U.S. manufacturer leverages profit opportunities

By leveraging a systematic process for identifying opportunities, a market leader delivers 7% to the bottom line in materials, operations, logistics and sales while establishing a tool for future synergy analysis.

Challenge

A building materials business had made substantial, year-on-year improvements to its operation but found it increasingly difficult to maintain this high rate of improvement. The divisional president was concerned that the organization was missing opportunities to maximize profits and keep pace with competitors. He believed the solution was to launch bold new initiatives that would return the company at its former trajectory. For this reason they elected to use a new approach to help achieve the “Next Level” of improvement – using dedicated resources and utilizing a structured program focusing on all areas of the business.

The company had a strong balance sheet with substantial cash holdings and thus had the flexibility to fund multiple opportunities- both short and long term. The CEO asked the teams to develop a portfolio of initiatives and to create a timeline savings curve that would raise the company’s growth rate to the next level.

Discovery

The cross functional team used a three-phased approach of customized program design, idea development and implementation to help client’s managers execute on the various opportunities. The rules of the game consisted of:

• A program target of about 7% of compressible costs in on-going benefits (not once off)

• A structured approach that utilized full time employees dedicated 100% to the project or 8 weeks

• A holistic view of entire business with cost and revenue opportunities eligible; costs could not be pushed into another department

• A rigorous review process with management before ideas could be approved for implementation

• Being implementable within 2 years

• Capital efficiency –i.e. payback less than 2 years

  
  

The facilitated team first looked at opportunities within the company’s existing operating model and in adjacent areas, such as transport strategy. By analyzing the cost bases and expected trajectories of sales in certain markets, the team identified 29 opportunities that showed the greatest potential.

Next, the team narrowed the list of the most viable opportunities and prioritized attractiveness by three filters- degree of difficulty (i.e. customer behavior change required), time to implement and payback. Next, key economic drivers were identified and potential problems flushed out.

For each idea, the client team drafted an idea story, including the approach to capturing the opportunity and financial driver trees to ensure the bottom line would be impacted. A series of internal “syndications” helped top executives assess the feasibility from all areas of the business and understand how the competitors’ reactions could affect full idea capture.

The three week analysis across 5 facets of the business identified above average potential in the areas of logistics operations and materials procurement as well as “quick strike” opportunities in pricing disciplines and product formulations. The steering committee then designated specific teams to further develop the ideas, complete with potential risks across 3 dimensions, and to project plan the implementation.

Impact

After digesting the results of the diagnostic, the client rolled out the program in a series of five waves. Overall, the effort helped the company boost the bottom line by 7%. The process used to evaluate the current business was also used by the client to evaluate the potential savings in targeted acquisition operations.