Case Study #3 – Automotive Remanufacturer

case-study-3

Executive Summary

Reversing Chronic Losses:  In addition to process improvements and the refocusing of the sales force, the primary turnaround action here was to abandon the “low price” value proposition and align that value with their national automotive powertrain distribution network.  By becoming the exclusive supplier for “on demand” requests, the client was able to leverage their supply chain strength as their value proposition and competitive advantage commanding premium prices, and driving positive margins.  This innovative change in strategy was a key factor in driving profits and raising the value of this business segment for the shareholders

Business

Automotive powertrain remanufacturer – a division of NASDAQ listed OEM supplier

Problem

Engine remanufacturing division experiencing chronic losses and declining operating margins

Discovery and Assessment

  • No clearly defined value proposition outside of “lowest pricing”.
  • No clear accountability by facility management for metrics and goals
  • Value proposition of “lowest price” and “best warranty” were not attainable against much larger market rivals
  • Due to targeting inventory supply to 2 powerful buyers, the buyers were winning the competition for profits

Solution

  • Redefine value proposition around “next day” distribution supply chain capabilities
  • Charge premium pricing for the competitive advantage of availability allowing clients to reduce their inventory costs
  • Implemented lean manufacturing process controls and workflow audits to improve quality and eliminate waste; including structured “kaizen” events to improve operational efficiencies for existing product lines
  • Reduce warranty exposure through the new value proposition around availability

Results

  • Reversed systemic $6.5 million loss to a positive EBIT contribution in less than two years as margins increased by from -3% to +16%
  • Warranty costs were halved.
  • Employee satisfaction survey results improved by 19 percentage points within 2 years.
  • Representing less than 10% of the overall corporate revenue, this division delivered one half of the parent’s improvement in earnings per share.
  • Successfully marketed and sold this business segment at a considerable premium above corporate expectations.