Upload
lionel-haynes
View
225
Download
1
Tags:
Embed Size (px)
Citation preview
Business CasePreliminary Findings
XXXX Chemical Analysis & Design
February 18, 1993
© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Business Case Version 1.4 - 2 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Agenda
• Purpose
• Top-down perspective
• Polyols
• Dylark
• R&D Portfolio
Business Case Version 1.4 - 3 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
The Business Case in Another Key Activity in the Analysis and Design Phase
CurrentInitiatives
Review
ProductDevelopment
ProcessAlignment
ProductDevel.
EffectivenessProbe
CustomerInterface
DiagnosticsCustomerInterviews
Value ChainProbe
OpptyCharting/
Sizing
ProjectDesign
XXXX Chemical/Gemini JointImprovement
Project
ExecutiveInterviews
FocusInterviews
InternalFunctionalInterfaceSurvey
MarketFocus
Assessment
BusinessCase
Business Case Version 1.4 - 4 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Purpose
• To thoroughly understand the financial drivers of XXX’s automotive Polyol & Dylark Businesses
• To establish the sizing or relative magnitude of opportunities
• To provide financial analysis needed to uncover business opportunities
• To quantify opportunities and provide cost/benefit analysis
Top-DownPerspective
Business Case Version 1.4 - 6 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
XXXX (XXX) Marketed ThreeCo-products and Their Derivatives in 1992
XXXX Americas -- Lines of Business $2 Billion
PO - Merchant*
$262 MM
PO - Derivatives(includes Polyols)
$626 MM
Styrene - Merchant *
$197 MM
Styrene - Derivatives(includes Dylark)
$223 MM
MTBE
$703 MM
* Excludes inputed value of Propylene Oxide in Tolling Business.
Business Case Version 1.4 - 7 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Polyols Represent $364MM in Sales and $60MM in Variable Contribution, Excluding “PO Profit”
Variable Contribution = Rev - Var Cost - Distribution
XXXX Earns an Additional Variable Contribution of 23¢ on Each Pound of PO Consumed by Polyols — $101 Million in Total
XXXX Earns an Additional Variable Contribution of 23¢ on Each Pound of PO Consumed by Polyols — $101 Million in Total
Propylene Oxide Sales -- $888 MMPolyols Automotive
$74 MM
Merchant PO
$262 MM
Captive Non-Polyol
$262 MM
Polyols Non-Automotive
$290 MM
Business Case Version 1.4 - 8 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Findings
• XXXX earns a variable contribution of $60MM on Polyol sales, in addition to variable contribution of $101MM from PO consumed
• Dylark sales of $68MM provided a variable contribution of $33MM
Polyols
Business Case Version 1.4 - 10 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
XXXX Recognizes Contribution at Two Distinct Points in the Production of Polyols
Production ofPropylene Oxide Production of
PolyolsInternal Sale of
PO to Polyol Units
Sales = $159MMSales = $364MM
Customer
XXXX Earns A Variable Contribution Of 23¢ On Each Pound Of PO Consumed By Polyols
Variable Contribution = $60MMVariable Contribution = $101MM
Business Case Version 1.4 - 11 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Commodity Slab Represents The Majority of Polyol Revenue . . . .
Rigid $4MM
Commodity Slab$184MM
CASE$32MM
Molded$100MM
Perf Slab$45MM
Business Case Version 1.4 - 12 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
. . . . But Only a Small Portion of Variable Contribution . . . .
Rigid $1MM Commodity Slab$3MM
CASE$10MM
Molded$34MM
Perf Slab$12MM
Business Case Version 1.4 - 13 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
. . . . As Variable Contribution Per Pound is Highest for Molded and Lowest for Commodity Slabs
CommoditySlab
Molded Rigid CASE PerformanceSlab
22.922.2
18.9
0.3¢
24.1
Business Case Version 1.4 - 14 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
However Because Commodity Slab Consumes the Majority of the PO Used in Polyol Production . . . .
