Auxis Helps Consumer Products Leader Integrating New Division in Latam

Client Profile

Auxis’ client is a global consumer products company with a leading diversified portfolio including: batteries, residential locksets, builders’ hardware and faucets, shaving, personal care, and grooming products, appliances, specialty pet supplies, lawn and garden, and home pest control products. With over $4 billion in net sales, their products are sold by the world’s top 25 retailers and are available in approximately 140 countries.

Auxis’ client acquired a division of a home improvement manufacturer, in December 2012. This division had operations throughout Latin America and was a manufacturer and distributor of residential locks, residential hardware and plumbing. The purchase agreement included the organization supporting the division, leaving most of the back office functions with the seller. For this reason, during the closing process, a Temporary Service Agreement (TSA) was developed specifying the functions, activities and services that would be needed until our client was able to run the new division. The TSA was set up to last 15 months after the close date. The TSA fees assigned to each country/region included both direct operational expenses (e.g. sales force, warehousing, rent, etc.) and indirect (back office and support services) that the seller would provide until the separation was complete.

Quickly realizing that completing the TSA would mean an expense of approximately $4.5M — along with the complicated process of detaching a division, the client turned to Auxis.

Strong project management skills, expertise in integrations and attention to detail were necessary to overcome the following challenges:

• Reduce overall integration expenses by exiting early from the TSA to avoid payment of total fees negotiated
• System migrations from several legacy systems that handled accounting, orders, inventory, and customer data into one ERP system (SAP) utilized by client
• Separate supply chain operations from acquired division’s warehouses and 3PL’s and establish new 3PL providers and warehouse locations
• Execute and manage an aggressive hiring plan to create the necessary organization structure to support the new division
• Identify and realize revenue and operating synergies between the existing business and the new division
• Simultaneously completing a successful integration in 8 regions (14 countries)

Based on previous successful integrations for our client, Auxis was approached to project manage and assist with the overall detachment and integration of the acquired Latin American division. Auxis served as a strategic partner and link between our client’s leaders and the new division leaders. The first approach for the project was to identify and prioritize, for integration, the different regions involved in the Latin American business. In order to do so, factors considered were:

• Sales and Margin Contribution of the Region
• Complexity
• TSA Cost Reduction Opportunity
• System Changes
• Start-up Business or Existing
• Resource Availability and experience from all parties
• Regulatory constraints

Once prioritization was done for the countries/regions, dates were assigned for each detachment. The project was divided by workstream and detailed project plans were developed to closely track all the milestones needed. Some key milestones achieved were as follows:

HR

• Defined Organizational Structure and determined hiring needs
• Created hiring plans to fulfill all the necessary positions as well as managed expectations
• Transfer of employees to new Benefit Plans
• Analyzed and adjusted current compensation levels to match client’s structure
• Designed, coordinated and monitored the completion of training plans for new hired employees
• Designed internal communications for employees to ensure the smooth continuation of the business during the integration period

Finance

• Determined the need and set-up of new legal entities and bank accounts, when applicable, in the different regions
• Managed the transfer of accounts payable and receivable balances
• Monitored inventory counts and transfers in the transition to new 3PLs and warehouses
• Developed pro-forma P&L of new combined operations
• Created operating budget for operations post detachment
• Ensured that process documentation, policy & procedure manuals, and spending & approval limits were adequate and in-place in order to maintain internal control of future operations
• Defined and managed a collaborative cut-over process from seller to client

Sales & Marketing

• Managed the analysis of existing SKUs and data compilation for set-up in the new ERP system
• Designed and developed communications to customers
• Reviewed, created and transferred current rebate agreements with customers
• Facilitated revenue workshops to identify and quantify revenue synergies from the integration of two businesses and two sales teams

Supply Chain

• Determined go-forward plans for current central operations and other warehouses around Latin America
• Selection of new new warehouse locatons and 3PLs
• Identified Excess & Obsolescence inventory and determined plan for liquidation and/or disposal of inventory
• Performed inventory counts as well as planned and managed the transfer of inventory to new warehouses and 3PLs
• Developed and compiled inventory health report to ensure inventory levels across Latin America were being managed appropriately in accordance with TSA requirements as well as maintaining optimal levels of inventory to avoid disruption to the business

Information Technology

While the systems implementation was handled by a separate SAP team, Auxis served as a communication bridge between the SAP Teams and the relevant stakeholders. Auxis also provided support and coordination to ensure the completion of all major milestones such as:

• Coordinated the completion of the business requirements and system blue print phases
• Ensured timely completion of various data hierarchy definition and templates
• Assisted with data mapping between the legacy systems and the new system (SAP)
• Supported stabilization efforts post go-live

General Project Management

During the project, constant communication was necessary among all parties to ensure completion of all the milestones and activities. A disciplined approach to meeting minutes with clear owners of action items was utilized throughout the project. Detailed status reports were issued weekly with input from workstream leads. Weekly status meetings to track the progress of each workstream were held as well as monthly Executive Steering Committee meetings to understand any possible risk and to escalate and remove barriers preventing a successful Go-Live date from being achieved.

After 11 months, all the activities and key milestones were completed, achieving the following results:

• Exit of the TSA from seller well before the 15 months that were initially established in the purchase agreement
• Avoided $2 million of TSA fees as a result of early exits, representing 45% of the original TSA estimate
• Completed the separation and integration of 14 countries
  • 6 Distribution Center transitions with minimal disruption to the business
  • 2 new legal entities and office start-ups
  • 6 SAP ERP integrations
• Identified and quantified revenue synergies of $4.5 million on an annualized basis by sharing and introducing relationships between the new division and the client’s existing business.
• Integrated Supply Chain, Customer Service, Finance and HR functions of the acquired division under our client’s shared services model direct employee headcount by over 35% compared to the initial Org Chart
• Saved 39% of total anticipated liquidation payments as a result of the legal analysis and the negotiation process with seller
• Filled more than 60 open positions across the region, having completed 100% of the initial hiring plan in 11 months (73% of the vacancies were covered within the first 6 months).