In the contemporary business landscape, private equity (PE) clients and their portfolio companies (portcos) in the industrial sector are facing pressing needs that demand strategic foresight and operational agility. Three of the most prominent challenges revolve around pricing strategies, network optimization, and supply chain transformation.
Over the past few years, many organizations have leveraged pricing as a key driver of success. However, customers concerned about inflation and interest rates are exhibiting heightened price sensitivity. This necessitates a reevaluation of pricing models to sustain margins amidst dual pressures on the profit and loss (P&L) spectrum. Resilient pricing strategies allow companies to navigate the complexities of a volatile market environment.
Current strategies include both value-based and outcome-based pricing. In fact, SGS Maine Pointe has developed our own outcome-based pricing with a 100% guarantee of engagement fees based on annualized savings. Developing the right strategy for each company requires that the company:
In a recent engagement, we partnered with two newly merged custom steel fabricators that needed a more effective strategy for buying steel, their primary raw material. However, the company lacked pricing visibility. By introducing index-based pricing, decoupling commodity pricing, and implementing strategic sourcing, the SGS Maine Pointe team saved our client $15 million annually, with a 6.7% improvement in EBITDA in year one. The upgraded procurement department received the skills, structure, and visibility into spend that would allow them to continue to find savings.
The era of inexpensive capital prompted a rapid expansion of distribution centers, warehouses, and manufacturing plants. Now, demand fluctuations are forcing companies to streamline their network and manufacturing footprint. SGS Maine Pointe guides portcos through this transition, emphasizing the importance of a lean, efficient infrastructure that aligns with market demand shifts. By simplifying operations and enhancing flexibility, portcos can better navigate market uncertainties while maintaining a competitive edge.
To achieve an optimized network and footprint, companies must, among other initiatives:
SGS Maine Pointe’s proven track record in operational excellence equips portcos with the tools and insights needed to optimize resource utilization, enhance productivity, and respond adeptly to market dynamics. Through a holistic approach that integrates supply chain optimization and internal operational efficiencies, we empower industrial portcos to thrive in a challenging business landscape, turning potential challenges into opportunities for growth and resilience. Our approach prepares companies to:
We experienced this with the PE owners of a chemical company that wanted to raise the exit valuation based on current multiples. Given the short time and the inaccessibility of data spread among incompatible systems, the opportunities to save costs and transform the supply chain were limited. SGS Maine Pointe consolidated suppliers, allowing the company to leverage more spend and drive deeper discounts. We reduced logistics costs by centralizing the warehouse and the distribution of packaging. We rationalized packaging SKUs by 23%. Within 3 months, we achieved an ROI greater than 4:1 and delivered an average of 15% sustainable savings across 20+ categories. The ROI based on normal exit valuations was 20:1.
For PE firms and portcos, pricing strategies, network and footprint optimization, and supply chain strategies linked to operational efficiencies are the keys to thriving in a volatile market.