Newpads, a recently acquired absorbent pads manufacturer, needs to reduce costs by $8M (5% of EBITDA) to increase company valuation. The case guides candidates through building a cost savings framework, identifying that external raw material procurement spend is the key lever, calculating potential savings by negotiating materials to commodity market prices ($10.6M available), recognizing that Pulp and Films categories drive the majority of savings ($4M each), and finally evaluating specific film supplier alternatives to achieve the target—ultimately finding that changing to Global Films achieves $3.8M but still requires an additional $4.2M through other initiatives.
Key Insights:
- Build a comprehensive cost structure framework (external costs, internal costs, vertical integration) before diving into data analysis
- Identify that the gap between current prices and commodity market prices represents the negotiation opportunity ($10.6M total savings possible)
- Apply pareto thinking—focus efforts on high-impact categories (Pulp and Films) rather than trying to negotiate all materials, which reduces complexity and supply chain risk
- Evaluate supplier alternatives on multiple dimensions (raw material cost, shipping, volume rebates) and recognize trade-offs (Allpoint Films is cheapest but shipping makes it uncompetitive)
- Recognize when the primary lever is insufficient ($3.8M from supplier change vs $8M goal) and recommend complementary strategies (negotiate other materials, boost revenue)