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Enabling margin growth and inventory management across a buy-and-build platform to achieve efficiency, productivity, and valuation targets (CS301)



This story is for CEOs who:

  1. Seek to gain economies of scale to drive EBITDA margin performance and efficient inventory management across a network of manufacturing and distribution facilities
  2. Require standardization and consistency in processes to enable greater integration of operations, provide a scalable foundation for growth, and position the company to the market as a single, cohesive entity
  3. Need to enhance visibility and control over spend to ensure measurable performance gains and maximize investor returns

The Challenge

In a “buy-and-build” roll-up investment, a PE investor group acquired 9 metal machining businesses that serve the aerospace new/replacement engine markets with 13 manufacturing facilities. Their investment goal was to enhance EBITDA margins by gaining economies of scale in direct materials procurement across major categories, while freeing up overlapping inventory to release cash.

With a high-level revenue target of $500M revenues in one year (from ~$350M), there was a heightened focus on raising the company’s TVO maturity to the next level in terms of organization, processes, tools, and people. The SGS Maine Pointe initiative enabled the company to achieve financial gains, while positioning it to further integrate for scale, prevent redundancy, and release cash tied up in inventory.

Reducing spend, providing visibility into data, and prioritizing governance

SGS Maine Pointe:

  • Analyzed opportunities to create economies of scale through strategic sourcing and in-sourcing of services
  • Collected and integrated data on 3,982 raw material parts, only 9% of which had attributed data such as material type, dimensions, and AMS code
  • Enabled more accurate and reliable engagement with legacy and new suppliers
  • Engaged all nine plants in a cohesive total value optimization process
  • Backfilled roles in the company’s procurement organization to ensure implementation
  • Classified $100M of inventory into addressable/non-addressable for disposition; and developed disposition action and governance plan for each location

Lessons learned for other executives

  • Data analysis can find untapped opportunities to free up cash and reduce costs
  • The total value optimization approach helps to integrate processes at multiple acquisitions and engage suppliers on an entirely new level

The Results

  • Drove $10.9M in savings from $60M in major spend categories, a cost reduction of over 18%
  • Provided Procurement as a Service (PaaS), expediting procurement management
  • Collected data on inventory from 8 locations and increased attribute (identification) data from 9% to 91%
  • ROI 4:1
  • Freed up capital for investing in more companies or for raising valuation in preparation for exit

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