Rigid 2MMPounds
Performance Slab27MM
Pounds
CASE42MM
Pounds
Molded92MM
Pounds
Commodity Slab216MMPounds
Business Case Version 1.4 - 15 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
. . . . It Accounts for the Bulk of the PO Variable Contribution Generated By Polyols
Commodity Slab$42MM
Molded$14MM CASE
$9MMPerformance
Slab$4MM
Rigid $ 0.4M
Business Case Version 1.4 - 16 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
“Integrated” Variable Contribution Per Pound Captures Earnings From PO Consumption and Polyol Sales
IntegratedVariable Contribution
CASE 21.0¢ 22.2¢ 43.2¢
Molded 15.6¢ 24.1¢ 39.7¢
Rigid 9.5¢ 22.9¢ 32.4¢
Performance Slab 13.6¢ 18.9¢ 32.5¢
Commodity 19.7¢ 0.3¢ 20.0¢
Propylene OxideVariable Contribution
PolyolVariable Contribution
Business Case Version 1.4 - 17 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Short Term Revenues Will Decline as XXX Lowers Volume to Stabilize / Raise Prices
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
1992 1993
Slab$229MM
Molded$100MM
CASE$32MM
Rigid$4MM
CASE$43MM
Molded$120MM
Slab$174MM
Business Case Version 1.4 - 18 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Long Term Revenue and Profits Increases are Driven by a Combination of Price and Volume Growth and Improved Contribution margin. . .
Changes in Volume, Price, and Variable Contribution per pound indexed 1992 = 100
100
110
120
130
140
150
160
170
1992 1993 1994 1995 1996 1997
Volume VC Per Pound Price Per Pound
Business Case Version 1.4 - 19 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
. . . . Making Long Term Reinvestment Economics Questionable
Volume, Price, and Variable Contribution 1992-97
0
50
100
150
200
250
300
350
400
450
500
1992 1993 1994 1995 1996 1997
Variable Contribution Sales
Business Case Version 1.4 - 20 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Sales Opportunities in Polyols Are Constrained by Demand, Not Capacity
PolyolProduction
FORSALE
Business Case Version 1.4 - 21 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Automotive Polyols Customers Represent 20% of Total Polyol Sales . . .
. . . . And 71% of Total Molded Polyol Sales
Automotive$74MM
Non-Automotive$290MM
Business Case Version 1.4 - 22 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
. . . added $26MM in Variable Contribution * . . . .
Molded PolyolProduction
Sales = $74MM
Automotive PolyolCustomer
. . . . In Addition To $18MM Of PO Profit
Variable Contribution$26MM
* Based on variable contribution of 23¢ per pound for Molded, 22¢ per pound for CASE and 4¢ per pound for total slab
Business Case Version 1.4 - 23 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Sales to XXX’s 11 Automotive Customers Follow the 80/20 Rule
JCI ($34MM) And Woodbridge ($22MM) Account For 71% Of Automotive Polyol Sales
% of Automotive Customers
0%
20%
40%
60%
80%
100%
0% 20% 40% 60% 80% 100%
Business Case Version 1.4 - 24 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Findings
• XXXX profits from the sale of Polyols in 2 ways
– Variable contribution of 23¢ for each pound of PO consumed - - $101MM
– Variable contribution of $60MM from production and sale of Polyols
• Molded Polyols generate the highest variable contribution per pound for Polyols - - 24.1¢ - - and the second highest “integrated” variable contribution - - 39.7¢
• Long term projections may be optimistic in light of excess industry Polyol capacity
• Automotive Polyol sales generated $44MM in integrated variable contribution
Dylark
Business Case Version 1.4 - 26 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Dylark Represents $68MM, or 16%, ofStyrene Monomer Sales
Dylark Earned a Variable Contributions of $33MM in 1992
Styrene Monomer Sales -- $420 MMDylark Automotive
$60MM
Dylark Non-Automotive
$8MM
Merchant *
$197 MM
Dylite
$ 155 MM
* Excludes inputed value on Tolling activities
Business Case Version 1.4 - 27 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Dylark Generated Variable Contribution of $33MM on Sales of $68MM in 1992 . . . .
Dylark Production
Sales = $68MM
Dylark Customer
. . . . Or 50.7¢ For Each Pound Sold
Variable Contribution$33MM
* Based on variable contribution of 23¢ per pound for Molded, 22¢ per pound for CASE and 4¢ per pound for total slab
Variable Contribution$1.5MM
Business Case Version 1.4 - 28 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Dylark Commands a Dominant Share of the North American Instrument Panel Market . . . .
