Ross Casebook 2006 for Case Interview Practice | MasterTheCase

7/29/2019 Ross Casebook 2006 for Case Interview Practice | MasterTheCase

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CONSULTING CASE INTERVIEWPREPARATION GUIDE

2005 - 2006 Recruiting Season-2nd Edition-

December 5, 2005


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The Case ListNote: Do not read all of these cases as soon as you receive this guide. While completed cases both alone and within groups is highly encouraged, pre-rearemoves the element of surprise which stems from addressing a case for the f

this sensation is very difficult to replicate.

1. Car tires 11

2. Super pens 12

3. HVAC service provider 14

4. Multi-purpose tool 16

5. US healthcare 186. Software product 20

7. Frozen dough 24

8. Fertilizer innovation 26

9. School buses 28

10. Pharmaceutical distribution 3011. Tissue paper 32

16. Sheep auction

17. Security systems

18. Termite control

19. Telecom service pr

20. Smart card manufa21. Insurance provider

22. Appliance insuranc

23. Auto parts manufac

24. Electronics retailer

25. Trucking 26. Hong Kong port


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Editors note

Introduction to cases

Administering cases

Receiving cases

The case list

The cases

Contents


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Establishing theCase

This is where the initial business problem is posed and the interviewer is pr

additional information they can provide to the candidate upon request. Thesby the interviewer.

Candidate Handout /

Assignment

This handout will eventually make its way to the candidates hands. Howevoccurs is at the discretion of the interviewer. Some interviewers may chooscandidate with a large amount of information early on to see them struggle,

reluctant to provide information unless asked specifically. Assignments forexactly that, and should be expressly completed under the eye of the interv

AdditionalQuestions/

Information forCandidate

These slides are a continuation of the Establishing the Case slides, either ainformation to provide the candidate (upon request or due to timing), or takidirection. These slides are to be kept by the interviewer.

Sample Solution

These slides suggest where the case could/should go based on the initial cabackup data These frameworks are by no means the only possible solution

Format Introduction

In this case preparation guide you will find four types of slides. The type ois noted in the upper left corner.


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Case 1: Car Tires (I of I)McKinsey & Company, Round II

Quick Brainteaser Case

Quick Brainteaser Case

Problem Statement NarrativeAdditional Information to

Provide Upon RequestSample So

Please estimate the numberof passenger car tires soldeach year in the UnitedStates.

About 10M new cars aresold each year

Cars last about 7 yearsbefore needing replacement

Tires last 45K miles

People drive 15K miles/ yr

Assume people purchasenew tires when needed

Assume no growth ininstalled cars

There arroad

60M o 10M n

Tires las

60M inst 20M ceach y

20M x

10M new @4 tir

@5 tir


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Case 2: Super Pens (I of II)A.T. Kearney, Round I

Your client is a bank vault manufacturer, mostlyfocusing on the large walk-in type. Its a very maturebusiness and they are the largest supplier in theindustry. In order to diversify their business and providegrowth, the client has bought a company that specializesin high technology security devices. One of thiscompanys biggest and most promising products was a

pen that has the ability to distinguish if the personsigning anything is in fact the owner of the pen.

The client would like you to define the following:

Who would the customers of this technology be?

How do we market to them?

What is our value proposition?

Information to provide upon requ Pens cost $20 to manufacture at

The technology is very compactreliable, and incredibly secure; eproof.

Things to think about during case How did the candidate arrive at

clients and industries Did the candidate use a spec

vetting target customers, etc How did the candidate construc

Asking questions around curcosts/revenues and how the

Who is the actual customer vs w

Problem statement narrative



Guidance for intervinformation provided u


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Case 2: Super Pens (II of II)A.T. Kearney, Round I

Sample SolutionElements


A credit card substitute With viable economics Crea

$10,000 in annual charges for eachcard in circulation

1%: Industry accepted fraud rate

100M cards exist across USA

$20: Production cost per pen

0.001%: Anticipated fraud rate

$100/year incurrently

$0.01/year i

If pen costs

for card com

This is a potential customer solution, the case could (and should) be adapted for Banks, GovernmeNet Worth Individuals, Exclusivity/Loyalty programs, etc.Interviewer should feel free to allow full market estimation scenario in all cases to allow for more robust mat

This is a potential customer solution, the case could (and should) be adapted for Banks, GovernmenNet Worth Individuals, Exclusivity/Loyalty programs, etc.Interviewer should feel free to allow full market estimation scenario in all cases to allow for more robust math

However, added costs and incomplete reach could

$500 per card reading site in

modifications and trainingto accept new technology

Pens would only work at retail

establishments, and would beinsecure over internet, phone, andother unsigned transactions

Drawback

Needinpen

Incomp


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Case 3: HVAC Service Provider (I of II)The Boston Consulting Group, Round I

Your client is an energy firm that has a lot of extra cashand wants to know if they should consolidate HVAC(heating, ventilation and cooling) service firms in theAtlanta area.

The client would like to know if this is a viable

investment they should consider.

Only provide additional informaspecifically asked by candidate.

Atlanta market consists of 500 f Average annual revenue: $10 Revenue growth: 3% Acquisition cost: Perpetuity Cost of capital: 13%

Cost structure (% of revenues) Labor: 50%, Technicians are Equipment: 25% Administrative: 20% Profit: remaining 5%

Savings areas:

Labor dispatching efficiency Equipment5% decrease throu Admin: 1% net decrease afte

Problem statement narrativeGuidance for interv

information provided




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Case 3: HVAC Service Provider (II of II)The Boston Consulting Group, Round I



Candidate shouldcalculate

implications of

changing coststructure

Then want toconduct a break-

even analysis.

A solid interview willaddress other

potential risks

No industry experience

Cultural issues (small operations purchased by large company)

National entrants overpowering effort

Reducing purchase price

Cost Center

LaborEquipment

AdministrativeProfits

Cost (% rev)

50%25%

20%5%

Cost ($)

$5M$2.5M

$2M$500K

Savings (% cost)

5%5%

1%

Savin

$250$125

$20

Current profit

$500M

Interest rate

10%(CoC growth)

Cost of firm

$5M

Expected profit

$895K


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Case 4: Multi-Purpose Tool (I of II)The Boston Consulting Group, Round I

Your client is a diversified hardwaremanufacturer that produces a multi-purposehand tool. For several decades, your client wasthe only company to make such a tool. Over thepast 2 years, the company has seen a decline inrevenue.

What is driving the decline, and what can yourecommend as a solution?

Only provide additional informaspecifically asked by candidate.

Price: $50, constant over time

Current volume: 100M units/yr

Channel: Hardware retailer- can

Price elasticity of demand: 0.5 (2will raise demand 10% & visa ve

Several new competitors in past Selling similar product for $3 Channel: Discount retailers (






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Case 4: Multi-Purpose Tool (II of II)The Boston Consulting Group, Round I



Increased competition?Yes!

Substitute products?Yes!

Decline in marketdemand? No, demand ishigher than ever with do-it-yourself work (ourmarket) increasing

Marketing budgetreduction? No, beenvery stable.

Decline in distributionchannels? No one

Initial revenue driverquestions

Given contract, clientmust investigate price

Drill to increasedcompetition.

Competitors competingon price ($30 vs. $50)

Competitors in differentchannel

Client can not changechannel

Price elasticity ofdemand is 0.5

Customers not veryprice sensitive

Increasing price by 20%to $60 will reducedemand to 90M units, etc

Follow-up question:Why not increase priceby 40%? To furtherincrease revenues?

