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BCG Hard Profitability Operations

Skylight Goods

#Industrial Goods #Manufacturing
ProHub Comment

This is a quantitative-heavy operations case requiring candidates to diagnose that profitability decline stems from manufacturing inefficiencies caused by reduced run lengths (counterintuitively implemented to improve inventory turns). The case tests data analysis skills through efficiency calculations and then pivots to a distribution/growth strategy question, requiring candidates to recognize that limited distributor coverage explains why the company lost market share despite 3% market growth.

Estimated Time 15 minutes
Difficulty Hard
Source Chicago Booth
50 / 100

Our client, Skylight Goods, is a $12B industrial goods manufacturer. They have various divisions and the division they are working with makes pressure sensitive self adhesive canvases for sign boards. This division has seen revenues stagnate over the past few years and profitability has declined.

Skylight has engaged BCG to help them with this issue. The two questions facing them are:

  1. How can skylight improve profitability?
  2. Should the client change its delivery channels?

Clarifying Information

  1. Revenue has stagnated at about $100M per year.
  2. Price has not changed. Since this is an undifferentiated product, there are no opportunities to increase or decrease price.
  3. Skylight positioning: Skylight is among the largest market share holders in the pressure sensitive self-adhesive canvas market. Skylight has been in this industry for a long time and has an established brand. Skylight has grown through acquisitions and has a few manufacturing plants that it has acquired.
  4. Geography: Skylight supplies the entire US.
  5. Product Mix: Assume that there is only one kind of product in the client’s product mix. There are no opportunities to change this.
  6. There are 2 other big players. Skylight and each of the two big players have about 25% of the market each; the rest is fragmented.
  7. The market is growing at 3% (strong candidates should figure out that this is an industry growing as fast as the GDP grows).
  8. Our competitor’s products are very similar to ours and are priced similarly too. Our competitors do not have any differentiation when it comes to product, promotions, or price.
  9. Currently, Skylight Goods works with two distributors who sell the canvases to end customers. One distributor is based on the west coast and another is based on the east coast. Customers generally prefer distributors close to them in terms of distance.
  10. Our competitors use several distributors across all regions.
  11. The distributors, whether for Skylight Goods or for the competition, work on standard percentage of sales.
  12. Most distributors are open to stocking multiple brands.