Reduce Costs Case #1

From:http://consultingcases.blogspot.com/

MDP to Re-design Supply Chain for Metal Processing Factory

Case Type: reduce costs; operations strategy.

Consulting Firm: AlixPartners second round job interview.

Industry Coverage: Freight Delivery, Shipping Services; Transportation.

Case Interview Question #00520: Our client Madison Dearborn Partners (MDP) is a private equity firm specializing in leveraged buyouts of privately held or publicly traded companies, or divisions of larger companies; recapitalizations of family owned or closely held companies; balance sheet restructurings; acquisition financings; and growth capital investments in mature companies. The firm was founded in 1992 and is based in Chicago, Illinois, United States.

Madison Dearborn Partners has recently bought a metal processing company in Chicago. You have been hired as a consultant by MDP and they want you to re-design the supply chain system for the finished goods produced by this Chicago metal processing company. How will you proceed?

Additional Information:

The client MDP has three specific objectives.

1. They are concerned only about the outbound finished goods

2. Minimize Cost

3. Reliable product delivery

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case from:

MDP to Re-design Supply Chain for Metal Processing Factory

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 SUGGESTED ANSWER:

 

me: first i would like to see if the company has any other objectives other than redesigning the supply chain system.

 

I: the client has three objectives, they are concerned only about the outbound finished goods; minimize costs; reliable product delivery.

 

me: i would like to look at the following key components:

• the company
• the products
• the customers/market
• and the costs to re-design the facility

I: fair enough.

 

me: first of all, i would like to know where are we positioned in the market?

 

I: the company is a major palyer on the market.

 

me: where are we in the life cycle, growth? mature? declining?

 

I: mature.

 

me: the company then should have sufficient srources of funding and resources to support its activities.

 

I: yes.

 

me: may I know who are the target market, the customers?

 

I: we target primarily companies in the greater chicago area and the great lakes area.

 

me: how do we reach the market now?

 

I: we have trucks services that transport the material to these area.

 

me: I would imagine transporting the material to chicago area is okay, but to other areas that are further from us with trucks may not be a good idea. do we have data on the costs associated with these transportations?

 

I: yes, the costs can be high. how do you suggest we go about this?

 

me: well, we have several options. we could outsource the service to professional logistics companies that use trucks and railroad and other means to transport large bulk materials. or we could acquire a firm that has the existing supply chain and try to build it into our system. Do we have competitors?

 

I: there are 2 other major firms and several small firms.

 

me: I would look into acquiring the small firms if they have good supply chain.

 

I: good.

 

 

 

 

 

 

Declining Market Valuation #1

From: http://consultingcases.blogspot.com/search/label/declining%20market%20valuation

Fluor Corporation to Eliminate 750 Engineer Positions

Case Type: reduce costs.

Consulting Firm: Booz & Company first round job interview.

Industry Coverage: engineering & construction.

Case Interview Question #00532: The client Fluor Corporation (NYSE: FLR) is a large publicly owned engineering, procurement, construction, and maintenance (EPC / M) services organization. Based in the Las Colinas area of Irving, Texas, the company employs more than 41,000 international employees and maintains offices in over 25 countries. Fluor is a Fortune 500 and a S&P 500 company.

The company’s main business is to build large refineries and large industrial plants. They are global in nature and operate in four main regions. This company is a recent roll-up of three smaller companies that operate independently. They have $1 billion in revenue for fiscal year 2008. Recently, however, Fluor has seen their market valuation drop sharply. You have been hired to find out the reasons behind Fluor’s declining market valuation. How would you go about it?

Instruction to the interviewer:

The objective of this case is

• To see if the candidate can comprehensively explore the possible reasons and causes of declining market valuation.
• To see if the candidate can structure and articulate an intelligent structure with which to approach the problem.
• To see if the candidate can complete simple mathematical/quantitative analysis.

The case should start with the candidate hypothesizing the reasons that could lead to declining market valuation. This is a simple test of idea generation. Ask the candidate to list a structure with which they will approach the problem. Check his/her structure to see if it seems reasonable and comprehensive.

