Take advantage of cost reductions
Besides the savings from a reduction in head count, Cross
assumes he will find manufacturing cost-saving synergies
because he relocates the acquired company’s manufacturing
process to DJO’s plant in Mexico. But he doesn’t necessarily
assume that DJO’s manufacturing process is superior. The goal
is to improve or maintain product quality by adopting the best
manufacturing process, even if the decision doesn’t result in
immediate cost savings.
“We are Toyota junkies, so we believe in lean manufacturing,
and we have one of the top 10 manufacturing plants in North
America,” Cross says. “If we believe we have a better way to
manufacture the acquired product, we’ll shut down the other
plant and begin manufacturing the product in Mexico immediately.
If we find the other company has a unique manufacturing
method, we’ll build up inventory while the DJO operations team
works to transition the process. Our goal is better, cheaper and
faster — but it has to be better.”
Cross allows his operations team to make the manufacturing
process assessment and the recommendation, and even if he can’t
garner all the anticipated savings immediately, he says DJO’s continuous improvement process will eventually ferret out manufacturing process savings.
Manufacturing synergies are easy to spot according to Cross,
while savings from cost of goods synergies are harder to predict.
Often supplies are secured through long-term fixed price contracts, and current inventories must be depleted before new pricing can be secured using greater expenditures as a negotiating
tool.
“Cost of goods synergies are tricky to forecast,” Cross says. “I
would discount your estimates. In other words, if you planned on
$10 million in savings, I’d expect more like $7 million to $8 million.”
The result of this careful process at DJO has brought substantial growth. After the company charged to $492 million in
sales in 2007, its recent merger helped grow it again in ’08, as
it pushed past $733 million in its first three quarters, with a
realistic shot at $1 billion. That success makes DJO an industry leader within the orthopedic device marketplace, a $6.7 billion industry based on 2006 estimates.
Going through all the steps can be a bit tedious at times, but
Cross has learned that sticking with it is worth it — and a successful destination requires that you take measured paces.
“I think, in some cases, I pushed change too quickly with the
ReAble merger, and I’ve learned from that and taken responsibility for the mistakes,” Cross says. “But I’ve learned that being a
CEO is a marathon, not a sprint. So I remain calm and take a
long-term view to get through the assimilation process.”
HOW TO REACH: DJO Inc., (760) 727-1280 or www.DJOglobal.com
