We had been asked to review the activities of a company supplying parts to the engineering industry. The company’s turnover of c£750k was not producing anything like the profits it should have done. Overheads were being controlled but margins seemed to be continually squeezed. When we drilled down it quickly became apparent that the issue surrounded one contract which was producing 60% of their turnover. The issue involved inaccurate costing of labour when the contract was won which resulted in them underquoting the unit price of their major product line and greatly impacting the margins of one third of the business with that customer.
As a result, the company reverted to the major customer and sought to renegotiate the contract for that product line. The customer threatened to source the product elsewhere and the company called their bluff. When the customer tried an alternative, there were issues with both quality and service and so the company quickly regained the business at a significantly improved margin and profits reverted to expected levels.