OVERVIEW
- Revenue: $20,000,000
- General Description: Metal Fabrication & Machining
- Geographic Location: United States
- Markets Served: Semiconductor, Defense, Aerospace, Commercial
THE SITUATION
This growing and financially healthy U.S. manufacturer provides mission-critical components to some of the world’s largest and most respected companies. Like most manufacturers, the company has recently been confronted with increasing costs that are compressing its margins. Because of the company’s market-leading position, it has pricing power, but it still needs to be able to explain price changes to its customers using a logical and data-driven approach.
The company’s complex BOMs often include exotic raw materials, multiple purchased components, and outside processing services purchased from strategic vendors. To solve its customers’ challenges, variables such as material yield, product quality, equipment allocation, labor allocation, inspection, and technical resources must be accurately applied to different products, making accurate product costing a challenge.
THE SOLUTION
JACO Advisory Group (JACO) provided a fully costed BOM for each part supplied to the company’s largest customer. The costing data was based on actual costs incurred by the company over the prior year for manufactured products or recent transactions for 3rd party services. This data was aggregated and presented using the customer’s required format.
Additionally, JACO provided the company’s ownership with valuable insights into excess and obsolete inventories that are hurting margins and consuming cash, along with a roadmap to implement annual cost standard updates.
THE OUTCOME
The company submitted updated pricing to its largest customer, representing over 50% of its revenue, with the supporting logic and data to support its new pricing. The inflationary price increase represented a $450k annual improvement in margins.
Furthermore, the client is executing targeted hires to bolster its analytical capabilities to sustain the product costing methodologies provided by JACO. These hires will allow the company to proactively address “pain points” that negatively affect margins in the future.
