07.01.15

Production Accounting for a Midwest Food Processing Plant

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Business Issue:

Riveron’s client, a leading private investment firm, focuses on companies with revenues of $50 to $500 million. The firm teams with the management of its portfolio companies to address the opportunities of certain industry segments, including consumer and business services, consumer products, restaurants and specialty retail, healthcare, financial services, insurance, and manufacturing. It specializes in developing solutions and capital structures required to meet the needs of varying private equity transactions.

Our client wanted more comprehensive reporting data for one of its portfolio companies, a food processing company in the Midwest. Management of the portfolio company balked, saying its current accounting systems were not up to the task, and enhancements would cost more than $100,000. We were retained to investigate additional options, as alternatives to installing an entirely new accounting system. In addition, we were asked to examine the company’s purchasing processes, so it could achieve greater efficiencies through volume purchases.

Riveron Approach:

We first had to come to an understanding of the private equity firm’s data requirements. Ultimately, we determined that the private equity firm’s management was interested in analyzing the plant’s output by production line, by retail vs. wholesale products, by product type such as baked goods, fried, frozen etc., and by customer. We then analyzed the portfolio company’s operations on-site. Our consultants discovered that some of the data that was being collected by the current accounting system could be re-purposed to provide the information required by the private equity firm. Additional manpower would be required to extract the needed data, but the task was very doable.

Our analysis of purchasing processes showed that current practices called for purchases to be made every two weeks, based on the needs for the upcoming two weeks only. This limited any volume discounts that might be available to the company. We re-defined the purchasing process by leveraging thirteen weeks’ worth of data. This put the company’s purchasing personnel in a better position vis-à-vis its suppliers, and ensured that the firm could take advantage of volume discounts.

Benefit to Our Client:

The engagement yielded a cost-effective alternative to a new accounting system, and a process whereby production costs could be reduced through improved purchasing forecasting.

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