Bankrupt Steel Manufacturing Company

I: Your candidate has acquired a steel manufacturing company which went bankrupt. It needs your help to turn it around.

C: Thank you for the question. Before I attempt to understand the problem, I would like some preliminary information on why the company wanted to acquire this asset and what industry they are in.

I: Lets work without those facts for now and focus on the company that has been acquired.

C: Sure. Before structuring the case, I would like to know what would be a successful yardstick for a turn around.

I: We are looking to improve EBITDA

C: Alright, could you please tell me where the company is located, who it supplies to and the products it produces.

I: 1 plant located in eastern India, supplying steel rods Pan India

C: Given that they supply pan India, can I know the customer segments that our client caters to.

I: Sure, why don’t you tell us what the likely customers would be?

C: Construction companies, contractors, standalone builders, public sector.

I:Those are correct, but we our split is simple, we just focus on the public sector

C: That’s interesting. Do we have any information as to why the company has ignored the private sector?

I: We value the security that comes with government projects.

C: I would like to structure the case here and analyze the revenues and costs to see where the issue might be arising from.

I: we do know that it is a cost problem.

C: Alright, so I would like to see where in the value chain we may be facing a bottle neck.

I: I just want your top 3 costs that you can identify.

C: Raw Material, Manufacturing and Distribution are the cost heads I would look at.

I: Alright, within this, which one would you start with?

C: I would look at Raw Materials, since iron and its procurement is quite expensive.

I: Exactly! That is 70% of the cost.

C: So, within Raw Materials, I’d like to look at 2 aspects. The procurement of iron itself and whether prices have risen, or if the contracts we have negotiated are more expensive due to short term nature. Then I would like to look at the transportation costs and distance from iron mines.

I: Our contracts have remained the same and so has the price of iron. But we had begun brining in iron from Australia. And the costs had significantly increased.

Now that you have reached the root of the problem, what are your suggestions?

C: I would consider looking at the proximity and if there are nearby alternatives, be it in India, or iron rich countries nearby. If we are unable to change this, perhaps we can optimize each shipment, to make full use of each trip.

I: Thank you, we can close the case here.