When it comes to due diligence on manufacturers, private equity firms ought to recalibrate their tools, ratchet up their operational savvy and discover their inner plant manager.

Here is why: There are pitfalls and opportunities every time an investor buys a manufacturer. Even the most conscientious due diligence may not reveal them if operational issues are not targeted.

Many costs, problems and potential savings come to light only once the deal is done and a manufacturing team begins executing a plan to improve operations. At a minimum, advance knowledge of a target company's operations could help a PE firm determine the right purchase price, plan of attack and the proper structure of the overall investment.

So with that in mind, here is what we often see once the ink is dry and we are sorting out a facility's state of affairs.

1. The company's output doesn't live up to its billing. Too often, plant officials may throw around a figure reflecting the theoretical capacity of a plant, and the purchaser may accept it. The reality could be very different due to problems on the plant floor.

2. Inefficient material flow hampers production. Components and materials are flowing through a process marred by poor data communication. Bottlenecks lead to delays in deliveries at some points. In-process inventories are building up at others, leading to extra storage costs and reduced cash flow.

3. Component design harbors huge opportunities. Investors do not appreciate the capacity of many components to be radically improved. In terms of design for manufacturing, a process known as value analysis/value engineering, or VA/VE, can lead to savings that can be factored into the financial model before the purchase decision.

4. The company may not have a continuous improvement plan. Most investors often don't even ask if there is one. Yet such programs are crucial. Beginning with value stream mapping, "kaizen bursts" are identified throughout the process -- and not just within the four walls of the plant. Together, these can represent performance improvement opportunities with regard to profitability and cash flow that can be substantial.

5. There are weak links in the supply chain. If a sheet metal supplier to a stamping process is about go belly-up, the investor needs to be aware of that. Other suppliers upstream from the manufacturer may have problems delivering their products on time or with the right quality. The problems might be serious enough to give a farsighted purchaser pause.

6. The investors are relying mostly on accounting figures. They are missing key indicators such as scrap rates, throughput (the rate at which a component moves through a process) and first-time through quality (the percentage of parts making it through a process defect-free). These operating figures offer a snapshot of the plant's current performance.

7. No one is looking at the trends. Companies rarely stay in one place. They either advance or lose ground, and investors need to determine a company's direction. Don't let the current production and financial data mislead you. Look at the trend over the past year or 18 months. It can give you an idea of where the company is headed.

8. The data are not in context. Purchasers too often fail to get at the meaning of the data. Raw figures mean little by themselves. Consider a scrap rate of 5%. It could represent a world-class benchmark for some components and an absolutely horrible performance for others. It takes broad manufacturing expertise to determine which description applies.

9. The reasons for problems aren't clear. If an operation is deteriorating, there is a reason for it. The company might neglect preventive maintenance. The work force could be new and inexperienced. So could the plant manager. The business could be booming, and the company needs too much overtime to keep up and quality is suffering.

10. The investor doesn't understand the technology. Be sure that the potential acquisition isn't trying to meet current quality standards with decades-old equipment. In fact, a competitor could already be making inroads into its business with more advanced products. Or process innovations could be right around the corner.

Due diligence is especially complex in manufacturing. Indeed, with incomplete or bad information, a PE firm might pass up a good deal or pursue a bad one. And if the deal checks out, advance information from the operational side could have them flying out of the gate. If it doesn't, the investors will have spared themselves massive headaches and expense.

David Knill is managing director and private equity lead at BBK Ltd.