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Cutting Manufacturing Costs with Data-Driven Investing

For medical device makers, cutting manufacturing costs has become a strategic imperative in order to appease margin pressures and achieve growth. With deep industry expertise and recognized leadership in supply chain strategy and operations, Clarkston was well-positioned to help this medical device company realize cost-savings using a data-driven investment strategy with sustainable future returns.

The client, a recognized leader in medical technology, urgently needed to make a “Big Foot” investment decision for its most important product line. In preparation for the launch of its next-generation products, the company had to decide between leveraging its existing manufacturing facility and resources in the U.K. and building a new Center of Excellence at its recently acquired site in Canada – a state-of-the-art facility with strong R&D capabilities but a higher cost structure.

The client wanted to make a data-driven investment decision to achieve the best long-term business outcome and mitigate the associated risks. The client sought to use the new location to centralize manufacturing and R&D capabilities in order to strengthen market position and allow for future growth.

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Clarkston was engaged based on our demonstrated expertise in supply network optimization and financial modeling to lead the design and development of six full P&L financial models, analyze key differentiators, and evaluate the pros and cons of each scenario. These models spanned a period of 16 years, accounting for the remaining life cycle of a number of prior-generation product families.

Clarkston collaborated with the Big Foot project team globally to identify all input data elements and collect time-phased assumptions to develop the 16-year P&L projections. Leveraging advanced modeling skills and supply chain finance knowledge, Clarkston developed flexible and dynamic models with the ability to quickly respond to data changes as assumptions evolved. The models provided detailed and comprehensive analysis on how each scenario would affect the capital expenditure, cost structure, and profitability of the company. Additionally, the models clearly identified different categories of cost and benefits (such as startup, ongoing, and one-time) and were used as the basis to develop standard product costing.

After a series of iterations, Clarkston worked with client executives to reach a quantitatively and qualitatively sound decision for the investment strategy. The new investment decision has been formally communicated throughout the company and is crucial to actualizing the right capacity and R&D capabilities to fuel future growth and optimize total investment. A formal cross-organizational project team is being mobilized with a charter to complete the new footprint by June 2021.

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Tags: Case Study, Network Design and Inventory Optimization, Operational Excellence