Detailed Cost/Benefit Analysis Saves Project

Project that was about to be abandoned was rescued and resulted in annual savings of $4.7 Million, generating an Internal Rate of Return of 51.5% and a new copacker partnership model.

Company

Multiple US divisions of multinational Fortune 500 food company

Annual Savings of $4.7 Million and 51.5% IRR

New Partnership

Multiple Awards

Situation

  • The company was seeking to consolidate operations from multiple copackers into one common location.
  • For strategic purposes, the food company was seeking to maintain ownership of key equipment for some of the products.
  • The food company anticipated significant savings for conversion and transportation based on consolidation and better network locations. 
  • Several qualified contract packaging companies submitted proposals.
  • When analysis was complete the return on investment for the equipment did not meet company hurdles. 
  • Internal support was fading fast. 
  • Key support functions were ready to drop the project and move on.

Solutions

  • The project was divided into twenty separate components that, if necessary, could each be implemented independently.
  • Geoff led the company’s financial team in a detailed cost/benefit analysis to analyze savings, cash flow and return for each component separately.    
  • Eleven of the twenty components independently met the company hurdles.
  • The project team decided to go forward with these eleven plus a twelfth component that was just short of hurdles but had significant synergies with the other eleven. 
  • The project was approved and awarded to a contract packer that was strategically located and already working with the company.

Benefits

  • Consolidation of the selected twelve components into one location generated savings in conversion costs, transportation, and handling of Work in Process (WIP). 
  • Having multiple finished goods formats in one location also provided deferred assembly to reduced risk of obsolete work in process (WIP).
  • Annual savings of $4.7 Million generated an Internal Rate of Return of 51.5%.
  • Combining multiple pack formats at one contract manufacturer facilitated a stronger partnership. 
  • The project won multiple internal awards for financial results, cross-functional teamwork, and engineering adaptation.