PPQC was hired to conduct an enhanced due diligence review of Premier Advanced Security Systems (PASS), which designs and produces home security systems. The review uncovered serious recurring problems in PASS's order fulfillment process, with only 65% of orders in 2015 completed on time. Due to strong profit margins, PASS's management and prior due diligence efforts failed to thoroughly examine this issue. PPQC's review identified weaknesses in PASS's internal business processes for production management, supplier management, risk management, and performance measurement. Addressing these issues is necessary for PASS to stabilize its business and meet the expectations of potential investors or acquirers.

1. TMA Central Texas
Henry Schneider
January 21, 2015

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• PPQC Overview
• Scenario
• Enhanced Due Diligence
• Summary

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• PPQC is an elite, highly specialized consul>ng company that
rapidly delivers analysis and tailors solu>ons to maximize an
organiza>on’s earning poten>al by striking the balance
between people, process, and tools
o Appraisals
o ConsulAng
o Training

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• Document Review
o Policies
o Procedures
o Plans
o Deliverables
• Interviews
o ExecuAve Management
o Middle Management and Leads
o PracAAoners

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• Iden>fy strengths, weaknesses, and gaps
• Provide recommenda>ons to address key risks and issues

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• Premier Advanced Security Systems (PASS) is a highly
specialized company that sells custom-designed high-end /
high quality home security systems

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G

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PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• PASS designed and developed the new security system and
is now producing units

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• PASS’ management is ecsta>c with the revenue growth and
the company is on the verge of achieving “flashover”

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• At least three private equity firms have been looking at
PASS’ porQolio and financials to determine PASS’ stability
and profitability for possible buy-out

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• However, there is a serious recurring problem that has gone
unno>ced by PASS’ management and due diligence efforts
o PASS is missing promised delivery dates causing Walmart to regularly
cancel orders
o Of all orders received in FY 2015, only 65% were completed on Ame
o Since PASS’ profit margin has been so strong no one has bothered to
carefully assess the situaAon
o Only effort at trying to understand the problem was a limited study done
by an intern over the summer
• Why is this issue invisible?
o Open orders are recorded as backlog unAl delivered and invoiced
o Orders are only recorded on the balance sheet aYer invoicing
o Bo[om line is that the order process does not track un-invoiced orders

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• What are the implica>ons of this issue on the IPO and buy-
out?
• Why did due diligence not uncover this issue?
• What can be done to systema>cally iden>fy these types of
issues?

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• What if during due diligence one analyst stumbled
across the summer intern’s report on the order
fulfillment issue?
o What should the analyst recommend to the
potenAal buyer?
o What should the potenAal buyer do?
• What should be done to systema>cally uncover these
types of issues without tripping over them?

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• Systema>cally evaluate key internal business prac>ces (list
depends upon the business)
o Incident tracking process
o Management decision process
o Measurement and analysis process
o Order fulfillment process
o ProducAon management process (capacity, availability, conAnuity,
etc.)
o Risk management process
o Supplier management process
• Document review and interviews

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PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• Can rapidly evaluate internal business prac>ces (2 – 3 days)
• Iden>fy issues not communicated up and down the
management chain
• Provide addi>onal key informa>on that could impact the
value to the poten>al buyer
o All findings have an impact on the bo[om line, but may not be
immediately obvious when evaluaAng financial performance or
accounAng pracAces
• Generate a list of findings and recommenda>ons on what
the company needs to do to be successful

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• Is PASS able to move forward with their plans to raise
money or sell the company?
o What can be done to address these issues in the short term?
• Can PASS’ internal management and produc>on issues be
fixed?

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PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• Enhanced Due Diligence discovered that PASS
o Has faulty internal processes
o Can not assess its own producAon and delivery performance (capacity
and availability issues)
o Does not correctly track and report orders (delivered and cancelled)
o Does not collect, analyze, and report any producAon measures (e.g.
order aging, trends, etc.)
o Has no mechanism to assess market changes affecAng producAon and
distribuAon (supplier issues)
o Sales, markeAng, producAon, and order cycles conflict causing
reporAng issues

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PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• Reasons for the broken processes
o Business goals and objecAves not arAculated or communicated
o No history of using data to make decisions
• Lack of appropriate producAon and management measures
o Lack of internal communicaAon (horizontal and verAcal)
o Poor control of producAon performance and product delivery
o Poor supplier management
• No formal acceptance of supplier components to ensure on-Ame delivery
o Risks not idenAfied and managed
• No insight into market changes that affect producAon and distribuAon

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• Set realis>c and achievable short and long-term business
objec>ves
o Define key measures that support the objecAves
o Use measures to track progress towards achieving the objecAves
• Perform periodic process assurance audits to ensure the
documented processes are consistently followed
• Train people how to collect, analyze, and report key
measures and use results to make decisions
• Monitor vendor and supplier performance
• Iden>fy, document, and ac>vely manage risks
o Determine appropriate conAngency and miAgaAon acAons

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PPQC
PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
• Systema>cally evalua>ng business prac>ces beyond the
balance sheets and financial reports provides addi>onal key
informa>on necessary to make an informed decision
o IdenAfies needed tools, infrastructure, and staffing changes
o IdenAfies necessary tasks and acAviAes to increase value
o IdenAfies cost and schedule esAmates for addressing the issues
o Provides a rough Ameline and milestones

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PROCESS AND PRODUCT
Q U A L I T Y C O N S U LT I N G
Address: Henry Schneider
President/Senior Principal Consultant
Process and Product Quality ConsulAng, LLC
2009 Simond, Suite B
AusAn, TX 78723
Phone: 832-628-2486
E-mail: henry@ppqc.net
Web Site: www.ppqc.net