An office furniture manufacturer was struggling to adapt to changing customer preferences and had seen a related decline in sales.
Their two facilities contended with aged equipment and low utilization. The wavering North American trade environment further complicated their business, with some competitors already having moved their operations elsewhere.
Carpedia identified the following challenges:
- SG&A costs well above optimal levels due to duplicate roles, lack of communication, and unrealized synergies across facilities
- Overhead costs were overburdening the business due to poor utilization of current capacity
- Inflated wages for unionized direct labor created uncompetitive variable costs
Carpedia was tasked with exploring opportunities to improve the cost structure and create a more optimal footprint. This included capitalizing on underlying operational inefficiencies, creating an overarching project management structure, and studying alternative improvement opportunities.
Key opportunities included:
- Identified consolidation and laminate line insourcing as fruitful, cost-saving, and efficiency-optimizing opportunities by conducting a high-level cost / benefit analysis
- Identified key risks associated with relocation and consolidation and outlined potential risk mitigation steps in the project plan
- Performed a high-level cost / benefit analysis to determine the viability of Greenfield (rent, lease, build or buy), joint venture or acquisition scenarios
- Identified “ideal” alternative locations which could provide operating cost advantages and improve EBITDA performance while maintaining control over customer lead times
The Results
After identifying potential solutions, Carpedia conducted a thorough analysis on the potential effect of implementing the proposed changes.
Key benefits included:
- Estimated 5% improvement in gross margin, 2% reduction in SG&A % and 47% improvement in implied share price
- Estimated IRR of 38%
- Opportunity to optimize new facility design to improve productivity and capacity while managing lead times and transportation costs
