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Easy Cost Reduction

Packaging Cost Reduction

#Manufacturing
ProHub Comment

This case guides candidates through structured cost reduction analysis using simple arithmetic and tradeoff thinking. The framework emphasizes brainstorming around root causes (internal processes vs. client-driven demands) before diving into supplier data, with explicit attention to non-financial risks of supplier consolidation.

Estimated Time 15 minutes
Difficulty Easy
Source Columbia
50 / 100
The client is a tier 1 supplier to the auto industry, manufacturing and distributing both electrical and seating components. The client is concerned about the high costs related to its packaging operations. Your client, the VP of Supply Chain, is targeting a 30% cost reduction of their total packaging cost in 12 months

Clarifying Information

  1. $60M is the current total spend on packaging, 1/3 on corrugated boxes, 1/4 on reusables containers, remainder on other items like palettes
  2. New ‘diversity’ supplier of corrugated cardboard has a pricing proposal: (i) 4M boxes at $4.50/box; (ii) 5.5M boxes at $3.00/box; (iii) 7M boxes at $2.50/box
  3. 2% federal rebate on purchases from ‘diversity’ suppliers
  4. Client currently pays $4 per box and $200 per container. Each container is equivalent to 10 boxes. Client is only exploring a deal with this potential supplier