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TMA Presentation

Henry Schneider
Henry Schneider

PPQC was hired to conduct an enhanced due diligence review of Premier Advanced Security Systems (PASS), which designs and produces home security systems. The review uncovered serious recurring problems in PASS's order fulfillment process, with only 65% of orders in 2015 completed on time. Due to strong profit margins, PASS's management and prior due diligence efforts failed to thoroughly examine this issue. PPQC's review identified weaknesses in PASS's internal business processes for production management, supplier management, risk management, and performance measurement. Addressing these issues is necessary for PASS to stabilize its business and meet the expectations of potential investors or acquirers.

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TMA Central Texas Henry Schneider January 21, 2015
速2016 All Rights Reserved - PPQC 2 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ PPQC Overview ≒ Scenario ≒ Enhanced Due Diligence ≒ Summary
速2016 All Rights Reserved - PPQC 3 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ PPQC is an elite, highly specialized consul>ng company that rapidly delivers analysis and tailors solu>ons to maximize an organiza>ons earning poten>al by striking the balance between people, process, and tools o Appraisals o ConsulAng o Training
速2016 All Rights Reserved - PPQC 4 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Document Review o Policies o Procedures o Plans o Deliverables ≒ Interviews o ExecuAve Management o Middle Management and Leads o PracAAoners
速2016 All Rights Reserved - PPQC 5 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Iden>fy strengths, weaknesses, and gaps ≒ Provide recommenda>ons to address key risks and issues
速2016 All Rights Reserved - PPQC 6 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Premier Advanced Security Systems (PASS) is a highly specialized company that sells custom-designed high-end / high quality home security systems
速2016 All Rights Reserved - PPQC 7 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G
速2016 All Rights Reserved - PPQC 8 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ PASS designed and developed the new security system and is now producing units
速2016 All Rights Reserved - PPQC 9 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ PASS management is ecsta>c with the revenue growth and the company is on the verge of achieving 鍖ashover
速2016 All Rights Reserved - PPQC 10 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ At least three private equity 鍖rms have been looking at PASS porQolio and 鍖nancials to determine PASS stability and pro鍖tability for possible buy-out
速2016 All Rights Reserved - PPQC 11 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ However, there is a serious recurring problem that has gone unno>ced by PASS management and due diligence e鍖orts o PASS is missing promised delivery dates causing Walmart to regularly cancel orders o Of all orders received in FY 2015, only 65% were completed on Ame o Since PASS pro鍖t margin has been so strong no one has bothered to carefully assess the situaAon o Only e鍖ort at trying to understand the problem was a limited study done by an intern over the summer ≒ Why is this issue invisible? o Open orders are recorded as backlog unAl delivered and invoiced o Orders are only recorded on the balance sheet aYer invoicing o Bo[om line is that the order process does not track un-invoiced orders
速2016 All Rights Reserved - PPQC 12 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ What are the implica>ons of this issue on the IPO and buy- out? ≒ Why did due diligence not uncover this issue? ≒ What can be done to systema>cally iden>fy these types of issues?
速2016 All Rights Reserved - PPQC 13 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ What if during due diligence one analyst stumbled across the summer interns report on the order ful鍖llment issue? o What should the analyst recommend to the potenAal buyer? o What should the potenAal buyer do? ≒ What should be done to systema>cally uncover these types of issues without tripping over them?
