Reducing inventory cuts costs, improves EBIT

The subsidiary of a large electronics company had addressed key profitability levers, such as manufacturing and purchasing, to combat negative growth levels, but needed to do more. Bain helped reduce spending by streamlining order processes and optimizing logistical networks. The client realized a 70 percent EBIT improvement.

AudioVideoCo is the European subsidiary of a large consumer electronics company. The market for its products was at flat or negative growth levels, and prices had been falling steadily.

The client had already addressed many of the key profitability levers, such as manufacturing and purchasing, and assumed that supply chain management was the biggest remaining lever.

The Bain team had to fulfill three major objectives:

Increase customer satisfaction and achieve desired customer service levels (lead time, hit rate)
Cut costs by streamlining order processes and optimizing the physical logistical networks
Reduce inventory significantly

View Approach

A three-phased approach analyzed the process, defined improvement measures and detailed an implementation workplan.

View Recommendations

To improve order processing and smooth out logistics, Bain recommended that AudioVideoCo create a supply chain center and a distribution center, use trans-shipment points and postpone final packaging.

View Results

By increasing hit rates and reducing costs and inventory levels, AudioVideoCo achieved an overall EBIT improvement of 70 percent and grew sales over 2 percent.