 

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Case From: http://www.consultingcase101.com/fluor-corporation-to-eliminate-750-engineer-positions/

 

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 Hint:

(From http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1074411173&type=RESOURCES)

Value and market your business

Key factors affecting the value of your business

 

Finance

• Historical, current and projected profits and cashflow.

• How well you control costs.
• Need for capital expenditure in the near future.

External factors

• State of the economy in general including interest rate levels and the level of demand in your market in particular.
• How similar businesses are being valued.
• How many potential purchasers are interested in the business.
• How many similar businesses in your sector are on the market.

Intangibles

• Goodwill and intellectual property such as patents.

• Strength of customer relationships – and how profitable they are.
• Your business’ growth potential.
• Economies of scale a new owner could leverage.

Assets and liabilities

• Value of assets such as property, equipment, debtors and stock-in-hand.
• How full your order book is.
• Level of debt and other existing liabilities.

People

• The management’s record of success.

• How dependent the business is on your own skills – and the likely extent of your future involvement.
• Experience and commitment of key staff.

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 SUGGESTED ANSWER:

me: interviewee

I: interviewer

 

me: so our client is experiencing a drop in market valuation, and you want me to identify the main reasons for this drop. are there any other objectives?

 

I: you are right, no other objective is relevant.

 

me: there are a number of factors that could affect a business’s market valuation

• the industry overall. how is the industry overall doing?

  I: the industry overall is strong.

• the company’s growth and potential. how are doing? do we have a lot of businesses to do or are we loosing market share?

  I: we have a lot of businesses to do. the organic growth is strong.

• the company’s finances and operations. how is debt structure like in our company? do we have a large portion of debt? or do we have plans to incur debt in the near future that might have triggered a downward pressure on our market valuation?

  I: no, the company’s debt structure is healthy. we do not have plans to incur large amount of debt in the near future.

  do we have data on the profit? profits up or down?

  I: profits is growing.

  our revenues?

  I: revenues up.

  our costs?

  I: our company is loosing margin

 

me: I believe i have found the main reason here. the company’s revenue is up, but the profit margin is shrinking, it must be the costs that are associated with the operations. am i right?

 

I: good, go on.

 

me: so i would like to look at the costs of the company. If I could have a cost breakdown, I could run some numbers to determine which part is responsible for the shoot-up in costs.

 

I: how would you obtain these inforamtion.

 

me: I am gonna have to talk to your finance people, accounts, and different departments. I may have to interview them again to validate the information that i have obtained after I come up with a plan and draft.

 

I: summarize for me.

 

me: usually there are several factors that typically affect a company’s valuation:

 

a) the industry overall, and the economy.

b) the company’s finances. if the company has a large portion of debt (high debt to equity or debt to asset ratio) then the company may face a downward valuation. also if the company has plans to incur debt to fund projects that need capital expenditure in the near future then it could also affect the market valuation.

c) the company’s operations. if the revenue is down; the profits are down; or the profit margins are shrinking; costs are shooting up. then the company could face a drop in market valuation.

d) the company’s management is also crucial. if the management is incompetent or not trusted by the public and investors, it could also lead to drops in market valuation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Increase Sales or Market Share Case #1

From: http://consultingcases.blogspot.com/2012/09/increase-sales-or-market-share-case-1.html

Colt Responds to Beretta’s Entry to U.S. Market

Case Type: business competition, competitive response; increase sales.

Consulting Firm: IBM Global Business Services (GBS) first round job interview.

Industry Coverage: aerospace & defense.

Case Interview Question #00553: Our client Colt’s Manufacturing Company (CMC, formerly Colt’s Patent Firearms Manufacturing Company) is a United States firearms manufacturer headquartered in Hartford, Connecticut. Colt is best known for the engineering, production, and marketing of firearms over the later half of the 19th and the 20th century. Colt’s earliest designs played a major role in the popularization of the revolver and the shift away from earlier single-shot pistols. The most famous Colt products include the Walker Colt, Single Action Army or Peacemaker, and the Colt Python.

Colt has been the national market leader of firearm manufacturing and sales for more than 150 years. Recently, however, they have seen a sharp decrease in sales. What are the reasons of their sales drop and what can we do to proliferate sales?

