Restructuring of a dairy cooperative and strategy development for securing the company future.

Summary: 

• One of the largest dairy cooperatives in Southern Germany with a raw milk volume of approx. 1,000 million kg

• Got into the business crisis through aggressive growth and various poor decisions on the management level

• ARONIA Management Consulting developed a restructuring concept focusing on the optimization of production sites/product mix, new management, improvement in  accounting/controlling/ management control by KPIs, actions on efficiency increase and cost reduction

• Turnaround achieved after only one year based on the implementation of restructuring actions, monitored and controlled by consistent project management

• After the turnaround, development of a strategic concept with the aim of securing the future of the company

Client:

• Large dairy cooperative consisting of 7 companies, 3 production sites and approx. 4,000 active milk suppliers (mainly members of the cooperative)

• Number of employees: approx. 670

• Turnover: approx. 600 million €

• Milk processing: approx. 1,000 million kg

Stage 1 - Restructuring:

Initial situation:

• As a consequence of the aggressive milk acquisition, the dairy cooperative has become one of the largest milk processors in southern Germany with a wide range of fresh dairy and dry milk products

• Difficult market situation, misjudgement of own possibilities and poor decisions regarding supplier and customer contracts have led to high operating losses of several million euros

• The high dependence on price-sensitive, highly volatile commodity products (such as drinking milk and milk powder), the unfavourable product mix (no cheese, no milk ingredients, etc.) and the financial losses caused a low milk price compared to the competition and to terminations of milk supply contracts (approx. minus 20% raw milk)

• The operating losses led to a payment bottleneck and financial debts increase (approx. plus 60%)

• In addition, there were various internal weaknesses, such as: no sustainable strategic concept, no USPs compared to the competition, complex corporate structure with several operating units and complicated supply and payment flows, insufficient data quality, deficits in management and management control tools, incomplete SAP implementation, corporate and management culture was not success-oriented

• The shareholders and management of the company commissioned ARONIA Management Consulting GmbH to draw up a restructuring concept in accordance with IDW Standard S6 "Requirements for the preparation of restructuring concepts". On the same day, the company commissioned Ralph Wonnemann (managing partner of ARONIA) to lead the restructuring as Chief Restructuring Officer (hereinafter CRO)

Actions taken:

• Troubleshooting at the level of suppliers, customers, financiers, shareholders, trade credit insurers etc.

• Development of a restructuring concept as a basis for negotiations with banks, employees, shareholders, (milk) suppliers and customers

• Commercial reorganisation of the group

• Replacement of the management, strengthening of the management committees

• Closure of a production site in order to compensate the losses in raw milk and to optimize the production capacity utilisation as well as cost structures

• Optimization of the product portfolio, expansion of product areas with higher profitability vs. reduction of commodities with simultaneous expansion of sales channels

• Conclusion of long-term framework agreements with top customers on the basis of indexed price models

• Increase in operational efficiency in production and various cost reduction actions

• Creation of transparency through improvements in accounting, controlling, MIS, IT optimization

• Securing the milk supplier base through retention actions, winning back terminated suppliers and expanding the supplier base through a competitive milk money

• Implementation of project management and interim management support by ARONIA Management Consulting 

Results:

• Turnaround with positive financial results already next year

• Increase in productivity and realization of cost savings in overhead and personnel costs

• Development and launch of new high-margin branded products in fresh dairy

• Securing the milk supply base through a competitive milk money

• Significant reduction of financial debts

• Meaningful key figures for assessment the current economic situation

• Winning back the trust of the stakeholders

• Extension of the long-term partnership with one of the most important international key account customer

• Installation of a new managing director

Stage 2 - Strategy Development:

Initial situation:

• The analysis of the causes of the crisis and the restructuring clearly showed the need for a sustainable strategic concept

• The shareholders of the dairy cooperative commissioned ARONIA Management Consulting (Ekaterina Pashkova) to develop a future-oriented strategy in cooperation with the management of the company

Actions taken:

• Detailed analysis of the current situation of the company including elaboration of SWOT and USP profile

• Workshops with the management team to develop conceivable strategic options

• Simulation and review of strategic options with regard to expected economic effects, feasibility, necessary conditions, opportunities and risks

• Determination of necessary time, financial and human resources for the implementation of the strategic options

• Preparation of a strategy documentation for the supervisory board of the dairy cooperative for the purpose of decision making, implementation approval and necessary resolutions  

Results:

• Sustainable strategic concept based on product innovations, brand strengthening, internationalisation, strategic cooperations and optimisation of production

• Strict project management for strategy implementation with clearly defined actions, milestones and responsibilities

• Implementation of the developed strategic options