A: Demand may be non-linear, and unpredictableat large price changes

In tconcurincinc$5.rec

Lonshoentof dto epro

Fur

shoprepro


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Case 5: United States Healthcare (I of II)McKinsey & Company, Round II

I have just been talking with with Rick Wagoner, GMsCEO, about his companys skyrocketing health carecosts. GM pays for the health care of about 1.1Mfamilies, which equates to about $8-9B or $1500 per carsold. After a while, he began discussing the UnitedStates healthcare problem on a national level.

The US spends 15% of its GDP on health care whileJapan spends 7-8% and Germany spends 10%.However, he says there is no evidence that health care isbetter in the US: average life expectancy is actuallydecreasing and about 45M people are uninsured.

He wanted me to explore possible causes and solutionsfor the increasing cost trend with decreasing

effectiveness/quality. He made a point of saying hedidn't want to discuss politics, and shied away fromfancy frameworks in our discussion

There is no additional informatiopurpose of this case is to test pthought. If the candidate makesdevils advocate and try to get reverse him or herself. Some ex

Privatized vs. socialized med Subsidized medicine develop

unsubsidized Healthcare availability for all Boutique hospitals vs. full se Preventative vs. reactionary m

Problem Statement NarrativeGuidance for inter





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Case 6: Software Product (I of IV)The Boston Consulting Group, Mock Interview

Your client is a software maker that has oneproduct.

The CEO would like to know whether thecompany should offer multiple products instead

of one.

Client goal: grow revenues

Product: Document authoriWord, etc)

Possible product segmenta

business vs. home product

Company recently completesee next page for results

Currently only offer product

(business curve on chart)

Problem statement narrative Information provided u




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Case 6: Software Product (II of IV)The Boston Consulting Group, Mock Interview

Candidate Handout(upon request)


0

100

200

300

400

500

600

0 5 10 15 20 25 30

ProductPrice

Market Study Results


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If we are currently selling to businesses for$500, what is our total revenue?

If we segment our demand and sell separateproducts to separate markets, what do ourrevenues look like?

Is there anything else to think about?

Additional questions for candidate

9M units x $500 = $4.5B

Segmentation shows the

Solution gu

Case 6: Software Product (III of IV)The Boston Consulting Group, Mock Interview

AdditionalQuestions

AdditionalQuestions

Use this slide as interviewers guide afterproviding graph to candidate

Use this slide as interviewers guide afterproviding graph to candidate

Price

200400500

Home

200x15M = $3B$2B$1B

Bu

200x1


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Case 6: Software Product (IV of IV)The Boston Consulting Group, Mock Interview



The candidate may discuss elements needed to createtwo versions of the product- these may include:

Programming Testing/ QA Packaging Sales/marketing Distribution

The interview can go in this direction, asking thecandidate to outline a viable cost structure per segment

Incremental Costs Product Differentiation/ C

Licensing Complimentary Pro

Little/no ability to create different markets could lead to price-led crocannibalization

Creating switching barriers woulddifferentiate between product linescannibalization

Related to the product/market differentiation issue, the

firm could gain incremental revenue by either:

Establishing separate product sales/licensing costs for

Rather than separating current pro

products-

Client could offer a series of comp


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Case 7: Frozen Dough (I of II)A.T. Kearney, Round I

Your client is a Consumer Packaged Goods company.More specifically, they produce frozen dough for uses inmaking bread loaves, pizza crusts, cookies, bagels, etc.This is a family-owned company with $2 billion in annualsales with two primary distribution channels.

You have been hired to assess a problem the companyis experiencing with spoilage. The client is experiencing

a significantly higher spoilage rate than that ofcompetitors.

Competitors spoilage rates average about 2.5%,however, the clients rate last year was 10%. Theysucceeded in reducing the spoilage rate to 7.5% byimplementing a strict First-In-First-Out inventorymanagement system at its warehouses and by instituting

a program that carefully tracks the number of days left inthe shelf life of the dough and once it gets close theinventory is donated to a charity for a tax break.

Distribution Channels: Wholesale restaurant supplie Supermarket chain bakeries

Dough is not branded- no custo

Shelf life is 180 days, with custo

Very similar recipes across indu High recipe switching costs

Spoilage occurring at client distcustomer locations

Problem statement narrative Information provided




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Case 7: Frozen Dough (II of II)A.T. Kearney, Round I



Candidate should want to investigate along valuechain for weaknesses/ benchmark differences

Candidate should want to investigate along valuechain for weaknesses/ benchmark differences

DemandForecasting

Purchasing/Materialssourcing

ManufacturingSales &

Distribution

Indications(only provideto candidateupon request)

Rather oldforecasting tool hastended to generateoverly cautiousproductionnumbers, but doesnot account for allspoilage cost

Materials comefrom similarvendors as all othermanufacturers

Materials do notspoil, spoilage onlyoccurs afterproduct has beenmanufactured

Old productionequipment

Foreman told us ininterview that hetends to hedgeagainst forecastingby overproducing-it is a pain to retoolthe machines all thetime

3 Distributioncenters (DCs):West, Midwest, Eas

US sales only

Will sell dough forany use- regardlessof sales volume

Some productshave very lowcustomer-turn

Potentiald d

Improve forecastingl b fl

Long term: invest ind d hi

Customer-level SKUi li i


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Case 8: Fertilizer Innovation (I of II)McKinsey & Company, Quick on Your Feet

Your client is an agricultural products manufacturer.They invented a product called Green Nutrient. This isgoing to help the farmers by allowing a variable fertilizerrate.

The company is interested in a pricing strategy and go-

to-market options.


Green Nutrient measures the arequired, allowing for a variable

Two main benefits: Reduces oveand increase under-use (increas

Benefit #1: 20% reduction in fert 1 bag / acre @$15/ bag

Benefit #2: Improve yield 2% Current average yield: 100 bu

No competition

Farms average about 400 acres 1000 Large farms: 1000 acres 3000 Medium farms: 400 acre 6000 Small farms: 200 acres

Product lasts 10 years

Product production cost: $10K p

Guidance for intervinformation provided




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Case 8: Fertilizer Innovation (II of II)McKinsey & Company, Quick on Your Feet



$3.00 fertilizer savings per acre (0.30 * $15)$5.00 yield increase ($2.5 * 100* 0.02)

WTP per acre: $8.00 or $3.2K per average farm per year

Requisite Math

1. Large: If we price the product at $80k we sell 1000profit $70M

2. Large & Medium: If we price the product at $32k well 4000 fit $88M BEST OPTION

Second-Best Answers

1. Skimming: start by pricing at $8then $16k;

2 Offer a service to the farms at u

First-Best Answ


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Case 9: School Buses (I of II)A.T. Kearney, Round I

Your client is a school bus manufacturing company thathas just been purchased by a leading international truckmanufacturing company.

The CEO of the truck company has asked the presidentof the newly acquired school bus company to improvehis organizations profits. The president of the schoolbus company has in turn, asked us to help determinewhat areas will provide the best results.