Additional Information: (to be given to candidate if asked)

• Colt’s market share in year 2011 was 45%; in 2009 was 55%.
• The firearms industry in the U.S. has grown by 3% annually in the last two years.
• The most popular “Colt M1911″ pistol constitutes 70% of Colt’s sales. Remaining sales are from specialty firearms suppliers.
• Costs of production, distribution and marketing have not changed over the last two years.
• Prices increased only with the rate of inflation.
• Brescia, Italy based Italian firearms manufacturer Beretta entered the U.S. market in 2007 and has since been growing rapidly. They outsource their production and thus offer a cheaper alternative: the “Beretta M9″.
• Besides a few small local companies, no new company has entered the U.S. firearms industry.

 

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case obtained from

Colt Responds to Beretta’s Entry to U.S. Market

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SUGGESTED ANSWERS:

 

me: so you are asking me to identify the reasons for the decrese in sales and try to increase sales? are there any other objectives that I should know of?

 

I: no, you are to focus on the designated task. 

 

me:  before I jump into analyzing the firm, i wanna know how the industry overall is doing.

 

I: The firearms industry in the U.S. has grown by 3% annually in the last two years.

 

me: so the market overall is doing okay, the problem must be the client-specific. Do we have data on how much has our market share changed?

 

I: Colt’s market share in year 2011 was 45%; in 2009 was 55%.

 

me: so the market share has gone down by 10% of the total market. Can i ask for a breakdown of all the businesses that we do? market breakdown of all the different types of colts that we sell?

 

I: The most popular “Colt M1911″ pistol constitutes 70% of Colt’s sales. Remaining sales are from specialty firearms suppliers.

 

me: ok have we gone out to ask the customers what they need from us?

 

I: no.

 

me: you probably wanna do a little market research there to find out.

 

I: what else?

 

me: ok, i would look at the competition. Have the competitors launched new products?

 

I: not exactly. 

 

me: are there any new entrants to the market?

 

I:  Brescia, Italy based Italian firearms manufacturer Beretta entered the U.S. market in 2007 and has since been growing rapidly. They outsource their production and thus offer a cheaper alternative: the “Beretta M9″.

 

me: so price-wise, our product is more expensive than the competition, which is a new market entrant. So it seems to me that the Italian firm is the reason why we are loosing market share, would you agree?

 

I: go on. 

 

me: so i would look into the competition here. they offer a product that is an alternative to our colt, and is much cheaper because they outsource their production.

there are a few options we can do.

• we could acquire the competitor. is that a good idea? another idea is to merge with the smaller firms that you mentioned to achieve economies of scale, but I would be extremely cautious about mergers and acquisitions. I would have to look at the customers, the products, the company and the competition to do an analysis to arrive at a conclusion.
• we could merge with the competitor.
• we could try to copy the competitor. probably hire the management of the competitor too. we could outsource our products and we could achieve cost savings and offer the products at a better price to our customers.
• we could increase our own profile through PR campaign and advertisement. The Italian firm wins market share because it is cheap, if we can offer the same price or slightly higher price, and follow up with PR and marketing, even some kind of loyalty program, then we should be able to pick up more sales.

 I: summarize for me.

 

me: our client is experiencing a decline in sales and market share. the market overall is doing well, so it was the company specifically. the main reason for the decline would be the new entrant to the market which is the Italian firm that make cheaper alternative through outsourcing.

So i would suggest we could copy their model and launch PR and marketing campaigns to win customers. Another way to increase market share might be to acquire the Italian firm, or to acquire the smaller competitors to achieve economies of scale that make our price competitive again. Merging with the Italian firm might also be an option, but I would not rush into it, because when the company is loosing ground to its enemy, it doesn’t usually sell at a high price.

 

 

 

 

 

 

Improve Profits Case #1

From: http://consultingcases.blogspot.com/2012/09/improve-profits-case-1.html

White & Case to Boost Profits for Its New York Office

Case Type: improve profits.

Consulting Firm: Compass Lexecon first round job interview.

Industry Coverage: law & legal services.

