
When a leading private equity (PE) firm sought to expand its North American footprint in the food and beverage industry, it engaged L.E.K. Consulting's Operations & Supply Chain practice to evaluate the operational health and scalability of a frozen foods contract manufacturer.
Through a focused operational due diligence (ODD), we uncovered untapped capacity by reassessing key operational metrics and challenging assumptions anchored to historical performance. The process revealed significant opportunities: True utilization was lower than initially reported (around 65% rather than 85%), enabling the postponement by two to three years of a planned $15 million capital expenditures (CapEx) investment and unlocking incremental capacity to support growth without costly expansions.
The challenge: Understanding true operational potential
The acquisition target, a frozen foods contract manufacturer, aligned with the PE firm's strategy of leveraging growing consumer demand for frozen convenience foods. However, thorough evaluation of both the target's current operational health and its scalability was required.
The ODD needed to address two fundamental questions:
1. How strong were current operations? While our initial review showed stable operations with good data collection and low employee turnover, several critical areas required deeper evaluation:
- Operational metrics: Accuracy of OEE, capacity and utilization
- Quality and safety: Historical performance trends and protocols
- Management systems: Maturity of operational processes
- Workforce stability: Employee turnover and capability
2. Could operations support future growth? The target's capacity and expansion plans required thorough validation:
- Growth trajectory: Five-year revenue and volume projections
- Current capacity: True utilization rates and equipment capabilities
- Operational requirements: Changes needed for volume growth
- Investment needs: Required CapEx and OpEx for expansion
Our approach
L.E.K.'s Operations & Supply Chain team employed a comprehensive assessment methodology combining data analysis with direct operational observations (see Figure 1).
The team established performance baselines through analysis of historical production data and key performance indicators while also developing a volume model to project five-year growth. Through facility visits and stakeholder interviews, we assessed production performance, facility management, employee relations and quality systems.
This systematic approach uncovered several critical insights:
- The target's reported utilization rate was significantly overstated
- Production targets were based on historical performance rather than equipment capabilities
- Revised capacity calculations enabled more accurate expansion timing
Key learnings
Through this engagement, several critical insights emerged that are applicable across industries and ODD projects:
- Metric calculation matters: Operational metrics may appear comparable across companies, but the underlying methodologies can differ significantly. Misaligned definitions can obscure true performance and mislead decision-making. Not accounting for all available production days and partial quality metrics masked significant opportunities.
- Historical anchors limit potential: Many companies set operational targets based on historical performance rather than what is potential achievement. The absence of both external benchmarks and the operational experience typical of larger organizations often results in untapped opportunities to improve throughput and efficiency.
- True capacity potential is often hidden: A deeper dive into production processes often reveals hidden capacity that can be unlocked with minimal investment. This requires challenging assumptions about available production days and maximum demonstrated output rates.
The impact
Our analysis fundamentally reshaped the client's investment strategy. By accounting for all production days available and proven maximum throughput rates, our team revealed actual utilization of around 65% rather than the roughly 85% reported, with potential for even lower utilization through operational improvements.
This discovery enabled a strategic revision of the expansion plan. Phases 1 and 2 CapEx could be delayed by approximately one year, while Phase 3 could be materially descoped. With this clearer understanding of true capacity potential, the PE firm could confidently scale the business while optimizing capital deployment through targeted operational improvements and external expertise.
Closing insights
Rigorous ODD can uncover untapped value in manufacturing operations. By challenging operational assumptions, our analysis optimized near-term capital deployment and identified opportunities for operational uplift.
For PE firms, this case shows how ODD can go beyond traditional capacity assessments to reveal pathways for scalable, cost-effective growth while building more-sophisticated operations.
Please contact us to learn how our Operations & Supply Chain team can help uncover hidden capacity and drive impactful growth for your business.
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