Problem: A major U.S. chemical manufacturer had acquired a product line through a multi-line acquisition and decided to outsource the product line. However, the client did not know what was the best approach to ensure that the chosen partner would have appropriate capability. It also wanted to retain ownership of the product and sustain it for continuing income purposes.
Solution: Chemvalon consultants first worked with the client to understand objectives and constraints. Then through Chemvalon’s broad network of outsourcing partners, they were able to find a good fit for manufacture of the product. The result was a win-win solution for both the client company and the outsourcing partner.
Specifics:
- Client basic expectations
- A long-term, stable supply partnership
- A provider dedicated to excellence in health, safety, environmental and quality
- Dedicated equipment with capacity to grow by 20%
- Capability to convert quickly to minimize inventory investment
- Sharing of future deliverable benefits
- Requirements for long-term supply partner
- Sustainable low cost manufacturing position
- Avoid frequent customer requalification
- Avoid repeated outsourcing disruption / cost
- Invested in the production assets
- Chemvalon’s deliverables
- Form a long-term strategic alliance with the client
- Provide a long-term sustainable competitive supply resource
- Scope of project and partnership
- Install equipment capable of 6 million lbs per annum manufacture
- Joint investment in custom designed dedicated plant and equipment
- Estimate $2 million to install equipment to build turnkey dedicated plant
- Estimate 12 months to design and build dedicated plant
- Estimate annual management fee at $1.2 million per annum paid monthly
- Variable fee based on volume output / demand
- Assume 4 million lbs per annum output target $0.30 / lb to cover manufacturing labor and overhead costs. 4 – 6 million lbs billed at $0.20 / lb
- Raw materials and overheads billed separately at cost plus 5%
- Yield based on 97% of theoretical. Share in upside.
- Waste disposal billed as incurred at 5% on cost.
- Long term price adjustment clause based upon measurable performance indicators
