Challenge
A ₹4,900 crore diversified manufacturer (auto components + industrial fasteners) was facing a perfect storm: raw material inflation of 14%, a customer demanding 6% annual price-downs, and EBITDA margin that had slipped from 11.2% to 7.8% in three years. The bank's covenant required an 8% margin by fiscal year-end — 11 months away. The client's own cost-reduction program ("Project Lean 2.0") had delivered only ₹28 crore in 18 months against a ₹200 crore target.
The CFO's question: "Where is the money actually hiding, and can we get it in time?" The board wanted a Big-4-grade, evidence-based transformation — not another poster campaign.
Approach
We ran a 16-week cost transformation using a "cost-to-serve + zero-based" hybrid methodology, with five value workstreams:
- Procurement — category-level should-cost modelling across 28 spend categories (₹2,100 crore annual spend), reverse-auction design, and supplier consolidation analytics.
- Plant productivity — OEE (overall equipment effectiveness) benchmarking across 6 plants, changeover reduction studies, and shift-pattern optimisation using production data mining.
- Zero-based budgeting (ZBB) — a line-by-line rebuild of ₹680 crore of operating expenses (excluding COGS) rather than incremental cuts.
- Working capital — inventory (raw, WIP, finished) and payables days benchmarking against peer sets.
- Commercial reset — SKU rationalisation (1,400 SKUs → 900) and customer-account profitability analysis to stop serving unprofitable accounts.
Each workstream had a dedicated sprint team with plant-level data collectors; we tracked weekly "value captured" against a rigorous benefits register with owner, date, and verification method.
Analysis
Procurement was the single biggest pool. Should-cost modelling showed the company was paying 9–17% above best-in-class on 12 of 28 categories — largely due to fragmented buying (4 plants buying independently, 3,400 suppliers for ₹2,100 crore of spend). Consolidating 60% of spend with 120 preferred suppliers unlocked ₹96 crore.
OEE hid a 23% capacity illusion. Three plants ran below 55% OEE; the binding constraint was changeover time (average 74 minutes vs. 22-minute benchmark) and unplanned downtime. Shift-pattern and changeover-SMED programs unlocked the equivalent of a free shift at two plants — ₹74 crore of avoided capex and ₹41 crore of conversion-cost savings.
ZBB found the "creep." ₹93 crore of opex was discretionary spend that had become structural — including ₹11 crore of third-party logistics for inter-plant transfers that an internal milk-run design eliminated.
Inventory days of 68 vs. 46 benchmark trapped ₹87 crore of cash; safety-stock recalibration alone released ₹52 crore without a stockout risk above 0.3%.
Findings
- Total addressable value: ₹412 crore EBITDA (8.4% of revenue) across the five workstreams — 2.1x the board's initial ask.
- Speed and sustainability conflict: quick wins (procurement renegotiation, logistics redesign) were worth ₹168 crore in 6 months; structural levers (ZBB rebuild, OEE) delivered the rest over 12–18 months.
- The org wasn't the enemy — the incentives were. Plant heads were measured on output, not conversion cost; category buyers on price deviation, not total cost of ownership. The transformation needed a KPI redesign to stick.
- Covenant math worked even in the conservative case: a ₹236 crore execution in 14 months lifts EBITDA margin to 8.4–8.8%, above the 8% covenant.
Recommendation
We recommended a three-wave execution plan:
- Wave 1 (months 0–6) — "Cash now": supplier consolidation + reverse auctions, logistics milk-run, inventory recalibration. Target: ₹168 crore. Funded by a weekly war-room with the CFO.
- Wave 2 (months 6–14) — "Margin build": ZBB opex rebuild, changeover/SMED rollout across all six plants, SKU rationalisation to 900. Target: ₹68 crore additional.
- Wave 3 (months 14–24) — "Structural": procurement digitisation (e-sourcing, spend analytics), plant-level P&Ls, and a zero-based budgeting cadence embedded in the annual cycle.
Non-negotiables: a benefits register audited quarterly by internal audit; a "no cost-cuts without process change" rule to avoid the bounce-back effect; and a transparent communication plan to protect employee morale — the #1 failure mode in transformations of this scale.
Outcome
Within 14 months, the client banked ₹236 crore of the ₹412 crore identified (57% of the total), restoring the 8% covenant with ₹61 crore of headroom. Procurement savings alone funded the ₹85 crore greenfield plant the board had shelved a year earlier. Two years on, the ZBB cadence is embedded in the annual cycle, and the EBITDA margin holds at 9.1% — above the pre-decline peak — with the benefits register showing no material leakage.
Case study reconstructed for illustration from typical engagement patterns. Client and figures are hypothetical.
