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Medium Profitability

Trouble in 'Packaging' Paradise

#Manufacturing

Practice this intermediate profitability case interview question in the Manufacturing sector. Includes detailed problem prompt, clarifying questions, structured framework, and expert recommendation. Part of ProHub's 835+ consulting case library.

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 26 minutes
Difficulty Medium
Source Duke
20 / 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
Mock Interview
Interviewer

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.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
Practicing...
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Practice this case with AI Mock Interview

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:

  1. Build a comprehensive cost structure framework (external costs, internal costs, vertical integration) before diving into data analysis
  2. Identify that the gap between current prices and commodity market prices represents the negotiation opportunity ($10.6M total savings possible)
  3. 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
  4. 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)
  5. Recognize when the primary lever is insufficient ($3.8M from supplier change vs $8M goal) and recommend complementary strategies (negotiate other materials, boost revenue)