case studies

Case Study #1

Challenge – Evale Services accepted the challenge to develop a product costing model that would be the foundation for inventory valuation, pricing analysis, “What-if” analysis, gross margin analysis, budgeting and long range planning.  Once the model is developed, train the client how to use and continually update it.

Background – The Client manufactures a wide variety of natural food products. They sell their products through retail stores in the United States, Canada, and the United Kingdom; they also sell online.  The company has seen phenomenal growth since its founding and has been confronted, as most small businesses are, with determining true product costing figures.

Approach – Gather and review all raw material costs, product recipes and productions.  Determine the flow or route of the materials through the production process to calculate the labor and machine hours required to go from raw materials to finished goods.  Determine the packaging and distribution charges.  Accumulate all manufacturing overhead and to determine the proper method of allocation. 

Results – Developed a user-friendly/easily-updatable Product Costing Model.

1. Evale Services developed an updateable model for calculating product cost by SKU.  Having accurate product cost by SKU allowed the client to review their current pricing philosophy.
   • They went after and successfully acquired new business;
   • They negotiated price increases with existing business;
   • They experimented with new flavors in one product line, and were able to determine if the product was worth producing.
2. The client’s financial group was able to value inventory in a more accurate and expedient manner.  Having this information at their fingertips significantly reduced the amount of time it took to close and report monthly results.
3. Evale Services used the cost model, along with a sales volume forecast, to develop a 12 and 36 month P&L and cash forecast.

Case Study #2

Challenge – Evale Services gathered financial and operating detail and performed a cost of goods sold and margin analysis that included specific recommendations for reducing costs and improving margins.

Background – The Client manufactures and sells natural food snack products. Multiple channels—retail, wholesale, online, and food service.   Since the company’s inception it has seen significant growth and now is trying to improve its margins.

Approach – Evale Services gathered historical trial balances and sales volume data.  Developed and completely reviewed the financial statements, including; a line-by-line review of raw material costs, and all other operating and administrative expenses. 

Results – Provided a detailed COGS analysis and helped significantly improve margins.

1. We benchmarked, reviewed and laid out a specific plan for reducing manufacturing overhead, distribution and SG&A expenses.
2. We reviewed a co-packer agreement and determined there were significant opportunities to reduce costs by mandating performance min/max tolerances.
3. We analyzed all product bills of materials to determine if there were alternative, or more cost effective, ingredients that would reduce product costs.  Keeping in mind the client’s commitment to quality, we were still able revise several product recipes to significantly reduce costs and improve margins.
4. We reviewed the current production reporting and worked with the operational team to develop production yield and efficiency targets, remembering “if you measure it, it will improve”.  Using this review and the now accurate product cost tool we developed a “What-If” Model for measuring the annual impact of yield and efficiency fluctuations to raw material, labor and overhead costs.  This model was used to develop specific operating goals and to tie in with employee performance.
5. Reviewed the pricing from one of the company’s major distributors.  The distributor was taking deductions totaling 24% of the gross sale price.  We were able to assist the client in negotiating a new fixed deduction rate of 16%.  Improving the net selling price and gross margin by 8% across all volume moved by this distributor.

Case Study #3

Challenge – Review the client’s current position and assist them with a financial and operational plan that allow them to continue on a significant growth rate in revenue, while improving their margins and cash position.  Our challenge was to determine, “How fast can the client afford to grow”?

Background – The client is a gluten free food manufacturer, which sells its products through various channels in North America and Europe.  The company has experienced substantial growth since 2009, outpacing growth in the gluten free food industry.  Sales of gluten-free products have increased by a compound annual rate of 30% between 2006 and 2012; growing to over $12.4 billion in annual sales in 2012[1].  This growth trajectory has been forecasted to continue through at least 2017.

Approach – Evale Services worked with the client to determine a sales volume forecast by SKU for a 12 and 36 month time period.  Then used these volumes, along with accurate product costs, as the foundation for the annual and long-term plans.

Results – Developed valuable financial forecasting tools.

1. We created a monthly cash-needs forecast for the next 12 and 36 months.  This was critical to help the client secure the working capital required to meet such incredible growth.
2. We prepared a set of financial statements and ratios that allowed the client to set specific targets around improving their cash position.  Evale performed a detailed Cash GAP analysis that:
   • Defined the client’s operating cash cycle;
   • Attacked and improved vendor and customer payment terms, securing more favorable payment terms with several vendors;
   • Reviewed and set targets for improving DSO (days sales outstanding) and inventory turns.
3. We created a demand forecast that allowed the client to forecast and plan their inventory levels and procurement activity much more efficiently.  The model provided an interim solution for negotiations and improving costs and terms with vendors.