Carve-Out Reveals Intrigue
A lean manufacturing operation versus outsourcing.
Case Studies
Business Issue
A mid-market private equity firm requested due diligence on a pending acquisition with an interesting twist — the company would be a carve-out and the manufacturing and logistics portions of the business would not come with the acquisition. Flow Consulting answered the question: Should the new carve-out spend money on capital and infrastructure to replicate manufacturing and distribution, should manufacturing be outsourced, and/or should distribution be outsourced?
Approach Used
One Flow consultant worked with the potential carve-out to completely understand and estimate the costs of replicating a Lean version of their manufacturing and distribution. A second Flow consultant worked with potential suppliers to obtain multiple quotes on outsourced solutions so the two manufacturing solutions could be compared financially. Flow Consulting also brought in an experienced logistics professional to develop a cost model for outsourced logistics so the two distribution models could be compared financially.
Results
After exhaustive analysis, the clear direction pointed to investing in a new lean manufacturing operation versus outsourcing, and the delta was approximately 15 percent greater profits — a significant, and somewhat surprising conclusion. The logistics analysis indicated break-even for internal distribution versus using a third-party logistics provider. Subsequently, Flow Consulting recommended keeping distribution and logistics internal to reduce the amount of change that would be introduced as the company transitioned to the new model.