SITUATION
Our client was experiencing significant growth in the US market and had a robust near-term product pipeline. As a recent US subsidiary of an international parent company, product for the US market was inefficiently manufactured and distributed by contract companies at significant expense. Our client was considering vertical integration to control the supply chain and to reduce costs as product volume increased.
APPROACH
Three geographic regions were selected for analysis of a potential facility based on cost, proximity to customers and other factors. We developed a business case and complex net present value financial analysis, which included facility and equipment costs, labor, systems and tax implications. NPV s was determined by comparing the increasing outsourced costs based on the forecasted volume with the cost of setting up and operating the facility.
RESULTS
The business case indicated positive net present value for vertical integration in certain geographic regions and scope of operations relative to outsourced services. After a thorough search of available facilities, the client acquired a 140K sqft facility at one of the recommended locations and outfitted the facility to package and distribute product.