Holistic profitability and capital efficiency improvement

Challenge

A leading food and beverage company had been suffering from deteriorating profitability and capital efficiency due to high cost inflation, shifting demand patterns, and supply chain issues. Thus, the company decided to initiate a multi-year profitability and capital efficiency development program and chose August to support in forming the performance baseline and setting ambitious, yet believable targets for the improvement.​

Brave the Future

The company had previously (together with August) set an overall target to reach ROCE of 15% in three years’ time. The company also had both many on-going development initiatives and newly identified opportunities to improve its performance. During the project, it was imperative to form a coherent year-by-year plan on how both the already on-going and new initiatives would contribute to profitability and capital efficiency gains, and ultimately to reaching the 15% ROCE.​

The program consisted of five streams: commercial efficiency, product portfolio optimization, direct sourcing efficiency, indirect sourcing improvements, and NWC optimization. The work was structured around three phases:​

• Forming the performance baseline for each of the streams and creating understanding on the largest gaps-to-close​
• Setting top-down targets per stream through internal and external benchmarking (e.g. performance comparison to peers) and creating a year-by-year plan for reaching the targets​
• Getting buy-in for the top-down targets from the top management and the BoD​

Impact

After the project, the client had an overall goal and understanding on the stream-specific levers to be pulled in order to reach 15% ROCE. The targets were ambitious, but believable and both the management and BoD were committed to the overall year-by-year plan. The project paved the way for successful implementation and realization of the targets.​