Introduction
A significant part of my working experience has been gained working for a Multi-National Company involved in the supply and distribution of building materials in a number of senior positions. Working in the holding company, I have overseen the distribution, manufacturing and trading of construction materials ranging from heavy industrial equipment to commercial building materials serving all aspects of the construction industry in Saudi Arabia and other GCC countries. The company is a fully integrated solution provider platform with 26 subsidiaries spread across the MENA and was recognized as gatekeeper to the Middle East Market.
Challenges
The company was facing some challenges related to internal causes such as high cost, poor management and inadequate financial control which affected the cash flow, and external causes such as a market demand drop due to the change in the macro-environment happening in Saudi Arabia since 2016 which affected the revenue and eventually the bottom line.
Since the dramatic decline in the price of oil in 2016 from $100 to $30 the existing business model which was based on the significant government projects which had been the mainstay of the Saudi Arabian marketplace was not flexible enough to react to this sudden change in external circumstances. This impacted on many segments, infrastructure, education, real estate projects and public sector spending. This caused a significant decline in demand as the effects filtered through the marketplace and our business was no longer sustainable in the new market conditions. The inertia and hope that the decline would be short-lived by internal stakeholders meant there was a significant loss of revenue which impacted directly onto the bottom line.
At the same time, the government has imposed the new VAT system since 2018 that has also affected the customer behavior spending and purchasing power.
What can we do in such a situation?
Action plan
I was asked to lead a team and put together a rescue package.
My first course of action was to:
1. Meet and present to the shareholders an honest and factual presentation of the new market conditions and outline what action needed to be implemented to align our business with the current and projected market conditions to emerge from these challenging market conditions as a financially sound business with a sustainable future. The new business plan had to have complete buy-in by all levels of management and together we needed to take ownership of the problem and be accountable for our actions going forward.
2. My team and I developed a business plan, got it approved by internal stakeholders and the shareholders and then clearly set the priorities and milestones needed to emerge from these unprecedented challenging conditions a healthier company.
Accordingly:
3. Based on my business plan analysis and assessment, It was agreed to combine and merge the distribution and trading divisions which involved reducing rented office space, reducing the extra headcount in these divisions and also streamlining the management team and support functions at the Head Office.
4. Assign one person to be in charge of multiple divisions and constantly review and reduce the headcount to match the trading conditions. All the inventory will be located under one roof so that the sales team can have full visibility of the available stock.
5. Redefine the incentive scheme and set measurable KPIs for all management levels, ensuring a consistent focus on the financial performance of the company.
Results
As a result of the action plan, we have managed to:
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Reduce overall monthly expenses and that had a positive effect on the cash flow by reducing payroll and restructuring the operations. This led to a 25 % decrease in operational expenditure in the first year.
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A change in business culture which led to full transparency and sharing of information, contacts and sales lead among the division’s sales teams. This has resulted in an increase in revenue by 20 %.
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With the new measurable and focused KPIs, I have managed to turn over the slow-moving inventory assets into cash. This has led to a positive boost to the cash flow.
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Enhanced employee performance has also led to an increase in customer satisfaction and retention.