Case in Point

Question 1

3 main areas to cut costs?

Answer 1

1. Labor
2. Production
3. Finance

Question 2

8 ways to cut labor costs

Answer 2

1. cross-train workers
2. cut overtime
3. reduce employer 401(k) or 403(b) match
4. raise employee contribution to healthcare premiums
5. institute 4 x 10 hour days instead of 5 x 8 hour days
6. convert workers into owners (better aligned)
7. contemplate layoffs
8. across the board pay decreases

Question 3

8 ways to cut production costs

Answer 3

Equipment/Facility

1. outsource/co-pack
2. invest in tech/robotics/automation
3. create flexible production lines
4. bring under one roof

Raw Materials

1. reduce inventories (JIT)
2. renegotiate with suppliers
3. consolidate suppliers
4. import parts

Question 4

5 ways to cut finance costs

Answer 4

1. have customers pay sooner
2. refinance debt
3. sell nonessential assets
4. hedge currency rates
5. redesign health insurance

Question 5

Name 12 uncontrolled risks

Answer 5

1. Competition
   
   1. new entrant/disruptor
   2. price war as competitive response
2. Political/Gov
   
   1. tariffs (trade war), coming and going, shifting suppliers
   2. new government regulation / congress goes after your industry
   3. geopolitical events
3. Stupidity/incompetance
   
   1. manageability of different regions, costs, or workforce needs
   2. supply chain inconsistencies, bankruptcy of suppliers
4. Economic
   
   1. increased fuel or commodity prices
   2. currency shifts
   3. workforce gaps, not enough skilled workers, higher wages because of low unemployment
   4. population shifts
5. environmental disasters

Question 6

Name 9 controlled risks

Answer 6

1. salesforce risks, shifting product priorities based on commission, capping commissions
2. system risks, particularly during a merger or conversion
3. inventory risks, too much or too little on hand, changing needs, storage, tied up working capital
4. public image after a crisis or an endorser’s mishaps
5. collapsing revenue streams
6. cannibalization
7. losing brand loyalty and consumer trust
8. lower product quality because of cost cuts
9. workforce turnover

Question 7

3 main types of synergies

Answer 7

1. Revenue
2. Costs
3. Financials

Question 8

Name 4 revenue synergies

Answer 8

1. increased distribution channels/networks
2. shortcut to new markets
3. increased customer base (cross-selling)
4. increased product offering

Question 9

Name 4 cost synergies

Answer 9

1. SGA savings, eliminate redundancies
2. scale (brings down unit economics)
3. supply chain
   
   1. suppliers
   2. plant/production
   3. 3pl
4. negotiating and buying power

Question 10

Name 2 financial synergies

Answer 10

1. selling off redundant assets
2. tax advantages

Question 11

What are 7 disrupting external/macro factors?

Answer 11

1. tech: hacker attacks, new tech (i.e. crypto)
2. economic: changes in disposable income, interest rates, currency, oil, consumer confidence
3. global health pandemics
4. weather: hurricanes, nor’easters, polar vortex, wildfires, mudslides, floods
5. geopolitical events
   
   1. climate change
   2. brexit
   3. tariffs
   4. # metoo
   5. workers revolting on social media
   6. tweets
6. politicians going after an industry/company: healthcare, pharma, big tech
7. transportation: airline crashes, cruise ships sinking

Question 12

What are 6 factors that move the markets?

Answer 12

1. The fed — interest rates, QE, fiscal
2. higher prices (goods vs. assets)
3. rate of change in inflation and inflation expectations
4. recession expectations
5. earnings
6. momentum/FOMO