Case Study
“Holy Grail” Contribution Margin Analysis
Manufacturing
INDUSTRY
4,500
EMPLOYEES
$750M
ANNUAL REVENUE
Background
Our client experienced an extraordinary disruption to the business stemming from an ERP implementation across the organization. Following a period of cleaning up and restating 9 months of activity, it became clear that the impacts to the business far exceeded forecasts.
S+H was tasked with developing a contribution margin analysis of all goods sold during the prior period in order to better understand what goods drove losses in the period, and why.
Objective
- Create standard margin analyses of all products sold
- Roll up production variances, cost variances, and purchase price variances into the finished goods lots to attribute variances to orders
- Evaluate over $12M of cycle count variances to isolate drivers and attribute cost to the finished good product lines on a ratable basis
- Evaluate over/under L&OH by plant to attribute to the finished goods product lines
Solution
- Prepared contribution margin analysis that identified three net loss contracts on 25% of monthly revenues
- Identified spread margin contraction across all ingredients, resulting in $44m contraction:
- Identified significant deficiencies and errors in pricing ($20m)
- Identified supply chain disruption due to excess market purchasing ($12m)
- Identified labor + overhead downtime ($12m)
Restated 9 months of activity in 75 days and informed significant business transactions that are expected to result in $75M EBITDA turnaround.
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“Holy Grail” Contribution Margin Analysis
