefficiencies; • Knowledge transfer and development of engineering function in Mexico at a reduced cost compared to other sites providing quicker design to floor time and value engineering;

  37. Other KE Opportunities • Other areas outside production for opportunities: • Continue to drive commercial awareness in KE Management Team and staff through the implementation of the Commercial Index; • Sourcing opportunities to reduce cost / landing costs; • Continued improvement on E&O management; • Undertake cost reduction program to manage costs outside production • Improved domestic sales which have significantly higher margin than intercompany sales; • Implement standard installation charge per zone in Mexico to McDonalds to improve service to McDonalds and reduce amount of work in KE; • Implementation of the Norwood Small-wares project in Mexico.

  38. Group Opportunities • Potential to develop KE staff as a low cost base for carrying out functions for other Group companies: • Continue to develop engineering function in Mexico at a reduced cost compared to other sites; • Develop the Cost Accountant role in KE by recruiting a junior cost accountant in KE and then developing the cost accountant manager to undertake a week per month in Dallas so that KE’s costing and procedures are in sync with Group; • Movement of some of Group functions to KE – high-volume routine transactions;

  39. Future Approach to Maximise Opportunities and overcome Challenges • What will change to ensure opportunities will be achieved; • Invest in internal resources to maximise efficiency and drive performance; • Doing fewer things better – not over burdening better staff; • Working as a global operation to implement policies and improvements throughout the Group; • Continue to maximise hours in low cost environment for Group wide benefit.

  40. Manufacturing Guy Wade & Josue Paredes

  41. Manufacturing • Hours Produced • Productivity • Steel Utilization • Outsourcing • People • Machinery

  42. Mexico 2007 YTD 230,407 2006 YTD 172,575 Diff 57,832 % Change +34% Dallas 2007 YTD 78,721 2006 YTD 63,395 Diff 15,326 % Change +24% Mfg. Standard Hours

  43. Mexico 2007 YTD 60% 2006 YTD 68% 2006 YE 68% Dallas 2007 YTD 72% 2006 YTD 68% 2006 YE 68% Mfg. Productivity

  44. Dallas 2006 42% 2007 YTD 35% Target 33% Each Point of Improvement equates to $25k of savings Mexico 2006 27% 2007 YTD 26% Target 25% Each Point of Improvement equates to $80k of savings Steel Utilization/Scrap

  45. Outsourcing in Mexico • Companies enlisted • 1 Machine Company • 2 Welding, Finishing and Assembly • > 800 BOT Tables Outsourced • 7500 hours YTD • Equates to $188k Saving vs. Mfg in Dallas • Current Outsourcing is on hold • Awaiting NSF Approval

  46. People • SLP • 276 Direct • 4 Shifts in Machine (Punch and Laser) • 121 New Hires this year • 51 EE < 3 months experience • Dallas • 89 Direct EE

  47. Machinery Mexico • Trumpf Laser installed May 07 • T 5000 Punch was down total of 2 ½ weeks in July and Aug • Without Laser in place, we would have missed numerous deliveries • Two additional Brake Press’ installed - June and July

  48. H&K Plan to Win • Focus on doing fewer things better • Working with fewer accounts on a global basis • Utilising a global structure to drive improved global performance • Investment in internal resources to drive improved performance • Replacing high cost manufacturing with more sub-contracting

  49. Mexico Target of 8,000 Standard hours per week – End of year target is 9,000 Steel Utilization Outsourcing 1,000 hours per week Dallas Monthly Targets on Production Hours Steel Utilization Reducing Mfg cost per hour Reducing Steel SKU’s H&K Plan to WinDoing Fewer Things Better

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