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Medium Profitability

Trouble in 'Packaging' Paradise

#Industrial Goods #Manufacturing
ProHub Comment

This is a classic cost optimization case where the candidate must build a comprehensive cost structure framework, identify that raw material procurement offers the highest savings opportunity, and use quantitative analysis to determine which materials offer the best cost reduction potential. The case progresses from basic calculation (total savings from negotiating all materials to market prices) to deeper insight (recognizing that focusing on only Pulp and Films achieves the $8M goal) to tactical execution (evaluating specific supplier alternatives and recognizing implementation constraints).

Estimated Time 15 minutes
Difficulty Medium
Source Duke
50 / 100
Client is Newpads, an absorbent pads manufacturing company which recently got acquired by OldMoney Investments, a private equity fund. Newpads is a small manufacturing company with the revenue of $200M wit EBIDTA margin of 20%. OldMoney wants to improve the profitability of Newpads in order to increase the valuation of the company. Newpads needs your help in finding the best way to achieve this goal.

Clarifying Information

  1. Client Goal: Looking to save 5% of EBDITA (candidate should calculate = $8M)
  2. Industry/Competition information: The raw material prices depends on different commodity prices in the market like paper and pulp, polypropene, resins, etc. These prices are tracked through various indexes like RISI, etc.
  3. Product information: Absorbent pads are used in meat/poultry products packaging in order to absorb the juices to keep them fresh.
  4. Value Chain/Revenue information: Client works with multiple suppliers to obtain these raw materials and then the final product is supplied to grocery chains like Walmart.
  5. For the interviewer – Here total external spend consists of only raw material procurement spend, provide this information after the framework is created