Information to provide upon requ Company is open to any and all Bus market is growing with pop Customers: Schools, counties, l 3 players (including client) with Prices have been historically hig

market, not likely to change

1 plant in renaissance zone wit All production equipment fully d Comparatively low labor costs Material costs are high but com One competitor struggling finan

Tips for interviewer This is not a numbers case- pay

candidate frames problem and t Take liberty with story, allowing


information provided u




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Case 9: School Buses (II of II)A.T. Kearney, Round I

Improving internal operations Exploring synergies with ne



Sourcing

If trucks and buses purchaoriginal equipment manufaconsolidating purchasing opower and eliminate purch

Modularity

Buses and trucks are builtmay exist in R&D for any nstocking duplicative comp

would reduce inventory an

Act assupplier

If the bus plant is not operatake advantage of tax situacheaply supply parts to tru

Co-leveragesales &

distribution

Selling buses to those whoversa adds to the potential

companies, potentially alloin a stagnant industry

Offshore/Near-shore

High domestic raw material costs raise the question:can we do better elsewhere?

Sourcing parts globally may reduce raw material costsand increase profitability

Compete onPrice

This is a dangerous ploy. Leveraging low cost laborand low tax production may lead to increased shortterm sales (and potentially higher profits)

However if a competitor is able to follow, customersmay see all benefit and there is no going back if it is amistake

Seek new

Our low cost of production position may lend to afavorable position in a complementary industry.Luxury, and other custom bus production requires


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Case 10: Pharmaceutical Distribution (I of IA.T. Kearney, Round I

Your client is a large pharmaceutical distributor in a marketprimarily consisting of three main players. The three firms have acombined market share of 96%. The client has been growing viaacquisitions, and it operates in four business segments which areall operated independently:

Drug Distribution is the core business representing 85% of sales.Our client buys drugs from pharmaceutical firms and distributesthem to hospitals, etc. They typically buy and sell both brandname and generic drugs, and this area has historically lowmargins.

Manufacturing and distribution of medical products, includesinstruments, ER kits, supplies, etc.

Pharmacy Services is the other category comprised mostly ofacquisition targets with no other logical home. Services includetemporary staffing and owning and operating retail pharmacies.

The drug vending machines segment supplies machines tohospitals that distribute high frequency drugs to aide nurse

productivity.

Background information to read to candidateQuestions to ask candida

background info



The client has a long history of profitsquarters, profits, the companys stock all been down.

The CEO has called you in to provide aimprove profits.

How would you approach this meeting What areas would you look at to impro

Interviewer Note:

This is a structuring and thought caseestablish how the divisional structuretremendous cost savings

Allow candidate to walk through profit

the discussion toward reducing costs

Ask candidate (if not already doing so)


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Case 10: Pharmaceutical Distribution (II of IA.T. Kearney, Round I



Admin. / Overhead Purchasing Manufacturing Sales

Interviewerguidance foreach area (do notread verbatim)

Separately run betweendivisions, but not veryscalable

Scale appears to exist inmaintenance, repair andoperations purchasing

Only one division-medical products - usesmanufacturing and it isnot a core competence,perhaps outsourcing?

Run as separateorganizations betweendivisions, selling to thsame clients- largebenefit in combining

Possiblecandidate

recommendation

This client exhibits the textbook case for de-silo-ing and creating a matrix organization. By operatingdivision groups, the organization will be able to run with a much more efficient cost structure and lever

strengths to increase revenues

PharmaDistribution

Med. EquipMfg. & Dist.

PharmacyServices

Drug Vend.Machines

Admin &Overhead

Admin &Overhead

Admin &Overhead

Admin &Overhead

Purchasing Purchasing Purchasing Purchasing

Mfg

PharmaDistribution

Med. Mfg. &

Admin &Overhead

Purchasing

Mf

CurrentSiloedSystem

ProposedMatrixSystem


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Case 11: Tissue Paper (I of II)A.T. Kearney, Round II

Your client is a tissue paper manufacturer. Theirproducts includes facial tissue, napkins and bathroomtissues. The client has a consumer business and acommercial business.

The CEO of the firm is facing pressure to improve thefirms profitability. To improve profitability, the CEO isconsidering increasing the average price on commercialproducts by 10% and wants to know whether he shoulddo it.

You have two weeks to conduct the assessment.

Only provide each piece of inforasked for it specifically by the c

An assessment of historical pricshowed that the price elasticity product is 2.0

Piloting the price change is not timeframe

Product Price: $100/ton Product sales volume: 1000 tons

Fixed Costs: $20K Variable Costs: $70/ton

Current market share: 40%






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Case 11: Tissue Paper (II of II)A.T. Kearney, Round II



Competitors stealing share Industry is operating at capacity, and it would take a long time for

competitors to add production ability to steal our market share This is a long-term concern

Areas candidate should be concerned about

Revenue

$100/ton x 1000 tons = $100K

Costs

Fixed: $20K

Variable: $70/ton x 1000 tons = $70K

Profits

$100K - $70K - $20K = $10K profit

Base profit scenario

Revenue

$110/ton x 800 tons = $88K

Costs

Fixed: $20K

Variable: $70/ton x 800 tons = $56K

Profits

$88K - $56K - $20K = $12K profit

Increases profits by 20%

10% price increase pro


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Case 12: Charcuterie Processor (I of III)A.T. Kearney, Round I

Our client is a consumer goods company. We areconsulting to the food division.

They sell processed pork products like sausages. Theproduct is a retail branded product available in retailerssuch as Kroger.

The clients profitability has been declining. They wouldlike to know why has this been happening and what yourrecommendation for correcting the situation is.

Information to provide upon requ

The clients value chain is availaas a handout to the candidate

The market is mature and stable

Market Share: Client: 30%; major competito

(primarily forward integrating40%

Packers process hogs only 8%to our market

Costs: 50% material (rising) / 50

New entrants approaching retail

Client revenues are down with scurrently compete on price






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Client Value Chain

Case 12: Charcuterie Processor (II of III)A.T. Kearney, Round I

Hog producersgrow and sell hogs

PackersPrepare material for

processing

Processorsprepare consumerproducts (client)

Retail/ DSell fina

end


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Client Value Chain: What the candidate may see

Case 12: Charcuterie Processor (III of III)A.T. Kearney, Round I

Hog producersgrow and sell hogs

PackersPrepare materialfor processing

Processorsprepare consumerproducts (client)

Retail/ D

New competitors also suppliers: raising prices to client and lowering prices to retail

Backward-integrating The client may choose to backward integrate to Packing and/or Producing in order to bea

game SOLUTION: This does not make strategic sense, as sausage material is only ~8% of the p

Partnering The client may choose to approach packers who have not yet forward-integrated into pro

exclusive purchasing deals SOLUTION: Two major packers have not yet forward integrated, and would likely be very

By consolidating the sausage manufacturing business the client would have increased b

Areas the candidate may chose to focus for solutions


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Case 13: Music Retailer Loyalty (I of II)DiamondCluster, Round I

Your client is a music retailer that has grown throughacquisitions, acquiring 45 retailers in the past 5 years.They operate 750 stores nationally. They have alreadydecreased costs through operational improvements, butthe firm now has 15 brands, which has left customersconfused, so the client is undergoing a re-brandingeffort.

They are concerned that they have no information ontheir customers, only sales data, and therefore cannotsegment customers across product lines or genres.

The client wants to implement a loyalty program toidentify and understand their customers. They want youhelp the figure out how to construct the loyalty plan.

How would you develop the business case for thisinitiative, quantify the benefits, and determine the cost?

This is a qualitative case coverinsubject. Walk the candidate threstablish the program, not actua

Products offered are media-spec CDs DVDs Posters Accessories All genres

Problem Statement NarrativeGuidance for interv





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Case 13: Music Retailer Loyalty (II of II)DiamondCluster, Round I



Acquisition / Program TypeRevenue/ Efficacy

MeasurementCost

Monetary

Rewards such as free CDsor DVDs, or even cash, aftera certain dollar value ofpurchases is reached

In

formational

Provide members with

proprietary artist or concertinformation such as a fanclub.

