We have developed a comprehensive performance check for this purpose, which is derived from classic operational due diligence (ODD) and has its origins there.
M&A processes are multidimensional procedures that are generally carried out according to predefined rules and using standardized methods and tools. Due diligence is usually part of an M&A process and is used by private equity firms or strategic investors to evaluate the target itself and its plans for corporate development in a structured manner.
In a due diligence in the traditional sense, the focus is on the company’s finances and the future viability of sales. A look at the individual value creation processes, which can provide a detailed insight into the future viability of the company, particularly in the case of manufacturing companies, is often seen as a necessary exercise to complete the picture of the target.
“We use operational due diligence as a widely applicable method to assess the performance and future viability of a company’s value-adding processes quickly, in a structured and comprehensive manner.”
Dr. Gerhard Nowak, Managing Director of ifp consulting
The results of operational due diligence can be used in the M&A process on the one hand, and on the other hand this approach generates the corresponding transparency as part of the performance evaluation of a company.
At ifpconsulting, operational due diligence is divided into two areas:
In detail, the procedure for the two areas is as follows:
Current value creation structure
In terms of operational due diligence, the recommendation is therefore always to assess the overall performance of the company’s value creation structures. To this end, the consultants go through the plants using focused assessments and provide a perspective on the overall performance across the value chain. They use our framework in three stages:
In addition, the often already existing optimization projects are scrutinized and calibrated, and further optimization potential is uncovered. This results in an assessment of the company’s profitability based on the P&L and the corresponding forecasts in a broader perspective, which serve as a guideline for the location and also form a roadmap with short, medium and long-term initiatives.
NPI – New Product Introduction
The introduction of new products can have a significant impact on the future profitability of the company. Particular attention must be paid to this point, especially in plants with a fluctuating product portfolio.
“The constant increase in cost and margin pressure typically means that new products can no longer be produced with the usual margins. This can be recognized early on through continuous project cost control in order to keep the effects on the company’s overall profitability under control.” Dr. Gerhard Nowak, Managing Director ifp consulting
If the relevant projects are analyzed in a structured process as part of the ODD, a real and comprehensive perspective on the current and future achievable project profitability can be developed.
The development of additional optimization measures to further increase project profitability is a key component of this approach. Finally, the consolidated transfer to the aforementioned Forecast P&L takes place.
Application example: Suppliers in the automotive industry
One of ifp consulting’s typical cases is the implementation of ODD for a supplier in the automotive industry.
The application of the two approaches and developed frameworks takes place in a concerted procedure of approx. 4 to 5 days per plant, as the challenges in this business environment are complex and require a structured but also focused approach.
The challenges in practice are reflected both in current production and in future projects. Thanks to many years of production know-how in various industries and a high affinity for data and IT combined with a pragmatic approach, the current status can be assessed in a short time and the gaps compared to the best companies can be identified. When assessing the current performance of the entire value chain, we rely on our structured performance check, which has been used successfully many times, in order to be able to make a valid and quantified statement on the operational performance of the company.
Every product launch has an impact on the company’s overall profitability
The performance check is supplemented by the structured assessment of NPI performance (New Process Introduction Performance) in order to gain a perspective on the degree of industrialization and project profitability of the newly introduced projects and products from launch to mass production. The impact of non-performing products on the company’s overall profitability is significant and must be identified at an early stage and measures developed to increase profitability. Particularly in the automotive environment with short product life cycles due to midcycle enhancements/model updates, it is necessary to achieve target profitability quickly during the industrialization phase.
“In practice, we see suppliers offering products that already have a low margin when the order is placed, which they then try to increase again as part of the industrialization process. This is a risky approach and requires appropriate methods and consistency in implementation. However, we often find that companies have deficits here.”
Dr. Gerhard Nowak, Managing Director ifp consulting
Thanks to ifp consulting’s approach and many years of experience with specific methods for safeguarding the industrialization process, countermeasures can be successfully developed and subsequently implemented. Our performance check based on an ODD (Operational Due Diligence) provides certainty on the current performance status and a fact-based outlook on the company’s profitability potential.
