Margin Expansion Potential and Operational Health Check for a Rapidly Growing Snack Manufacturer

Background and challenges

The founder of a rapidly growing snack brand engaged L.E.K. Consulting to perform sell-side operational due diligence. The company had achieved 50% annual revenue growth over the past five years and was seeking to improve its operations to maximize sale value. We were tasked with conducting an operational health check in compliance with Food Standards Agency (FSA) norms and identifying cost reduction opportunities across the end-to-end supply chain. An additional objective was to assess the network design and develop recommendations to minimize costs and improve operational efficiency.

Approach

Our team of experts followed a structured and detailed approach to assess the client’s operations and identify improvement opportunities.

Baseline assessment

We analyzed historical manufacturing, procurement and logistics data to establish operational baselines. The team mapped production and product flows across the network, from raw material warehouses to production facilities. They also developed a spend cube and sourcing categories, creating a supplier matrix to analyze historical pricing, supplier mix and supply chain risks. Additionally, the team conducted site visits and engaged with management to understand current operations, supplier rationale and manufacturing process designs. These discussions provided key insights into operational bottlenecks and opportunities for improvement across the supply chain.

Cost reduction opportunities

We deployed an end-to-end supply chain diagnostic framework to identify and evaluate opportunities across procurement, manufacturing and logistics.

• Procurement improvements: Our team developed a variety of sourcing strategies to help the snack maker create value. With the company’s growth, there were opportunities to source oil directly from international suppliers rather than contracting with distributors and to renegotiate packaging pricing to achieve benchmarks. Cross-functional programs with R&D and logistics were developed, including new ingredients supplier development and optimization of the inbound supply chain and packaging for raw materials. Alternative supplier channels like group purchasing organizations for indirect categories were also identified and quantified.
• Manufacturing enhancements: Automation opportunities were identified, with potential savings and investment needs calculated. Strategies to reduce overtime costs through improved volume distribution across production sites were recommended, alongside scheduling optimizations to improve changeovers and overall efficiency.
• Logistics and distribution adjustments: Our team developed an optimized network footprint, identifying significant savings in material movement and handling costs through a detailed analytical model. Additional savings opportunities were identified by shifting select shipment lanes to intermodal transport, enhancing logistics efficiency.

Operational health check

Additionally, as part of the operational health check, we leveraged the FSA’s expertise in operations and food safety to conduct a comprehensive assessment of the client’s operations. The assessment identified strengths and highlighted gaps relative to industry best practices, providing actionable insights and strategic recommendations for improvement. Key findings included:

• Operational hygiene improvements: Addressed factory design risks such as conveyor contamination and inaccessible drains, recommended visual demarcation improvements to prevent cross-contamination, and highlighted the need for enhanced employee training on hygiene protocols and compliance
• Food safety documentation: Suggested improvements in ingredient hazard analysis, pathogen risk management and allergen controls through documentation and site testing

Results

Our recommendations delivered a total EBITDA expansion potential of 4%-6% through more than 12 key improvement projects across the supply chain. These projects were classified based on difficulty, timeline and required investments to provide a clear prioritization roadmap.

Key outcomes included:

• A restructured supply chain network that reduced transportation and handling costs
• Improved procurement strategies leveraging the client’s scale and market position
• Enhanced manufacturing efficiency through automation and better scheduling
• Insights on improvement areas related to FSA compliance and alignment with industry best practices, ensuring the company met rigorous operational standards
• Provided a comprehensive view of operational and food safety gaps for management to address, ensuring regulatory compliance and operational excellence

The insights and strategic recommendations provided by our team enabled the client to confidently present a more robust operational framework to potential buyers. These improvements not only enhanced the company’s value but also ensured readiness for seamless execution of the identified opportunities after the sale.

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