Prom

otion

Provide customers withpromotional material that

the client receives for freefrom record labels, such asconcert tickets t shirts

PilotProgram

Conduct pilot in one regionand compare it with another(this is what they actuallydid), essentially setting anexperiment and controlpopulation using statisticalanalysis to compare the two

populations.

Requirem

entfor

Deals

Have customers enroll inthe program system-wideby only allowing membersaccess to special reducedprices (similar to grocery

stores).

StartupCosts

Pur

Continuing

Operations

Majo C

etOthe

T

sy M

se


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Case 14: Retailer Discounting (I of II)A.T. Kearney, Round II

Our client is a retailer in New York State. They have 120stores across the state and they are constantlycompeting with other retailers for customers. They areNOT a low-cost retailer in the state but on certain daysthey give out heavy discounts on their products toattract customers. They create brochures for weeklydeep discounts and deliver them to their customers byinserting them in newspapers in the morning.

The clients competitors are also doing the same and theproblem is that this scheme is not generating enoughreturn on investment for our client as compared tocompetitors. How would you analyze the situation to seewhere the problem could be and how would you

compare the execution strategy of offering thesediscounts of our client with that of their competitors?


Campaigns are run on the same

Stores are as accessible (if not mcompetitors

Store product-mix is similar to c

Our discounts are similar to tho(in price and product)

We are using the same newspap






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Case 14: Retailer Discounting (II of II)A.T. Kearney, Round II



Getting customers into stores Servicing customers onc

Service levels on sales days- are customreadily available?

Is inventory adjusted in accordance with

Back-end logistics: are prices updated insystems? (THIS WAS THE PRIMARY ISSUupdated and customers were highly conf

Generating additional revenue from eachdiscounted products?

Planning & Analysis

Used electronic communication along supply chain to alert suppliersto anticipated dramatic demand shift for supply & restocking (atappropriate levels)

Bundling

By discounting one product (such as hambuns, ketchup, mustard, relish, tableclothprice nearby would dramatically increase

How do we figure out which items to put on sale, and which to feature in newspaper inserts? How do we sell non-discounted products to people entering the store purely for discounted items? How can we better manage our inventory around these sales periods without overstocking or stocking out?

Follow-up series of questions for candidate

On what days are we running these discounts compared to our

competitors? Friday vs. Saturday?

What newspapers are we using to deliver the brochures? Which isbest for our customers: Times or Post?

What is the layout of brochures compared to competitors?

How accessible are the stores compared to our competitors?


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Case 15: Book Retailer (I of II)Booz Allen Hamilton, Round I

Your client is a book publisher who deals in fiction, andwants to increase profitability. Sales for the companyare as follows (read this chart to the candidate- watch fornotes organization):

The client wants to understand why profits look the waythey do, and what it can do to improve profitability.


Book prices are $15 regardless o

No difference in fixed costs acro

Material costs are the same for a

Bigger authors require higher ro

authors Author is the primary driver to d

There are huge economies of sc

Small sellers are primarily distribookstores, requiring higher pe

80% of space dedicated to smal

Can not currently determine whibreakouts





Category Profit/ Unit Annual Volume

($3) to $2

$10

$5

1M

Small Sellers

BreakoutPotential

Bestsellers


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Case 15: Book Retailer (II of II)Booz Allen Hamilton, Round I



Product mix in stores Demand forecasting

It appears 80% of storesare geared toward salesof products with anexpected profit of($0.50), perhapsreallocating this mix tobe more favorable tobestsellers and break-out books wouldincrease profits

Forecasting whichbooks may becomebreakouts would allowfor massive headwayon competition and bigprofits

Suggested modelinputs:

Media mentions Fads Pre-orders Tie-ins

Online sales Authors previous

sales

What risks do you seein doing this?

Product Mix: slowsellers are requiredto get people topurchasebestsellers

Demandforecasting: Gettingthe breakoutswrong would bevery costly

Logistics:Little downside

Interviewer possible

follow-up

Candidate may propose action in


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Case 16: Sheep Auction (I of VI)Bain & Co., Round I

Your client is looking at investing a significant amountof money to create an online auction company thatfacilitates sheep sales from producers to largecustomers.

They will only do this if they could make roughly $10 Mannual profit in 5 years, and they have enlisted your help

in determining the go/no-go decision.

Only provide each support slidethe information by the candidate

Slides: Overall market size (in lbs of Sheep prices (in $/lb) Farmers (producers) who us Sheep sold at auction vs. con

All large processors (buyers) us

Sales via auction and contract wno steal share between channel

Follow up questions for candidathe calculation (which should to

What would you do to achiev






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Case 16: Sheep Auction (II of VI)Bain & Co., Round I

Candidate handout(upon request)


0

50

100

150

200

250

300

350

400

450

Millio

ns

Lbs

ofSheep Annual Sheep Sales


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Case 16: Sheep Auction (III of VI)Bain & Co., Round I



$0

$5

$10

$15

$20

$25

$30

Sales Price/100lbs sheepAuction Profitability by Channel


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Case 16: Sheep Auction (IV of VI)Bain & Co., Round I



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Sheep Sales by Channel


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Case 16: Sheep Auction (V of VI)Bain & Co., Round I



0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Farmers Online


43/96

Case 16: Sheep Auction (VI of VI)Bain & Co., Round I



Expected

Calculation(Approximate)

**Use 2009 numbers to show 5-year maturity and steady-state fomodel assumes a 100% penetration- candidate should deduct thairrelevant given overall industry profitability**

400Mlbs sheep

50%auctioned

30%online farmers

$10per 100 lbs sold

x x x

What would you do to reach the $10M profit level fromhere?

If this product were already launched, how would youchoose to market it?

Train farmers and sheep produc Provide central computer locatio

facilitate farmer interactions Expand the auction tool to other

Trade magazine advertisements Door to door sales & training rep

Time permitting follow-on questions And sample a


44/96

Case 17: Security Systems (I of VI)Bain & Co., Round I

Your client is a financial investor interested in investingin a start-up national security company

The security company sells and installs alarm systemsand then provides monitoring service, patrolling theneighborhood and following up if the alarm goes off.

The client has hired you to size the market andrecommend if this is a good investment or not.

Only provide each support slidethe information by the candidate

Slides: Target companys current sit Demographics and growth by Competitive landscape Competitive estimated reven

10M suburban households 1M new suburban households e

System is priced at-cost

1-2 large local players per marke

Large local players are entering competing with large national p






45/96

Case 17: Security Systems (II of VI)Bain & Co., Round I



Number of homesin market

10 Million

Home growthlast year

1 Million

Competitors Largest national player appears to have financial difficulties

System Price $1,000 installed

Client Market SituationClient Market Situation


46/96

Case 17: Security Systems (III of VI)Bain & Co., Round I



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005: US Homes by Value

1% growth

1% growth

2% growth

4% growth

4% growth


47/96

Case 17: Security Systems (IV of VI)Bain & Co., Round I



0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Competitive Landscape

National Player 5

National Player 4

National Player 3

National Player 2

National Player 1

Local Player 5

Local Player 4Local Player 3

Local Player 2

Other Players(10,000)


48/96

Case 17: Security Systems (V of VI)Bain & Co., Round I



0%

5%

10%

15%

20%

25%

30%

Competitive Estimated Revenues and EarningsEBIT (%)


49/96

Case 17: Security Systems Company Market Entry Bain & Co., Round I



Market Sizing(Annual Revenue)

Market Growth

70% of alarm buying market is growing at 1% per year, with the overall alarmgrowing at or less than population growth

This makes market growth unattractive

Competition Reach

The national market is dominated by one player with several other strong plvery difficult

The local market is highly fragmented with apparently 1-2 major players in eentry in this space equally difficult with local de-facto monopolies

CompetitiveEnvironment

Large national players appear to be operating with rather low EBIT numbers

spread out infrastructure and inefficient utilization of resourcesSmaller local players have stronger EBITs, however this leaves them in a st

$1000System

1MNew Homes

$30/moService

10MExisting Homes

x + x =12Months

x


50/96

Case 18: Termite Control (I of V)The Boston Consulting Group, Round I

Your client is a termite control company that providessolutions for eliminating termites from homes. Theircurrent solution involves setting up baiting systems (asimilar concept to mouse traps) the baiting systemconsists of stations that are set-up around the house toattract and kill termites.