速2016 All Rights Reserved - PPQC 14 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Systema>cally evaluate key internal business prac>ces (list depends upon the business) o Incident tracking process o Management decision process o Measurement and analysis process o Order ful鍖llment process o ProducAon management process (capacity, availability, conAnuity, etc.) o Risk management process o Supplier management process ≒ Document review and interviews
速2016 All Rights Reserved - PPQC 15 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Can rapidly evaluate internal business prac>ces (2 3 days) ≒ Iden>fy issues not communicated up and down the management chain ≒ Provide addi>onal key informa>on that could impact the value to the poten>al buyer o All 鍖ndings have an impact on the bo[om line, but may not be immediately obvious when evaluaAng 鍖nancial performance or accounAng pracAces ≒ Generate a list of 鍖ndings and recommenda>ons on what the company needs to do to be successful
速2016 All Rights Reserved - PPQC 16 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Is PASS able to move forward with their plans to raise money or sell the company? o What can be done to address these issues in the short term? ≒ Can PASS internal management and produc>on issues be 鍖xed?
速2016 All Rights Reserved - PPQC 17 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Enhanced Due Diligence discovered that PASS o Has faulty internal processes o Can not assess its own producAon and delivery performance (capacity and availability issues) o Does not correctly track and report orders (delivered and cancelled) o Does not collect, analyze, and report any producAon measures (e.g. order aging, trends, etc.) o Has no mechanism to assess market changes a鍖ecAng producAon and distribuAon (supplier issues) o Sales, markeAng, producAon, and order cycles con鍖ict causing reporAng issues
速2016 All Rights Reserved - PPQC 18 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Reasons for the broken processes o Business goals and objecAves not arAculated or communicated o No history of using data to make decisions ≒ Lack of appropriate producAon and management measures o Lack of internal communicaAon (horizontal and verAcal) o Poor control of producAon performance and product delivery o Poor supplier management ≒ No formal acceptance of supplier components to ensure on-Ame delivery o Risks not idenA鍖ed and managed ≒ No insight into market changes that a鍖ect producAon and distribuAon
速2016 All Rights Reserved - PPQC 19 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Set realis>c and achievable short and long-term business objec>ves o De鍖ne key measures that support the objecAves o Use measures to track progress towards achieving the objecAves ≒ Perform periodic process assurance audits to ensure the documented processes are consistently followed ≒ Train people how to collect, analyze, and report key measures and use results to make decisions ≒ Monitor vendor and supplier performance ≒ Iden>fy, document, and ac>vely manage risks o Determine appropriate conAngency and miAgaAon acAons
速2016 All Rights Reserved - PPQC 20 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Systema>cally evalua>ng business prac>ces beyond the balance sheets and 鍖nancial reports provides addi>onal key informa>on necessary to make an informed decision o IdenA鍖es needed tools, infrastructure, and sta鍖ng changes o IdenA鍖es necessary tasks and acAviAes to increase value o IdenA鍖es cost and schedule esAmates for addressing the issues o Provides a rough Ameline and milestones
速2016 All Rights Reserved - PPQC 21 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G Address: Henry Schneider President/Senior Principal Consultant Process and Product Quality ConsulAng, LLC 2009 Simond, Suite B AusAn, TX 78723 Phone: 832-628-2486 E-mail: henry@ppqc.net Web Site: www.ppqc.net

