Automotive: Operational Excellence & Strategy
Dilemma whether to surrender or continue existing business?
A passenger auto-component manufacturer was confronted by OEM with additional 15% discount; while existing business was already registering losses at existing pricing structure.
Business Challenge:
Potentially of closing down the operations if unable to match OEM pricing expectations.
Our Approach:
We studied the current business model to understand why existing business was making losses and whether the proposed price revision would make economic sense.
- Evaluate ideal business model Vs. current
- Used Proprietary Business Modelling Tool to arrive at minimum volumes for break even and profitability at proposed discounted price by OEM
Our Recommendation
Cost-Optimisation and strategic recommendation to stop child-part outsourcing which enabled high value contributions there by making existing business viable
Proposed discounting was accepted with MOQ.
Result
External perspective of re-evaluating business model and viability helped client to make money in existing business while accepting new opportunity confidently.