A competitor has come up with a new solution that

involves liquid sprays for killing termites. They have juststarted selling this treatment. How should the clientrespond?




Only provide information and eabeing asked for the information

Client has 20% share with 100K

Some customers perceive spraynew customers will switch, othe

Assume existing customers will

Client has capability to produce

Systems are equally effective

Slides for candidate to review: Client and competitor pricing Client and competitor cost st Customer retention rates



51/96

Case 18: Termite Control (II of V)The Boston Consulting Group, Round I



S

$1500

$300

Initial Installation

Annual Renewal & Prevention

Baiting System

Pricing By Channel


52/96


53/96

Case 18: Termite Control (IV of V)The Boston Consulting Group, Round I



Client Historical Retention RatesPercentage of customers in year 0 that renew their subscription in subsequ

Year 1

90%

Year 2

80%

Year 3

70%

Year 4

60%

Year 5

50%

Year 6

40%

Year 7

30%

Year 8

20%

Year

10%


54/96

Case 18: Termite Control (V of V)The Boston Consulting Group, Round I



Candidate should look atthe profitability of each

option

And realize decliningexpected annual

renewals negate majorityof profit differences.

Expected profit per customer:

Aggregating indicationsbetween systems

Discounting would virtually eliminate profit difference between products (all spray profit o

Incumbent client can leverage built-in fear for customers (toxicity) of new, cheaper, produ

If there is a low/no startup cost for new product, there is little/no downside risk of entry

Allows for a concise

Allowing the spray market to cannibalize baiting sales will lead to drawn out per-customer pprofit-reliance on renewals.

$400$50

Initial InstallationAnnual Renewal & Prevention

Baiting System

Year 0

400250

400250

Year 1

4590

445340

Year 2

4080

485420

Year 3

3570

520490

Year 4

3060

550550

Year 5

2550

575600

Year 6

2040

595640

Bait system profitSpray system profit

Summed Baiting ProfitsSummed Spray Profits


55/96

Case 19: Telecom Service Provider (I of II)The Boston Consulting Group, Round I

Your client is a telecom service provider. They have 2products long distance and wireless. Their customersare businesses, and they use a sales force to sellproducts.

The only competitors sales force has higher $ sales persales person and the client has hired you to determine

why




Only provide information after bby the candidate

Client and competitor are only p

Sales of $6B for client; $10B for

Client customers spend equally

Client revenues are 80% long diwith a target of 50/50 split

Sales force of 3000 representativ Our representatives have 10y

3-5 clients per representative for

Client representatives spend 45%

competitor representatives spen Difference is spent on admin



56/96

By conducting aroot-causeanalysis

The candidate will beable to answer theclients question

Example:The sales per representative discrepancy appears to have three primary drivers Our reps are tied up with administrative tasks while they could be out selling 25% mo Our quota system rewards our reps to sell what they know not what we want them Our representatives are very experienced, but technology is changing and they need

product knowledge

Case 19: Telecom Service Provider (II of II)The Boston Consulting Group, Round I



$6B / 3000 Representatives= $2M/ Rep client

$10B/ 3000 representatives= $3.3M/ Rep competitor

$1.3M/ Rep differential

Sales Discrepancy

Long-distance Heavy Sales

80/20 Revenue split is off

50/50 industry spend-benchmark target in favor oflong distance

Productivity

Competitors able to leverage~25% more time

Accounts for about 25% x $2Mor $500K difference

Qu

Representascheme notcorporate r

Represen

Experience

representatproduct the

And provide aRetool processes to increase rep time selling, likely by increasing administrative staffImplement training program for representatives so they understand both products equally


57/96

Case 20: Smart Card Manufacturer (I of III)The Boston Consulting Group, Round II

Circa-late 1990s:Your client is a global high tech company that is adiversified manufacturer (chips and cell phones forexample). The company has decided to enter theSmartcard market and wants to know where in the valuechain they should enter.

On Smartcards, there is a computer chip that provides a

broad array of functionality. It can process transactionslocally, provides a higher level of security. Thetechnology is currently used in Europe and a little inAsia, however it is not currently used in the U.S. It canbe used for loyalty programs, transit, credit cards, ATM,etc.




Only provide information after binformation by the candidate

ADDITIONAL INFORMATION ON

Client has already determined toknow where and why

Market is currently growing at 25

Ask candidate to draw their thoubefore telling them what the valu

Do tell candidate elements o Let candidate ask about spec



58/96

Case 20: Smart Card Manufacturer (II of IIIThe Boston Consulting Group, Round II

Additional Informationto Provide


Card DevelopmentTerminals/ Local

ProcessingSystem

Implementation

Concentration

CompetitiveTactic

Profit Margins

Other

Share of $1spent in industry

4 players with equalshare

Patented technologies

15%

All products are inperformance

25%


Products are mfg basedw/ little intellectualproperty

10%

Natural extension ofcurrent products (ATMs& Disk drives)

25%


Major IT consultingfirms

20%

Track records are highlyimportant

20%

Hig

Ge

10

Reele

30


59/96

Case 20: Smart Card Manufacturer (III of IIIThe Boston Consulting Group, Round II



Card Development

Terminals/Local Processing

SystemImplementation

ContinuingOperations

Expected Profits/ $Industry Revenue

$1 x 25% x 15% =3.75

$1 x 25% x 10% =2.5

$1 x 20% x 20% =4.0

$1 x 30% x 10% =3.0

Corporate Alignment

Medium/ High

High

Low

Low

Competition

Low

Medium

Medium

High


60/96

Case 21: Insurance Provider (I of IV)The Boston Consulting Group, Round II

Your client is a car insurance company. Their claimsprocessing department is under pressure to reducecosts. How might you help them?

If the candidate asks what is driving their cost reductionpressure, add.

Apparently the CEO believes her competitorsprocessing cost is less. Nor necessarily thecompetitors overall payout, but the actual processingitself is cheaper.




