Pedal Pals' Financial Fitness Challenge: Cost Optimization Consultancy

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Ignore revenue for the purpose of the case. 

To assess the costs, identify the large growth in expenses for Connected Fitness Products, Manufacturing, G&A, and Real Estate & Office Space. Determine the percentage of total expenses for each to highlight where cost cuts should originate. By subtracting the net gain/ loss from the total revenue, you can quickly aggregate the total expenses and see breakeven to determine 5% profit.

Once finished calculating, start identifying ways to conduct the cost-cutting measures in the business areas.

To reach the $375m in cost savings target, piece the costs into three categories that can then be combined to determine the percentage of workforce to be laid off: the savings from finding a new manufacturer, the reduction in the real estate footprint, and the SG&A layoffs.

Recommendation:

•To reduce costs by $375m in the next two quarters and achieve a profit margin goal of 5%, I recommend Pedal Pals address their labor, manufacturing, and real estate expenses by shifting to an alternative manufacturer ($210m) and reducing office space ($15m) while conducting layoffs of 1k FTEs ($150m).

Risks:

•Mass layoffs (1k employees) impact external brand, internal morale, and culture, and could cause legal repercussions

•Outsourcing manufacturing could lead to quality control issues, intellectual property theft, and regulatory compliance problems

•Revenue could decrease due to the impact of layoffs on our brand equity, leading Pedal Pals to not achieve the desired revenue target.

Next Steps:

•Assist with building out a timeline for the recommended actions to ensure successful execution, manage shareholder expectations, and ease the company’s concern about handling mass layoffs.