Background and challenges
A global medical device manufacturer had experienced a significant “pull forward” of capital product sales during the COVID-19 pandemic that resulted in stunted demand and revenue in the following years. COVID-19-related commodity dynamics impacted cost, further compressing margins.
Management engaged L.E.K. Consulting to perform a thorough assessment of the company’s strategic and operational options to return to profitable growth in the near term. We completed a cost optimization assessment, with a focus on manufacturing, procurement and working capital.
Approach
The L.E.K. team employed its operations and supply chain expertise to identify opportunities, model value and develop a roadmap to improve profitability. Three opportunities were identified and developed with the management team: manufacturing strategy, indirect procurement and working capital.
Manufacturing strategy
The company’s manufacturing strategy was inflexible, with long lead times, high costs and significant geopolitical risk. The company still relied on an outsourcing model primarily based in China. Competitors had successfully transitioned to Mexico and the US over the last ten years. Competitors also had more operational flexibility, with a mix of owned manufacturing and electronic contract manufacturing (ECM) partners.
First-administration Trump-era tariffs had broadly been passed along to customers in the market, but competitors who had nearshored or re-shored were enjoying margin uplift.
A new operations leadership team wanted to undertake a nearshoring transformation but had not yet developed the strategy or quantified the margin uplift. The L.E.K. team completed a rapid manufacturing footprint optimization study, including:
- Market research into peer and analog manufacturing strategies
- A business case to model financial benefits and one-time costs
- A sensitivity analysis of forecasted demand and impact on the business case
- Global ECM market research to identify potential partners, with a focus on Mexico and Southeast Asia
- Opportunities to leverage ECM capabilities, simplify manufacturing processes and reduce costs were identified and developed
Indirect procurement
The company had an established corporate supply chain team that managed its direct and logistics spend but had not centralized its indirect procurement. The indirect procurement team had less than a third of indirect spend under management and did not have spend visibility or a productivity pipeline.
The L.E.K. team deployed L.E.K.’s Rapid Sourcing Diagnostic solution to develop a perspective on spend, savings opportunities and strategic sourcing levers.
- A spend cube was developed to categorize spend, evaluate category complexity and develop supply chain opportunities
- A contract review was completed to evaluate commercial terms and identify constraints
- Business stakeholders were interviewed to understand how categories and suppliers had historically been managed
- Category savings estimates and sourcing levers were developed through L.E.K. team-led workshops and value analytics
Working capital
In addition to cost pressure, the company lagged peers in its cash conversion cycle (CCC), which was driven by differentiated peer revenue models and a lack of focus on working capital management with suppliers and customers.
Our team deployed L.E.K.’s Rapid Working Capital Assessment to benchmark the company to its peers and develop a set of opportunities to improve its cash position:
- Payables, inventory and receivables were benchmarked to peers and analogs
- The company achieving median and top quartile performance were modeled for cash and P&L impact
- Current collections and payables processes were evaluated to identify operational changes that could improve working capital performance
- Market research was conducted to identify peer and analog standard terms, revenue models and business process improvements
- A set of opportunities to improve working capital position was developed
Results
Working closely with the client leadership team, the L.E.K. team developed an integrated operations performance improvement program that included both rapid, near-term opportunities and strategic projects to be executed over a five-year horizon:
- $60 million in annual cost savings, tripling earnings before interest, taxes, depreciation and amortization
- 40% of savings generated through indirect procurement on a one-year horizon
- 30% increase in cash through working capital unlocks
For more information, please contact us.
L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners. © 2025 L.E.K. Consulting LLC
05012025090518