SEE CLIENT AND COMPETITORNEXT PAGE TO ADDRESS QUE

Let the candidate draw assumptpossible to develop time spent o

Customers purchase insurance processing convenience



61/96

Case 21: Insurance Provider (II of IV)The Boston Consulting Group, Round II

AdditionalInformation to

Provide(NOT A

HANDOUT)

AdditionalInformation to

Provide(NOT A

HANDOUT)

Call center receives a call fromcustomer

Agent assigns an inspectorand informs customer ofprocess (different processesdepending onclient/competitor)

Phase A(Same across companies)

Inspector receives appointmenttime from agent and visits thedamaged car

Inspector prepares a report andestimates a reasonable payout

Our Phase B

Agent instructs customer to

have car inspected by threemechanics and fax in quotes

Competitor Phase B

Candidate should waefficient each operati

i.e.: how many claiinspector process

Things they should in Travel time Inspection time Time spent to review Report writing time Total time worked eac

Candidate should finmaking our process m

Guideline for Process Differences


62/96

Case 21: Insurance Provider (III of IV)The Boston Consulting Group, Round II

Candidate HandoutASSIGNMENT

Candidate HandoutASSIGNMENT

Previous Costs Proposed Costs

10010206010

RevenuesPhase APhase BPayouts

Profits


63/96

Case 21: Insurance Provider (IV of IV)The Boston Consulting Group, Round II



Completing theCost Diagram

and voicingconcerns about

risk

Implementing the new structure already used by competitors may cause punexpected directions (either up or down)

Potential for fraud must be addressed prior to full system wide rollout

Some customers may prefer the ease of a scheduled visit rather than havinon their own (especially if serious accident)

Leads to aclient-tailored

recommendation.

Survey selection of client base (and potential client base) anonymously to dmodel

Institute pilot program in a select area to determine effect on payout and clie

in both regards, rollout system wide

Previous Costs Proposed Costs

1001020

6010

RevenuesPhase APhase B

PayoutsProfits

10010 (same)

10 (something less)

70 (variable)10 (variable)


64/96

Case 22: Appliance Insurance (I of II)The Boston Consulting Group, Round II

Your client is an insurance company that sells homeappliance insurance. They have hired you to helpefficiently increase product sales, what would you do?

IF THE CANDIDATE ASKS FOR SPECIFICS, ADD

The client covers all appliances in the home for$400/year. Therefore any problems with the washer,dryer, air conditioning, refrigerator, range, etc, all getcomplete repair or replacement




Client sells to all households in Direct Mail Channel:

Target 60M non-moving h 50M mailers sent $0.50 per mailer to send 0.5% sales conversion rat

Sales Team Channel Target 40M moving house 80% coverage 5% conversion ratio 1000 members of sales te $100K annual salary Coverage is highly conce

regions- little coverage in



65/96

Case 22: Appliance Insurance (II of II)The Boston Consulting Group, Round II



Candidate should want to calculate acquisitioncost per customer for direct mail

And then for the sa

Candidate should drive to a set of conclusions &recommendations

Additional conversations

Sales team coverage is less costly , therefore firm shouldconcentrate on building capability in this area

Specifically: build capability in northeast

How might our sales channels affecindustrys problems with adverse swho most need insurance tend to puthose who do not)

Target marketMailers sent

Cost per mailerTotal mail cost

Conversion ratioNew customers

Cost per customer

Direct Mail

60M50M$0.5025M0.5%250K$100

Target marketCoverage (%)

Coverage (homes)Conversion ratioNew customers

Team sizeIndividual salaryTotal team cost

Cost per customer

Sal

$$


66/96

Case 23: Automobile Parts Manufacturer (I ofA.T. Kearney, Round I

Your client is an automobile interior plastic productmanufacturing company. The clients market share is20% and the industrys growth rate is nominal.

Over the past two quarters, their profits have stagnatedand the CEO is concerned.

The company has only one customer and the customercontinuously forces the client to price down. The

company has one factory outside of Detroit and thefactory is running at 70% utilization. The companymanufactures 42% of the product on that factory andoutsources the remaining 58%.

The CEO would like to improve factory utilization as wellas improve profitability could you help develop somerecommendations?




The customer has no plans to in

Two products with particulars b

Small parts are more labor intenmats

Mats lend more brand recognitismall parts

Parts produced internally have a

outsourced parts Outsourced work has lower labo


Quantity (tons)Full Cost

Price

Plastic Rugs

100$6$7

Small Parts

40$4.7$5

Internal Production


67/96

Internal capacity: 140 / 0.7 = 200 tons ; max

Case 23: Automobile Parts Manufacturer (II oA.T. Kearney, Round I



Future client demand Effect on brand name and positioning

Labor relations Undiversified client base

The standout candidate will address other concerns of thesourcing decision, such as

Candidate should want to calculate current profitabilityIf the candidate determines the pr

mix, then they should recalcula

$1

Rug (P) Equip. (P)

$0.30

Rug (Q)

100

Equip. (Q)

40 -$1

Rug (P) Equip. (P)

$0.30

Rug (Q)

180

Equip. (Q)

80+ + +x x xx

100 12 -180 24

= -$44

Internal Production Outsourced Production

$1

Rug (P) Equip. (P)

$0.30

Rug (Q)

200

Equip. (Q)

0 -$1

Rug (P)

+ +xx

$200 0 -$8

= $156 : Improvement of $

Internal Production O

+ + +

+ +


68/96

Case 24: Electronics Retailer (I of III)The Boston Consulting Group, Round I

Your client, Circuit Co., is a national consumerelectronics retailer similar to Best Buy. For the past fiveyears, Circuit Co. has grown its revenues and earningsprimarily through new store openings. However, CircuitCo. knows that this type of growth can not be maintainedforever. For the past year, the company has focused onseveral initiatives aimed at improving same-store salesand earnings. One of these initiatives has fallen by the

wayside and you have been hired to analyze thesituation.

Specifically, in the third quarter of 2003, Circuit Co. ran apilot program in the digital camera departments of itsSouthwest Region stores. The CEO wants to know:

1. Was the program a success?

2. What improvements can be made to the program?3. Should Circuit Co. roll the program out to the rest




ADDITIONAL INFORMATION ON

Details about the pilot program Traditionally, all of Circuit Co

employees were generalistsevery one of them did all of tbe done: stocking the shelvequestions, running the cash program involved setting up specialists in the digital casolely responsible for answequestions and selling digital remaining employees remainGeneralists maintained their Specialists were paid a small

commissions based on digita



69/96

Case 24: Electronics Retailer (II of III)The Boston Consulting Group, Round I



Only provide each item when askedNote: Company still growing by adding stores SKU portfolio did not chang

Pilot had no effect on other

Q3 runs June- September

Generalist wage changes in

Pilot Program Financials Additional Po

3Q 2002 3Q 2003

5027.75199251

89912

296674

Digital Camera Rev. ($M)Total Store Rev ($M)

# of storesDigital Camera COGS ($M)


70/96

Case 24: Electronics Retailer (III of III)The Boston Consulting Group, Round I

Analysis offinancial

performance

Digital camera revenues increased by about 80%

Stores increased by ~50%, therefore camera revenue per store increased a

However, COGS increased about 170% or 120% after normalizing for store

This means digital camera profits actually declined during the pilot prograrevenues increased dramatically

Leads toclients answers.

It appears specialists were focusing on selling low margin cameras in ordedriven commissions

In terms of revenues, the program was a success, however the client suffe




71/96

Case 25: Trucking (I of III)DiamondCluster, Round I

Your client is a trucking company. The company hasgrown through acquiring regional trucking companies,which are currently each managed as separatebusinesses.

The CEO, who is new and is an outsider to the company,has asked you to help prioritize some short term

investments, as well as advise on where the companyshould go in the long term.

