Background and challenges
Navigating a post-pandemic market, a premium kitchen appliance manufacturer faced decreasing demand, leading to negative EBITDA margin in its largest business unit. The company needed a comprehensive end-to-end supply chain assessment to identify areas to reduce cost of goods sold and improve product margins as part of a holistic go-to-market strategy refresh.
Approach
L.E.K. Consulting took on the challenge with a two-phase approach to identify and validate cost reduction opportunities and develop a detailed implementation plan to return the company to profitable margins.
Phase 1: Baseline and opportunity sizing
- Category spend baseline: Our team leveraged company data to develop a cost baseline to determine the volume and spend across the supplier mix within injection molding, motors, printed circuit board assemblies and other categories
- Initial opportunity sizing: To prioritize savings opportunities, we evaluated current pricing across the supply base to determine the savings potential from strategic volume allocation and pricing negotiations
- Opportunity validation: To validate cost savings opportunities, our team executed a request for proposal process with current and potential suppliers, analyzing the optimal supplier mix based on key supplier selection criteria
Phase 2: Category strategy development and implementation planning
- Supply landscape assessment: We performed a robust assessment of the supply landscape across each category, including an analysis of market trends and geopolitical factors to inform the category strategies
- Future state strategy development: Our team developed multiple category strategies to enable the company to achieve significant material savings, improve supply chain resilience and cultivate strategic partnerships with suppliers
- Business impact analysis: Each category strategy included an assessment of the expected profit-and-loss impact
- Transition planning: Detailed initiative charters were developed as part of a robust transition plan, with action items, timelines, owners, dependencies and risks
Results
The comprehensive supply chain assessment and category strategy development equipped the company with the tools to drive a substantial margin improvement. Key outcomes include:
- A 10 percentage point (ppt) gross margin improvement: Codified initiatives to be implemented by the company amounted to validated material savings that would enable company to achieve 10 ppt improvement in gross margin
- Optimized new product development (NPD) process: As a result of the end-to-end supply chain assessment, we also delivered recommendations to optimize the company’s NPD process with a governance structure that facilitates enhanced collaboration between commercial, engineering and operations teams
- Roadmap to 20 ppt EBITDA improvement: As part of a holistic go-to-market strategy refresh, our team delivered a roadmap to achieve 20 ppt EBITDA improvement over the course of three years
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