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TMA Presentation

  • 2. 速2016 All Rights Reserved - PPQC 2 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ PPQC Overview ≒ Scenario ≒ Enhanced Due Diligence ≒ Summary
  • 3. 速2016 All Rights Reserved - PPQC 3 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ PPQC is an elite, highly specialized consul>ng company that rapidly delivers analysis and tailors solu>ons to maximize an organiza>ons earning poten>al by striking the balance between people, process, and tools o Appraisals o ConsulAng o Training
  • 4. 速2016 All Rights Reserved - PPQC 4 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Document Review o Policies o Procedures o Plans o Deliverables ≒ Interviews o ExecuAve Management o Middle Management and Leads o PracAAoners
  • 5. 速2016 All Rights Reserved - PPQC 5 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Iden>fy strengths, weaknesses, and gaps ≒ Provide recommenda>ons to address key risks and issues
  • 6. 速2016 All Rights Reserved - PPQC 6 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Premier Advanced Security Systems (PASS) is a highly specialized company that sells custom-designed high-end / high quality home security systems
  • 7. 速2016 All Rights Reserved - PPQC 7 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G
  • 8. 速2016 All Rights Reserved - PPQC 8 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ PASS designed and developed the new security system and is now producing units
  • 9. 速2016 All Rights Reserved - PPQC 9 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ PASS management is ecsta>c with the revenue growth and the company is on the verge of achieving 鍖ashover
  • 10. 速2016 All Rights Reserved - PPQC 10 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ At least three private equity 鍖rms have been looking at PASS porQolio and 鍖nancials to determine PASS stability and pro鍖tability for possible buy-out
  • 11. 速2016 All Rights Reserved - PPQC 11 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ However, there is a serious recurring problem that has gone unno>ced by PASS management and due diligence e鍖orts o PASS is missing promised delivery dates causing Walmart to regularly cancel orders o Of all orders received in FY 2015, only 65% were completed on Ame o Since PASS pro鍖t margin has been so strong no one has bothered to carefully assess the situaAon o Only e鍖ort at trying to understand the problem was a limited study done by an intern over the summer ≒ Why is this issue invisible? o Open orders are recorded as backlog unAl delivered and invoiced o Orders are only recorded on the balance sheet aYer invoicing o Bo[om line is that the order process does not track un-invoiced orders
  • 12. 速2016 All Rights Reserved - PPQC 12 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ What are the implica>ons of this issue on the IPO and buy- out? ≒ Why did due diligence not uncover this issue? ≒ What can be done to systema>cally iden>fy these types of issues?
  • 13. 速2016 All Rights Reserved - PPQC 13 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ What if during due diligence one analyst stumbled across the summer interns report on the order ful鍖llment issue? o What should the analyst recommend to the potenAal buyer? o What should the potenAal buyer do? ≒ What should be done to systema>cally uncover these types of issues without tripping over them?
  • 14. 速2016 All Rights Reserved - PPQC 14 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Systema>cally evaluate key internal business prac>ces (list depends upon the business) o Incident tracking process o Management decision process o Measurement and analysis process o Order ful鍖llment process o ProducAon management process (capacity, availability, conAnuity, etc.) o Risk management process o Supplier management process ≒ Document review and interviews
  • 15. 速2016 All Rights Reserved - PPQC 15 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Can rapidly evaluate internal business prac>ces (2 3 days) ≒ Iden>fy issues not communicated up and down the management chain ≒ Provide addi>onal key informa>on that could impact the value to the poten>al buyer o All 鍖ndings have an impact on the bo[om line, but may not be immediately obvious when evaluaAng 鍖nancial performance or accounAng pracAces ≒ Generate a list of 鍖ndings and recommenda>ons on what the company needs to do to be successful
  • 16. 速2016 All Rights Reserved - PPQC 16 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Is PASS able to move forward with their plans to raise money or sell the company? o What can be done to address these issues in the short term? ≒ Can PASS internal management and produc>on issues be 鍖xed?
  • 17. 速2016 All Rights Reserved - PPQC 17 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Enhanced Due Diligence discovered that PASS o Has faulty internal processes o Can not assess its own producAon and delivery performance (capacity and availability issues) o Does not correctly track and report orders (delivered and cancelled) o Does not collect, analyze, and report any producAon measures (e.g. order aging, trends, etc.) o Has no mechanism to assess market changes a鍖ecAng producAon and distribuAon (supplier issues) o Sales, markeAng, producAon, and order cycles con鍖ict causing reporAng issues
  • 18. 速2016 All Rights Reserved - PPQC 18 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Reasons for the broken processes o Business goals and objecAves not arAculated or communicated o No history of using data to make decisions ≒ Lack of appropriate producAon and management measures o Lack of internal communicaAon (horizontal and verAcal) o Poor control of producAon performance and product delivery o Poor supplier management ≒ No formal acceptance of supplier components to ensure on-Ame delivery o Risks not idenA鍖ed and managed ≒ No insight into market changes that a鍖ect producAon and distribuAon
  • 19. 速2016 All Rights Reserved - PPQC 19 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Set realis>c and achievable short and long-term business objec>ves o De鍖ne key measures that support the objecAves o Use measures to track progress towards achieving the objecAves ≒ Perform periodic process assurance audits to ensure the documented processes are consistently followed ≒ Train people how to collect, analyze, and report key measures and use results to make decisions ≒ Monitor vendor and supplier performance ≒ Iden>fy, document, and ac>vely manage risks o Determine appropriate conAngency and miAgaAon acAons
  • 20. 速2016 All Rights Reserved - PPQC 20 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G ≒ Systema>cally evalua>ng business prac>ces beyond the balance sheets and 鍖nancial reports provides addi>onal key informa>on necessary to make an informed decision o IdenA鍖es needed tools, infrastructure, and sta鍖ng changes o IdenA鍖es necessary tasks and acAviAes to increase value o IdenA鍖es cost and schedule esAmates for addressing the issues o Provides a rough Ameline and milestones
  • 21. 速2016 All Rights Reserved - PPQC 21 1/21/16 PPQC PROCESS AND PRODUCT Q U A L I T Y C O N S U LT I N G Address: Henry Schneider President/Senior Principal Consultant Process and Product Quality ConsulAng, LLC 2009 Simond, Suite B AusAn, TX 78723 Phone: 832-628-2486 E-mail: henry@ppqc.net Web Site: www.ppqc.net