Publicly Traded Manufacturer Protects $100 Million of Revenue and Doubles Operating Income
Top 3 Areas of Impact
Doubled operating income
25% improvement in both cost of labor and on-time delivery
Protected more than $100 million of business
Summary
The $500 million division of a multibillion-dollar public company that produces and distributes highly engineered products struggled to understand how its top customers contributed to profitability. With the threat of offshore competition looming, the company needed to quickly increase visibility into its profitability to prioritize projects and improve efficiency.
The company’s revenue data showed that its top five customers represented more than 75% of order volumes while hundreds of other customers accounted for the rest. This imbalance led to operational problems: Its on-time delivery rate dropped to 85%, it struggled to complete new product development projects, and it managed after-market distribution and 90 product lines—only 30 of which accounted for over 95% of revenue. The company also lacked contribution margin by customers and products, which meant it needed to understand whether profit followed volumes.
Approach
BDO helped the client find profitability by segmenting the business and creating a “first generation” cost-to-serve model organized by major segments. Our model provided contribution margins by major segment and increased visibility into pricing negotiations, enabling the client to see how its top customers contributed to profitability. As a result, we recommended segmentation strategies for three major business segments and helped align resources across the broader enterprise.
Results
Our cost-to-serve analysis significantly influenced resource alignment and strategy. The client focused each segment’s engineering staff on the five highest value NPD projects and simplified product line initiatives to reduce SKUs by 20% in one year. Ultimately, BDO delivered the following results for the client:
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