A major Water production and distribution Group approached NECG in order to assess the opportunity of outsourcing the distribution and marketing function of its bottled water product line to an external company.
Within this context, NECG’s scope of intervention was twofold: (1) analyzing the economics of the bottles operation and determining whether the decision to outsource distribution is justified and could improve profitability given the offer proposed by a distribution company; and (2) determining the major points that should be included in the distribution agreement between the production company and the distribution company
Within the scope of its mission, NECG performed the following
Collected relevant financial data from management and separated the data related to the bottles operation from the data related to the other operations;
Identified all costs not directly related to the distribution and marketing of the bottles and that could be affected by the outsourcing decision;
Assessed the savings that would be made in case the distribution and marketing function were outsourced to a third party and estimated the impact on the level of working capital and bad debts provisioning
Calculated the additional investments required to complete this operation along with their depreciation (such as the payment of end of service indemnities, asset write offs, etc.).
Suggested several methods for calculating the distribution fees
Reviewed the distribution agreement proposed by the Distribution Company, and compared its terms to external market conditions.