In terms of the short term investments, the CEO isparticularly interested in a Route Optimization softwarethat has been developed by one of the regional divisionsand has significantly improved profitability within that

division. So, first the CEO wants to know what theimpact to the firms profitability will be




CANDIDATE HANDOUT EXPLAIIMPACT ON FOLLOWING PAGE

If prompted, have the candidatedemand is very stable, and expe

Current pickups or drop-offs/ hr Pickups or drop-offs/ hr w/ softw

Hourly rate $100 Annual system wide pickups: 4M Drop-offs: 4M Tax rate: 40% No depreciation

Labor is 1/3 of total costs Labor is 50% pickups & 50% del

Ask candidate to outline their idFuel



72/96

Case 25: Trucking (II of III)DiamondCluster, Round I

CandidateHandout

(upon requestabout

softwarefunction)

CandidateHandout

(upon requestabout

softwarefunction)

Market A Market B

Region 1:Pick ups &

Deliveries

Impact of software

Long Haul

A

B

C


73/96

Case 25: Trucking (III of III)DiamondCluster, Round I

CandidateHandout

(upon requestabout

softwarefunction)

CandidateHandout

(upon requestabout

softwarefunction)

This is the cost savings excluding a system widerollout and system maintenance costs. Since

the system already exists in one market, thesecosts can easily be modeled for whole system

Watch the candidate frame oshould think about the struprocess is more important th

What are the benefits?Overhead consolidation

Access to marketsCentralized/ non-duplicatiEfficiencies in long-haul tr

What are the costs?Startup integration costs

Severance/ shut-down cosAdvertising for increased

Candidate should calculate cost reduction:Question: What should the Cis looking to integrate the di

2 pickups/ hr 8M pickups &drop-offs/ yr

$100/hr* * = $400M

2.5 pickups/ hr8M pickups &drop-offs/ yr

$100/hr* * = $320M

$80MPretax Benefit

$32MTaxes @ 40%

$48MFinal Benefit

-


74/96

Case 26: Hong Kong Port (I of VII)McKinsey & Company, Round I

Your client is Hong Kong port. The management isconcerned about revenues going down and asks foryour advice.

When asked to further elaborate on the business, add

Lets assume that the only source of revenue for the

client is container processing services related toshipment of containers. A manufacturer that wants toship a container hires a shipping company. The shippingcompany tells him what ship the container should beloaded on. The manufacturer brings a container to theport and pays the port for taking care of everything(paper work, possible storing, loading on ship) to be

done to load the container on the ship named by themanufacturer.


Establishing the Case -BACKGROUND

Establishing the Case -BACKGROUND

CANDIDATE HANDOUTS ON FO Revenues have been decreasing

Current sales of $200M/ yr

Client has 50% market share

Industry is growing at 7%/ yr

Competitors (both modernized imainland China ports, Zhanjiang

Customers: Guangdong (mainlamanufacturers (typical route is C

Customers are VERY cost sensi

No difference in shipping cost fr

Handouts: Container Processing Costs



75/96

Case 26: Hong Kong Port (II of VII)McKinsey & Company, Round I

Candidate Handout(Upon Request)


Hong KongZhanjiangShenzhen

Port Container Processing Cost

$320$300$310

Processing Cost


76/96

Case 26: Hong Kong Port (III of VII)McKinsey & Company, Round I



Gross marginOperating margin

Hong Kong

20%10%

Zhanjiang

17%10%

Shenzhen

22%10%

Port Margins


77/96

Case 26: Hong Kong Port (IV of VII)McKinsey & Company, Round I



Fixed costDirect labor cost

Materials / fuel / variableSG&A

Hong Kong

60%20%10%10%

Zhanjiang

70%15%8%7%

Shenzhen

65%15%8%

12%

Port Cost Structures


78/96

Case 26: Hong Kong Port (V of VII)McKinsey & Company, Round I



Map of Area

20 miles


79/96

Case 26: Hong Kong Port (VI of VII)McKinsey & Company, Round I

AdditionalInformation


What drives the customer decision in choosing whichport to ship from?

What costs does a manufacturer incur while shipping acontainer from his plant to end customers?

How does the manufacturer get the container to port?

How about manufacturer transportation costs?

Manufacturer transportation cos

Hourly labor cost is the same fo

There is an administrative borde

mainland China- trucks have to clearances (and endure long wa

50% time waiting, 50% in cus

Long lines in evenings, but no li

Customs communications are h

Need two drivers for HK, mainlaalso salaries much higher in HK

HK government has a stake in th

If the candidate does not drive to manufacturertransportation costs in 15 min., provide hints


Total Cost

Hong Kong

$300

Zh


80/96

Case 26: Hong Kong Port (VII of VII)McKinsey & Company, Round I



Convince HK government to invest in building out thecustoms station at the border to increase throughput

Invest in updating customs information andcommunication systems

Lobby HK government to abolish regulation thatprohibits Chinese commercial drivers to drive in Hong

Kong

These will all reduce manufacturer transportation costs

Orchestrate a single customs clor at port) rather than a customs

Establish a separate trucking coborder cost

This is a short-term solution

Incentivize manufacturers to shi

at night to avoid evening rush

Expected Recommendations Creative Recomme


81/96

Case 27: Argentinean Bank (I of III)McKinsey & Company, Round I

Your client is a bank in Argentina who has historicallyserved individuals or large corporations. There are onlythree other large banks in the market, with each havingequal market share and cost structures. Last year, yourclient was the first bank to enter the small to mediumbusiness market and made some money. They did thisprimarily by offering the businesses the same servicesthat they offered the small and large companies throughtheir retail outlets. They would like to understand how

they could become more profitable

Problem statement narrative (I)

Small to medium business mark Users are very price sensitive Clients cost structure is rather s Clients retail outlets can

Information provided

Establishing theCase (I)

Establishing theCase (I)

If the candidate has asked the appropriate questionsabout the profit equation, it is apparent that

Price can not be easily changed

The cost structure is currently very good

Initial question solution elements

ASK CANDIDATE:Please give mproducts that you would offer to

sized businesses

Initial question fo


82/96

Case 27: Argentinean Bank (II of III)McKinsey & Company, Round I

Lets do some calculations.

Right now, we make $1000 Revenue/Product, Have $160Million in profit, and service 2 products per customer.

The current cost structure is 20% profit, 20% fixed, and

60% variable.

Given the services you have talked about we predict thatcustomers will increase to 600,000 expected customers,3 products per customer, the revenue per product staysthe same, the variable cost per product stays the same,what is the expected profit?

Problem statement narrative (II)

Current Structure$160 M Profit

$160 M Fixed

$480 M Variable

$800 M total Revenue

$800 M Revenue/ $1000 Revenue/

800,000 Products

Variable Cost Per Product = $600

New Structure

Rev. 600,000 customers*3 produ$1,800 M

Fixed Costs $160 M

Requisite math &

Establishing theCase (II)

Establishing theCase (II)


83/96

Case 27: Argentinean Bank (III of III)McKinsey & Company, Round I



Ask candidate:can you provideme a couple of

ways to segmentour small andmedium sized

businesscustomers?

Answers (which should be backed up by some rationale) could in Risk susceptibility Size (revenues)

Size (employees) Industry (service/ production) Lender services Borrower services

So, should wemove forward

with this?

Given the potential return and connection to our current offeringoutweigh the risks- looks like a go! (candidate should structure


84/96

Case 28: Sandwich Bags (I of VII)The Boston Consulting Group, Sample Case



Your client is a very small consumer packaging

company. One of their product lines, for which theyhave one dedicated machine, is plastic bags for foodstorage. They have 3 sizes of bags 4 (sandwich bag)8 quart bag and 12 (gallon bag). The bags are all thesame width the sizes refer to the length of the bag.

