Situation
A CA-based skincare company had been growing 150% for three consecutive years. Although their direct-to-consumer business, which accounted for 90% of the overall business, was impressive, the company was not profitable. The cost of goods was higher than the average for the industry and their operating expenses were not being properly managed. Management was looking to raise money through venture capital, but feared diluting ownership and losing decision-making control over their business. The company understood that their supply chain costs were the driving force behind their losses. They asked me to look at ways of improving margins turning the business into a profitable one.
Approach
First, we analyzed the competition, value chain, and manufacturing process to establish where value could be created. We then looked at each component of each product. Finally, we came up with a list of suggestions for improving margins, sorted by priority and ease of implementation.
Improving Margins
In the short term, we recommended that the company change its approach to buying frequency, increase their inventory turns, and manufacturing steps of production. We also recommended they relocate their national warehouse from New Jersey to a more central location to improve logistics and labor cost.
The result? Gross margin increased 19%. By significantly improving margins, the business turned the corner to profitability.
