Decision and Risk Analysis

Supply Chain Strategy for Manufacturing Company

The polymer filaments division of a multinational manufacturing company needed to develop a global supply chain strategy which achieved maximum NPV with an acceptable level of risk. They were the industry leader, but were concerned that as demand migrated from North America and Western Europe to lower-cost countries, their competitors were more flexible in moving closer to the sources of demand. At the same time, customer product specifications were evolving away from the existing industry standard. 

We worked together with the project team to develop several strategy alternatives which considered viable options for manufacturing (considering implications of product specification evolution), raw material sourcing and product distribution. We mapped out various uncertainties which could impact the outcomes, and performed in-depth expert interviews to gain insight into ranges and drivers of each uncertainty. 

A thorough analysis of each strategy revealed that aggressive redeployment of manufacturing to the emerging manufacturing centers, coupled with outsourcing of non-core product manufacturing and a restructured distribution system best achieved the client’s desired value/risk balance. It revealed that the preferred strategy was most vulnerable to assumptions regarding local fixed cost inflation and currency value fluctuations, but the level of risk was acceptable given the $100 million improvement in expected NPV.

Process Platform for Polymers Manufacture

The chemicals group of a multinational energy company needed to define the optimum process platform for the production of a wide range of olefins-based specialty polymers and elastomers for key market segments. They were focused on improved ROI over the business cycle as well as maximizing NPV. The study was driven by progress made in developing a new proprietary polymerization process which had the potential for lower costs and more flexibility in creating specialty applications.

The client clearly understood their options – aggressively pursue and fund further development of the new process, measured development plus aggressive cost reduction in the existing process, or focus on improving the existing process and licensing technology rights (which might make sense if the payback on the new technology was too slow). The team also quickly identified their biggest concerns – could competitors copy or engineer around the new process, and the size of opportunities for new applications.

Under our guidance, the team’s analysis showed that the new process should be pursued, offering an expected NPV $500 million greater than the next best alternative. In addition, the team learned that this decision was largely robust to marketplace uncertainty, but was subject to beating competitors to the market and controlling capital costs. The decision was reached to press strongly on development of the new process while severely limiting (but not eliminating) work on improvements to the existing process.