Ferro Industries Needs 20% Out of the Cost Base
Ferro Industries is a industrial components business in Europe turning over €417 M. Its operating margin sits 6 points below the peer median, and the board has mandated a 20% reduction in the cost base within eighteen months.
The cost base breaks down roughly as: cost of goods 58% of revenue, people 19%, marketing 7%, technology 8%, other overhead 2%.
The last two cost programmes each announced double-digit savings and neither showed up in the margin. Headcount has grown 40% in three years while revenue grew 25%.
target
- cost reduction pct
- 20
context
- prior programmes
- 2
- revenue growth 3y pct
- 25
- headcount growth 3y pct
- 40
- margin gap to peers pts
- 6
- prior programmes visible in margin
- false
cost base pct of revenue
- cogs
- 58
- people
- 19
- marketing
- 7
- technology
- 8
- other overhead
- 2
Advise the CEO. Your answer should provide:
- Analysis — where the money actually is, and what a realistic reduction looks like by category.
- Risks — which cuts damage the business and which do not.
- Recommendation — a phased programme with amounts and a sequence.
State any assumptions you make.
80 points, 60% to pass.
- recommendation20
- market analysis15
- risk assessment20
- financial analysis25
Reveal suggested structure
Size each category in currency, apply category-specific realistic reduction rates, separate structural from discretionary, and phase by speed and reversibility.