Principia Consulting

Strategy Consulting for Companies
in Materials-Related Industries

Cost and Profit Benchmarking

Clarity on your Competitive Position
In a global economy where the manufacturing base is increasingly shifting to low-cost regions, companies face significant challenges to compete effectively. In addition to being the low cost manufacturer, companies must be the low cost supplier to their customers, while facing increased pressure on profit results.

Bringing clarity to your competitive position, and where higher profits may lie hidden, is what our Manufacturing Cost and Profit Benchmarking program is all about. Competitive benchmarking of manufacturing costs and profits at the business unit or product level offers tangible quantitative insights to improve your business unit performance.

Principia's Manufacturing Cost and Profit Benchmarking service is uniquely designed to provide valuable insights and actionable steps for operations improvement both at the business unit and plant levels. It combines marketing/sales information with manufacturing costs along with business unit operating costs including R&D, SG&A, financial and overhead allocations.

Our approach is exceptionally rigorous, analytical and interactive. We combine our skills and experience in conducting detailed site-specific manufacturing cost analysis with our proven market research and strategic assessments.

The results of the program directly address such issues as:

Competing more effectively
Identifying competitive gaps in the value chain
Planning for profitable business growth
Having a better understanding of competitor strategies
Controlling costs without sacrificing profit
Improving the bottom line through revenue growth

A Profit-Cost Model for Strategic Analysis
Principia applies experience and expertise in building robust operating data and profit analysis "brick-by-brick."This program provides clarity on your company's cost and profitability position relative to competitors. It includes a thorough and expert analysis of business performance at the plant level, from top line to bottom line. Principia programs yield results typically at a +/- 5% confidence level, based on firsthand feedback.

BASIC PROGRAM COMPONENTS
A typical manufacturing cost analysis program includes:

Plant site analysis
A review of the site configuration and production routes for the plants of every target competitor.

Unit operations review
Comprehensive assessment and analysis of technologies and processing steps commercially employed by competitors.

Manufacturing cost
Detailed estimate of manufacturing costs based on current operation conditions, key variable and fixed costs.

Manufacturing strategy
Assessment of manufacturing philosophy and approach in terms of product range and utilization, product quality and production issues, vendor relations, production scheduling, and inventory and logistics practices

Future cost position
The likely cost position, by producer at the plant level.

Expansion plans
Why and how competitors are planning to expand.

Production improvements
The type and scope of production and process improvements competitors are implementing.

PROGRAM BENEFITS
Principia's Manufacturing Cost and Profit Benchmarking programs are designed to support strategic planning for top level management to achieve these goals:

Production improvement - If you're standing still, the whole world is passing you by. Our program will help reveal the best ways that you can make production improvements that will have the most positive effect on the bottom line.

Cost control - Know where you can best afford to trim costs and why. Plus, knowing the cost position of competitors provides more strategic options for planning purposes.

Expansion strategy - Rationalizing plant expansion or greenfield initiatives has never been more important. These programs provide peace of mind when facing such decisions.

Gap analysis - Where are the gaps between you and competitors? If you don't know, you can't do anything about them.

Regional competitive strategies - Not all rules apply at every location and in every circumstance. Our detailed studies at the plant level break down the key data so you can maximize competitive position region by region based on these variations.

Profit analysis - You can more easily improve business unit performance by knowing your profit drivers. Pricing can be based on your true competitive position, and you can better manage SG&A costs. Key performance indicators become clear with the benchmarking data this program provides.

CASE STUDIES

Revealing Hidden Opportunity

New Beer Container

Good Footing on Laminate Floors

Playing Supplier Hardball

Savings Top $15M

Cost and Profit Benchmarking:
Determine Manufacturing Economics of Lube Oil Additives

Challenge:
A world-leading petroleum company required an assessment of the cost to produce various additives for lubricants. The Client purchased many additives for use in its wide range of lubricant products, and routinely evaluated the "make v. buy" decision for these materials.

Principia helped identify the highest value additives, and then conducted a manufacturing cost program for these products. Principia assessed the cash cost and fully loaded cost for the products for each key supplier, and further analyzed the pro forma cost under the Client's cost structure.

Result:
Based on Principia recommendations, the Client acquired one of the lubricant additive suppliers. The additives generated very high margins for the supplier, which the Client wanted to capture, but for which in-house production was not feasible.

Cost and Profit Benchmarking:
Evaluate Manufacturing Cost Structure for Plastic Beer Bottles

Challenge:
To justify a major new product development effort, a leading packaging resin supplier needed a robust assessment of the potential manufacturing costs for plastic beer bottles.

Principia conducted research to identify the most likely package constructions and materials, then modeled the manufacturing processes for those packages. A series of three production processes were modeled for five discrete bottle designs. The results pinpointed two bottle / process combinations that offered the best balance of cost and package performance.

Result:
The Client established objectives for its product development program based on the two best packages, and developed and commercialized a high-performance, moderate cost product specifically for beer bottles. The Client is currently exploring other applications for the technology.

Cost and Profit Benchmarking:
Determine Manufacturing Cost for Laminate Flooring

Challenge:
A leading flooring manufacturer entered the North American market for laminate flooring through a supply relationship with a European producer. The Client needed to determine if a North American production facility was justified.

Principia analyzed production costs for each of the major domestic producers and for the two key processes used. Principia then developed a pro forma analysis for the "next generation" process for flooring production and provided accurate estimates of the cost to produce.

Result:
The Client determined that its position is best served by maintaining the European supply relationship and continued its supply partnership.

Cost and Profit Benchmarking:
Evaluate Supplier Manufacturing Cost for Critical Raw Material

Challenge:
In preparation for an annual supply contract negotiation, a Fortune 100 chemical producer asked for help in determining the actual production cost for a critical raw material.

Principia Partners developed a research program to determine all expense items for the production of the material. With the product manufactured by only one company in North America, Principia accurately modeled the process and all costs associated with the manufacturing operations, resulting in a precise estimate of the supplier's costs.

Result:
Principia's research was instrumental in helping the Client negotiate a 12% price reduction, saving nearly $2.5 million.

Cost and Profit Benchmarking:
Production Cost Benchmark in Polymer Compounding

Challenge:
A large independent compounder with an extensive product line required a best-in-class benchmark for compounding cost, inventory management, and customer service. Results of the program would be used to set objectives for the various groups within the company as part of a continuous improvement program.

Principia Partners undertook a "bottom-up" cost analysis of 20 selected competitive compounders. Principia detailed all components of conversion cost and assessed inventory practices as well as delivery lead times.

Result:
The Client rationalized portions of its manufacturing base and established clear metrics for inventory levels for both standard and made-to-order products, saving more than $15 million a year.