Source: ARCO Internal Document
And Controls 79% Of The 50MM Pound Soft Instrument Panel Market
1991 Total = 85MM Pounds
ACC45%
Other7%
DOW10%
GE38%
ACC: DylarkGE: Noryl, PC, ABS/PCDow: ABS/PC, PC, ABS
Business Case Version 1.4 - 29 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
U.S. Automotive Customer Overlap
Johnson Control – DWoodbridge D DDavidson D DLear Seigler D DGoodyear I DUTA D –Van Dresser D –Aeroquip D –
Tier I
PolyolDylarkOEM
Ford D DInland (GM) D –Chrysler I –Toyota D –NUMMI (Toyota/GM) I –Nissan – –Mazda I –
D = Direct SaleI = Indirect Sale
Business Case Version 1.4 - 30 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
In the Past Dylark Results Have Been Inconsistent
0.0 ¢
20.0 ¢
40.0 ¢
60.0 ¢
80.0 ¢
100.0 ¢
120.0 ¢
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
Sales Price
Var Contrib
Cents PerPound
Business Case Version 1.4 - 31 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
. . . . And Future Sales Opportunities are Constrained By Limited Capacity
0.0 ¢
20.0 ¢
40.0 ¢
60.0 ¢
80.0 ¢
100.0 ¢
120.0 ¢
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
Sales Price
Var Contrib
Capacity Constrained
Cents PerPound
BudgetsActuals
Business Case Version 1.4 - 32 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Current Dylark Business Strategy
Maximize Operating Income• Manufacturing Efficiency• Test Price Elasticity
Incremental Product Change• Improved Toughness
Exploit Existing Product Successes• Processability, Heat, Adhesion• Application Development Focus• External R&D Support
Establish Capacity Expansion Plan
Current Strategies Follow A “Cash Cow” Approach Until New Capacity Can Be Justified
Source: Focus/Executive Interviews & ARCO Internal Documents
Business Case Version 1.4 - 33 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Findings
• Dylark Represents a profitable niche product
• Dylark and automotive Polyols share many common customers
• Sales growth will be capacity constrained by 1995
• Business approach focuses on increasing profitability with little incremental investment
R&D Portfolio
Business Case Version 1.4 - 35 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
XXXX Spent 32% of Its Approximately $53 Million R&D Budget on Dylark and Polyol Projects
NOTE: Based on YTD 11/92 spending.
Dylark
11%
Polyols
21%
Other Products
39%
Gen'l Research
29%
Business Case Version 1.4 - 36 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
XXXX Invested 50% of Its R&D Dollars in Supporting Existing Businesses or Finding New Applications for Existing Products
NOTE: Based on YTD 11/92 spending.
38%
12%
22%
19%
6%3%
20MM 39% 105 193M
6MM 12% 23 279M
12MM 22% 50 235M
10MM 19% 68 147M
3MM 6% 25 124M
1MM 3% 23 63M
53MM 100% 293 180M
Supporting ExistingBusiness
New ApplicationExisting Product
New Product orProcess
ManufacturingExcellence
Developing TechnologyBased BusinessOpportunities
Other
AverageProject Size%
Numberof ProjectsR&D ($)
Business Case Version 1.4 - 37 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
In Contrast 82% Polyols R&D Focused on Supporting Existing Business. . .
NOTE: Based on YTD 11/92 spending.
66%
16%
14%
4%
7MM 65% 28 0.3MM
2MM 16% 3 0.7MM
2MM 14% 6 0.3MM
0.5MM 4% 5 0.1MM
11MM 100% 43 0.3MM
Supporting ExistingBusiness
New ApplicationExisting Product
New Product orProcess
ManufacturingExcellence
AverageProject Size%
Numberof ProjectsR&D ($)
Business Case Version 1.4 - 38 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
. . . . and The Same Held True for The Approximately $6 Million Spent on Dylark R&D
NOTE: Based on YTD 11/92 spending.
