Increasing revenue when preparing for a future sale (or pretty much anytime!) is great but an equivalent savings in operational costs, such as supply chain and manufacturing, can provide an even greater increase in company sales price since valuations are often based on multiples of EBITDA. A $1M increase in sales may improve EBITDA by several hundred thousand dollars while a $1M decrease in supply chain and manufacturing costs usually improves EBITDA by almost that full amount.
There are a number of ways to tackle optimizing these costs. A first step is to look at the current manufacturing and supply chain strategies and how they align with the company’s overall strategy. Are these areas part of the core competencies that are essential to maintain in-house? Are there other possible operational strategies that are worth considering?
With that guidance, companies can then look at their options. Are they buying the right things from the right suppliers (and the right number of suppliers) at the right time (think inventory levels) at the right prices and on the right terms? Do they have the right mix of what they fabricate, assemble, test, package, and distribute themselves vs. through suppliers? Are the in-house process optimized for best cost, inventory, and quality?
Assessing these areas provides great potential for increasing the company’s values. For more information please go to www.lustigglobalconsulting.com