The client is facing more demand than they think that

they have capacity to produce. They have called us in tofigure out a 2 key questions:

How can they best utilize their current bag capacity?

Should they invest in a new bag machine?

Lets start with the capacity question. How would youwant to start to think about this problem? What

Candidate should be interested

Capacity of the machine Demand for each product Revenue / costs for each pro Production time for each pro

Provide candidate with capacityprofitability slides if they ask for

Prompt with So, based on this would you recommend the comprollers and why?

Answer should be: 4 and 8overload

PART II: So, the client has somhave not met, should they invesWhat information would you like

If asked:Cost: $750K

Problem statement narrative Interviewer guidance &


85/96

500 bag-widths produced pe

Runs 20 hours / day

5 days / week

50 weeks per year

Total of 5000 hours of producti

Key Capacity

4 bags

Machine

Machine

Machine

8 bags

12 bags

1bag-width

1bag-width

4 4 4 44 4

8 88

Case 28: Sandwich Bags (II of VII)The Boston Consulting Group, Sample Case

CandidateHandoutCapacity

(Upon

Request)

CandidateHandoutCapacity

(UponRequest)


86/96

4

8

12

# bags /bag-width

6

3

2

Profit /bag ($)

.02

.03

.04

Annual Dem(# of bag

9M

3M

3M

CandidateHandoutProfits &Demand

(UponRequest)

CandidateHandoutProfits &Demand(Upon

Request)

Profitability and Demand by Product Type

Case 28: Sandwich Bags (III of VII)The Boston Consulting Group, Sample Case

C


87/96

4

8

12

# bags /bag-width

6

3

2

produced perhour

3000

1500

1000

Profit /bag ($)

.02

.03

.04

Demand(# bags)

9M

3M

3M

TotalProfit ($

180k

90k

120k

CandidateHandout

(Aftercompleting

previousmath)

CandidateHandout

(Aftercompleting

previousmath)

Completed Profits & Capacity

Case 28: Sandwich Bags (IV of VII)The Boston Consulting Group, Sample Case

Addi i l


88/96



Ask: What would you have to believe to say a new

machine is a good idea? (suggestions) Demand would increase faster than 2% A new product could be introduced Capacity could be rented out Prices will increase

A NEW PRODUCT Tell candidate: lets say the clients R&D team has just

come out with a new bag. It is a 2-in-1 bag, one sideholds your sandwich and the other side holds yourchips or lettuce to keep things from getting soggy.This bag is a 6 bag. Assume that if we stated toproduce this bag tomorrow it would be accepted, therewould be no lag time for people to catch on to using it.

What annual profit per bag would we need to generate inorder to make the new roller a good purchase

$120K per year from 12 bags

$600K profits over 5 years

Need $150K over 5 years for pay $30K per year $0.03 per bag at 1M bags $0.015 per bag at 2M bags $0.01 per bag at 3M bags

To candidate: So, if we coulproduce 1M bags we would bgraph(next page), please drarepresents all of the price/quwhere we would be willing toin the roller.

Does this curve have any end

Should we invest in a new machine? Getting the ans

Case 28: Sandwich Bags (V of VII)The Boston Consulting Group, Sample Case

C did t


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profit perbag ($)

0.03 x

CandidateAssignment

DemandCurve

CandidateAssignment

DemandCurve Case 28: Sandwich Bags (VI of VII)

The Boston Consulting Group, Sample Case

S l S l ti


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Getting the answer



Lets assume that we take the $

combination. We can produce or 2000 bags per hour. Total prhours so we still have 1500 hounew roller.

The client would like to come uinnovation. They would like to bags, or perhaps a bigger bag. have remaining, just brainstormmight investigate for a large sto

This is an open-ended questioncandidate constructs thoughts solutions.

Bonus

# of bags (M)

profit perbag ($)

1

0.03 x

0.015

0.01

2 3

Case 28: Sandwich Bags (VII of VII)The Boston Consulting Group, Sample Case

E bli hi h

Establishing the


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Case 29: Gift Wrapping Paper (I of III)The Boston Consulting Group, Round I



Your client is a gift wrapping paper manufacturer in the

United States. They are considering a proposal tooutsource their manufacturing to mainland China. Youhave been called in to assist in the go / no-go decisionmaking process. They would like to know yourthoughts and your recommendation

ASK CANDIDATE TO BEGIN BY ESTABLISHING COST

BUCKETS

AFTER COST BUCKETS ESTABLISHED, ASK HOW THEYMAY DIFFER IN CHINA (A: LOWER LABOR COSTS?)

LET CANDIDATE STEER INTERVIEW FROM HERE

Cost comparison provided on ca

do not provide until candidate odifferences and asks for specific

Fixed costs include: Plant & machinery See diag Employees See diag

Variable costs include: Raw paper material $20 per Ink $100 pe

$50 in C Ink is special wrapping pape

unavoidable cost

Shipping cost from China to US is


C did t

Candidate


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CandidateHandoutProfits &Demand

(UponRequest)

CandidateHandoutProfits &Demand(Upon

Request)

United States

China

1 Unit Parts & MachinesCost: $100 each

1 EmployeeCost: $100 each

+ =

Case 29: Gift Wrapping Paper (II of III)

The Boston Consulting Group, Round I

Gift Wrapping Paper Production Comparability Between Mark

S l S l ti

Sample Solution


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Case 29: Gift Wrapping Paper (III of III)The Boston Consulting Group, Round I



Establish base US

costs

$100 Parts & Machines$100 Labor Expensive US based labor$20 Paper Commodity- difficult to lower

$100 Ink Specialized product

Generate comparableChina costs

$100 Parts & Machines More equipment may increase repair c$50 Labor Lower per employee, but hiring/firing$20 Paper$50 Ink Closer to supplier, still expensive

$150 Shipping

Compare two fullyloaded costs for

options

Shipping is the deal-breaker for China Lower shipping costs would increase attractiveness

What might some alternatives be? Bulk, sheets rather than rolls? More variables to manage in China, not very labor intensive product in US

G t

Does not look viable at this time

T k i k l t i Chi t dd l t t ti l f

E t bli hi th

Establishing the


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Case 30: Automobile Manufacturer (I of II)Booz Allen Hamilton, Round II



Your client is a leading auto manufacturer in the United

States. There are three primary players in this market.Historically, the market leader had 30% share, our clientand the other player both had 20% market share.

Over the past 2 years, your clients share has beenfalling, and it wants to know why.

This is an understanding the m

profitability case. If prompted, runderstanding for the industry.not want to drive to the profit eq

Elasticity of demand: 5

Consumer preferences are the sshifted

There are no warranty, capacity,

Competitors price with a huge s No major product portfolio c

Client market share has fallen fr


Sample Solution

Sample Solution


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Case 30: Automobile Manufacturer (II of II)

Booz Allen Hamilton, Round II



Competitors Client

Similarly elastic demand Have a summer sale

No extraordinary innovation Unknown production Unknown customer satisfaction

Very elastic demand No summer sale

No extraordinary innovation Solid production Solid existing customer satisfaction

Price sensit Not complai

quality Still purchas Preferences

Math to determineprice change

Need to regain 20% market share This is a gain of about 35% (15% share increasing to 20%)

With a elasticity of demand of 5, increasing share 35% will require a price d

Is a straight price drop the best way to regain customers?

Recommendedl ti

In order to prevent competitors following a price reduction to regain share

locked methods the client can pursue: Discounting higher-margin after-market products or add-on features


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Ross Casebook 2006 for Case Interview Practice | MasterTheCase

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