Case Study

Operating model redesign for a global manufacturer

Negotiating SLAs with strategic customers to increase sales in exchange for guaranteed lead times

A global manufacturer was faced with dramatic shifts in demand and price across their end markets. As a result, their distribution customers were taking substantial losses from devalued overstock inventory. One top customer was interested in a strategic partnership to eliminate their exposure to fluctuating inventory values in exchange for increased sales. The manufacturer was interested but knew it would need a different way of working to make such an arrangement successful. If it did, the potential would be new levels of revenue and an estimated 21% EBITDA lift.

The manufacturer had competitive lead times that averaged several weeks, but distribution Customer A wanted guaranteed delivery within 5 days in exchange for +30% in sales. Providing this would significantly eliminate the distributor’s exposure to price fluctuations but the inventory risk would shift to the manufacturer. 

Executing this plan meant the manufacturer would need to plan, build, and effectively segregate inventory for Customer A from the rest of its business. The manufacturer needed to quickly figure out what changes would be needed to policies and processes within planning and manufacturing in order to make this profitable. Even with the projected volume increase, the opportunity wouldn’t be worthwhile unless working capital could be managed more effectively. 

Nexans Op Model Redesign Approach-1

 

  • Redesign planning and scheduling processes using new analytic tools and processes to meet the challenge of shorter lead times for select customers
  • Focus on Customer A’s core geographies and limit the portfolio in-scope to concentrate on economies of density
  • Begin with a pilot to validate the program processes using 30% of the portfolio and guaranteeing 1-week lead times
  • After the program is running for 2 months, phase up to 50% and 5-day lead times—get to 100% of the portfolio by month 6
  • Work closely with Customer B to negotiate a service level agreement for a similar program with guaranteed lead times that other competitors cannot match
  • Reach out to other Platinum Customers to determine interest in their own customized lead time programs
  • New analytic tools and operating practices allowed the manufacturer to meet the program terms without disrupting the overall business
  • Distribution Customer A provided ~$5M in cash deposits for the manufacturer to build inventory based on WP&C’s tools for inventory optimization and safety stock
  • The pilot program launched a 6-month ramp-up for an estimated $2.7M EBITDA lift
  • Distribution Customer B is finalizing terms for a similar program, with a commitment to double the share-of-wallet for an overall revenue increase of 70% or $9.0M in EBITDA lift
  • The manufacturer has initiated discussions with additional Platinum Distribution Customers for an estimated $5.7M in EBITDA lift

Nexans Op Model Redesign Approach 2

The manufacturer had competitive lead times that averaged several weeks, but distribution Customer A wanted guaranteed delivery within 5 days in exchange for +30% in sales. Providing this would significantly eliminate the distributor’s exposure to price fluctuations but the inventory risk would shift to the manufacturer. 

Executing this plan meant the manufacturer would need to plan, build, and effectively segregate inventory for Customer A from the rest of its business. The manufacturer needed to quickly figure out what changes would be needed to policies and processes within planning and manufacturing in order to make this profitable. Even with the projected volume increase, the opportunity wouldn’t be worthwhile unless working capital could be managed more effectively. 

Nexans Op Model Redesign Approach-1

 

  • Redesign planning and scheduling processes using new analytic tools and processes to meet the challenge of shorter lead times for select customers
  • Focus on Customer A’s core geographies and limit the portfolio in-scope to concentrate on economies of density
  • Begin with a pilot to validate the program processes using 30% of the portfolio and guaranteeing 1-week lead times
  • After the program is running for 2 months, phase up to 50% and 5-day lead times—get to 100% of the portfolio by month 6
  • Work closely with Customer B to negotiate a service level agreement for a similar program with guaranteed lead times that other competitors cannot match
  • Reach out to other Platinum Customers to determine interest in their own customized lead time programs
  • New analytic tools and operating practices allowed the manufacturer to meet the program terms without disrupting the overall business
  • Distribution Customer A provided ~$5M in cash deposits for the manufacturer to build inventory based on WP&C’s tools for inventory optimization and safety stock
  • The pilot program launched a 6-month ramp-up for an estimated $2.7M EBITDA lift
  • Distribution Customer B is finalizing terms for a similar program, with a commitment to double the share-of-wallet for an overall revenue increase of 70% or $9.0M in EBITDA lift
  • The manufacturer has initiated discussions with additional Platinum Distribution Customers for an estimated $5.7M in EBITDA lift

Nexans Op Model Redesign Approach 2

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