Specialty Building Materials Manufacturer
We engaged at a $900 million per year manufacturer of specialty building materials. It offered a full-line of superior quality acrylic products, but consistently fell below its target of 15% return of capital employed. We assisted the firm in reconfiguring its product line and development pipeline to seize its most profitable opportunities, and achieve its return objectives.
We began our modeling effort by thoroughly cleansing the client’s customer files to ensure each customer’s industry classification was accurate. The model revealed weak earnings in several of the company’s product segments. The business was most profitable in its signage, security and specialty products lines, where customers valued its high quality specifications and product longevity. But the model also revealed low margins and weak profits in its point-of-purchase (POP) lines – an application with a more complex sales process and intense competition from lower cost, commodity vendors. The firm’s higher quality products simply could not command a premium in these temporary-use applications.
Product Portfolio Optimization
To maximize profit in the POP segment, we assisted the company in aligning its product portfolio and manufacturing capacity to the margins available in its various industry segments. To address the price-sensitive, yet lower quality, needs of the POP market, the client developed a lower spec product and consolidated manufacturing to its most automated plant in the center of the country. High grade, and more complex products, were in turn moved to the company’s skilled labor plant. Accunomics’ consultants acted as cost accountants throughout the process, and ensured that the bills-of-material and labor components for the new products would meet the margin objectives for the segments.
Armed with a more granular understanding of the firm’s profit opportunities, we engaged the firm’s development organization to assess its product pipeline. The misalignment of product specifications and profitable market opportunities proved to be a systemic problem, as many of the projects under development drew little interest from the sales force. Our consultants collaborated with the company to redefine the decision-making processes surrounding the product development pipeline. A new R-A-C-I (Responsible-Accountable-Consulted-Informed) chart was constructed to ensure the company’s sales, marketing and finance professionals could align new product efforts with the most profitable market opportunities.