68%
7%
5%
20%
4MM 68% 11 0.3MM
0.4MM 7% 1 0.3MM
0.3MM 5% 3 0.1MM
1MM 20% 9 0.1MM
6MM 100% 24 0.2MM
Supporting ExistingBusiness
New ApplicationExisting Product
New Product orProcess
ManufacturingExcellence
AverageProject Size%
Numberof ProjectsR&D ($)
Business Case Version 1.4 - 39 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Findings
• R&D spending at XXXX is heavily weighted toward investing in existing products and away from developing new products
• Polyol and Dylark research is even more heavily slanted toward incremental development rather than creating new products
Business Case Version 1.4 - 40 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Molded Polyols Consume a Disproportionate Share of “Supporting Existing Business” R&D
% Total “SEB” R&D% ACC Revenues % ACC R&D
Dylark 2.4% 11.3% 18.7%
Polyols 13.0% 21.0% 35.7%
Molded Polyols 3.6% 7.3% 14.9%
Source: Based on YTD 11/92 R&D spending annualized
Business Case Version 1.4 - 41 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
WB-OntarioFairless Hills Kansas City Mexico City
Total “ACC” Plants
St PeterTilbury Whitby Romulus Atlanta
Capacity: 7.8%Thru-Put: 10.0%Util. Factor: 1.28
Capacity: 6.3%Thru-Put: 6.0%Util. Factor: 0.96
Capacity: 7.8%Thru-Put: 6.0%Util. Factor: 0.77
Capacity: 15.6%Thru-Put: 25.0%Util. Factor: 1.6
Capacity: 15.6%Thru-Put: 12.0%Util. Factor: 0.77
Capacity: 15.6%Thru-Put: 6.0%Util. Factor: 0.38
Capacity: 7.8%Thru-Put: 10.0%Util. Factor: 1.28
Capacity: 7.8%Thru-Put: 8.0%Util. Factor: 1.03
Capacity: 7.8%Thru-Put: 12.0%Util. Factor: 1.54
Brodhead
Capacity: 7.8%Thru-Put: 5.0%Util. Factor: 0.64
PIPA
788(Formerly Dow)
788(Formerly ACC 731)
731(² to 788 by 3/29/93)
Dow(² to 788 by 3/15/93) PIPA
% Cap: 76%% TP: 70%
Note:Capacity = % of 10 plant total capacityThru-Put = % of plant total raw material consumptionUtilization Factor = Thru-Put ÷ Capacity
788(Formerly ACC 731)
788(Formerly Dow)
788(Formerly Dow)
731(² to 788 by 3/7/93)
Woodbridge Plant Utilization and Raw Materials Supplier
Business Case Version 1.4 - 42 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
There are Many Sources of Tangible Payoffs From Partnering and Market Focus
• Forestall / Avoid Commodity Status for Today’s Performance Products
• Reduce Frequency / Likelihood of Unproductive Product Development Initiatives (e.g. AR-Set?)
• Hold Share at Major Customers / Avoid Price Reductions to Maintain Share
• Gain Increased Access / Share to Current Customer’s Operations Outside North America
• Avoid Costs of Punitive Temporary Share Losses
Business Case Version 1.4 - 43 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Forestall / Avoid Commodity Status for Today’s Performance Products
Worldwide
Molded Polyol Variable Contrib 20.4 ¢ / #
Commodity Slab Variable Contrib. 3.6 ¢ / #
Differential 16.8 ¢ / #
With Molded Polyol Sales of Over 200 million pounds, that Represents a Loss of $34 million in Variable Contribution
Business Case Version 1.4 - 44 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Reduce Frequency / Likelihood of Unproductive Product Development Initiatives (e.g. AR-Set?)
Business Case Version 1.4 - 45 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Hold Share at Major Customers / Avoid Price Reductions to Maintain Share
Cost of Price Reduction at Woodbridge
Current Position
Pounds 31,000 M
1 ¢ Price Reduction $310 M
Contribution at Risk
Required PriceReduction ????
Lost VC $?,??? M
Cost of Losing Share at Woodbridge
Current Position
Pounds 31,000 M
VC per Pound 40¢
Contribution at Risk
Pounds 15,500 M
VC per Pound 40¢
Lost VC $6,200 M
Business Case Version 1.4 - 46 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Gain Increased Access / Share to Current Customer’s Operations Outside North America
Current Position
Pounds ?,??? M
Percent Total ??%
VC per Pound 40¢
Total VC $??,??? M
WoodbridgeOutside North America
Current Position
Pounds 31,000 M
Percent Total 70%
VC per Pound 40¢
Total VC $12,400 M
WoodbridgeNorth America
Business Case Version 1.4 - 47 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Avoid Costs of Punitive Temporary Share Losses
Cost of Temporary Share Loss at Woodbridge
Revenue 3,500 M x 74 ¢/# = $2,600 M
Variable Contribution 3,500 M x 24 ¢/# = 840 M
PO Contribution 3,500 M x 16 ¢/# = 560 M
Integrated Contribution Lost = $1,400 M
Business Case Version 1.4 - 48 -© 1993 Gemini Consulting. Reproduction with Express Permission Only.
Other Opportunities on the Horizon Further Mulitply Potential Benefits
Major step-outopportunity
$74 MM
System costreduction
$5 MM
Worldwidepartnering
$?? MM