This paper presents a management consulting analysis of a fictional industrial manufacturer, Silly Putty, Inc., which produces large-scale Silly Putty for multinational distribution. Facing rising commodity costs and reduced revenues during a global recession, the company is evaluated through an environmental scan covering cost inputs, labor expenditures, and macroeconomic conditions. The paper calculates monthly revenues, labor costs, and fixed costs to assess the company's profitability, ultimately finding it operating near breakeven. Drawing on organizational management literature, the analysis recommends downsizing paired with continuous process improvement, while also acknowledging that outright closure and sale may be the more viable long-term option.
The paper demonstrates applied cost-benefit analysis within a management consulting framework. Rather than relying solely on theory, the author performs back-of-the-envelope financial calculations to diagnose the firm's breakeven position, then connects those findings directly to strategic options — a classic consulting methodology that moves from diagnosis to recommendation.
The paper opens with a scenario overview establishing the firm's context and the consultant's role. It then conducts a structured environmental scan covering three cost variables. A financial evaluation follows, translating those variables into monthly profit/loss figures. The paper then pivots to strategic recommendations — downsizing with process improvement — before closing with an acknowledgment that firm closure may be the most rational outcome. This mirrors a standard consulting report structure: situation → analysis → recommendation.
The scenario presented here concerns a company we will refer to as Silly Putty, Inc. Charged with producing industrial-sized barrels of Silly Putty for distribution to packaging plants on a multinational level, the company finds itself at a crossroads. As a managing consultant, I have been brought on board to help the company navigate what may be the most difficult period in its long history. With commodity costs rising and revenues suffering in the face of a global recession, Silly Putty, Inc. must make difficult decisions concerning its future.
As the discussion considers whether survivability is a possibility — and if so, under what conditions — it is necessary to conduct a concise environmental scan. For Silly Putty, Inc., the environment is defined by three overarching factors.
The first of these is its basic set of cost inputs, labor aside. These cost inputs include supplies, machinery, fuel, and facilities. Each of these variables feeds into a process that costs the firm roughly $2,000 a day. These costs are compounded by a second variable: labor. With 100 workers putting in 20 days per month at a cost of $70 per worker per day, the firm produces roughly 6,000 units of industrial-sized Silly Putty every month.
A third critical environmental factor is the general state of the economy and the impact it has levied on all multinational firms — especially those that rely on large distribution networks, as does this firm. Ultimately, certain fixed costs, such as those relating to the consumption of fossil fuels and commodities like rubber, cannot be altered through any manner of strategic reorientation. This will be a critical driver of the company's decisions as it moves forward.
In evaluating the financial performance of the company, it must be acknowledged that we are not given a great deal of information about sales figures. It remains unclear exactly how well the company has succeeded from a marketing standpoint. Speaking on a strictly fiscal level, however, we can see that the combination of fixed costs — likely comprising a significant proportion of the $2,000 total daily cost figure — and labor costs ($70 per worker per day) produce expenses that generally overshadow the revenue drawn at an output price of $32 per unit across 6,000 monthly units. This amounts to roughly $192,000 in monthly revenue.
With labor totaling roughly $140,000 per month and fixed costs totaling roughly $40,000 per month, the company achieves a profit margin of approximately $12,000 per month. This figure, upon consideration of taxes, fees, licensing, permits, and insurance, delivers the company to a breakeven point on a monthly basis. The company is failing to achieve meaningful profitability because its costs are simply too high. Understanding the relationship between fixed and variable costs is essential for any turnaround strategy.
If it is determined that downsizing might not sufficiently produce a proper ratio of productivity to labor cost, it may simply be that the company's current model is no longer viable. In that scenario, recommendations for closure and sale would be appropriate. A firm with greater overhead capital to invest in a substantial overhaul of machinery and procedural norms might dramatically reduce fixed costs — an outcome that the current ownership structure may be unable to achieve. Closure and sale to a better-capitalized operator therefore remains a legitimate strategic option alongside restructuring.
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