Case Interview Question #00566: The client White & Case LLP is one of the world’s most prestigious global law firms. Headquartered in New York City, New York, the firm has practice groups in emerging markets including Latin America, Central & Eastern Europe, Africa, the Middle East and Asia, as well as in Europe. As of 2012, White & Case has 38 offices in 26 countries around the world, employing more than 2,000 attorneys.

For this case, we are only concerned with White & Case’s New York City office. The company’s New York office sells to several industries and mainly to its local region: New York City. The New York Office’s Managing Partner has just reviewed the office’s performance in last year and projections for this year and next year, and he is not happy – he wants your ideas in helping boost profits. What do you recommend?

Additional Information: (to be given to you if asked)

• Revenue (Last Year) = $46 million.
• Profits (Last Year) = $4.5 million.
• The client company’s New York office lawyers bill $300 per hour on average.
• The industry is growing slowly, which is better than we can say for our firm.
• White & Case New York office’s industry focuses are healthcare, energy, financial services, and telecommunications.
• The law firm’s New York office sells almost entirely to the greater New York City region.

Exhibit 1: White & Case LLP New York Office Revenue Breakdown (Last Year)

Exhibit 2: White & Case LLP New York Office Operating Costs

Operating costs	Last year	This year (projected to year end)	Next year (projected)
Sales and marketing	4393110	4612770	4843410
Rent	1535090	1535090	1535090
General and administrative	686720	721060	757110
Research and development	36000	36000	36000
Personnel	31513850	40968010	61452020
Depreciation and amortization	581820	581820	581820
Interest	225000	225000	225000
Taxes	2696970	3368810	4804830
Total operating costs	$41668560	$52048560	$74235280

Exhibit 3: White & Case LLP New York Office Employees By Industry

* Note: Total number of lawyers in New York office = 77. The office’s lawyers bill (bring in revenue of) $300 per hour on average.

Exhibit 4: White & Case LLP New York Office Billable Hours Per Employee

Billable hours	Last year	This year (projected to year end)	Next year (projected)
Healthcare	2101	2150	2123
Energy	2077	2032	2049
Financial services	1800	1676	1372
Telecommunications	2140	2142	2147

* Note: lawyers bill almost 100% of their total hours worked. They charge an average of $300 per hour.

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case obtained from

http://www.consultingcase101.com/white-case-to-boost-profits-for-its-new-york-office/

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SUGGESTED ANSWER:

me: interviewee

I: interviewer

me: i would first ask : So the client want me to increase the profitability of the law firm for the new york office, is there any other objective that i should be aware of?

I: the company’s profitability is the only objective to be considered.

me: I would like to know if the market overall is doing? is this an industry wide problem or a problem that is company-specific?

I: the industry overall is growing slowly, but is better than our client’s firm.

me: I would approach this problem from two aspects. I will try to boost the revenue, then I will try to cut costs. First, may i know the revenue for the client for the last year?

I: $46 milllion

me: what is the company billing its clients on a per hour basis?

I: $300 on average.

ask myself: May I know the revenue breakdown for each of the sectors that our client company serves?

exhibit 1

healthcare: 22,141,931

telecom: 12,826,521

financial services: 7,501,926

energy: 3,598,520

me: why is a new york based law firm has such a small share in financial services? possible strategy would be to boost this sector of the client’s firm.

I: what else?

ask myself: do we have data on how the revenue for each sector has changed? up or down? do we have projections?

exhibit 4: billable hours per employee

healthcare: gone up a small percentage this year, but expected to decline next year. can we do something about this?

energy: declining by a small amount. can we do something about this?

financial services: declining sharply. considering the strategic location of new york, I would recommend try to boost the revenue here at this sector. possible strategy would be to lower the price for this sector, try more effective marketing, build relationship with existing clients to try to secure long term contracts.

ask myself: May I look at the cost please?

exhibit 2 operating costs

the total operating costs are going up sharply. Total operating costs rising : 25% this year, projected 43% next year.

me: do you want me to run some numbers and break down the costs of each factor? in this way we could possibly find out which factor has the most shoot-up in costs.

I: yes pls.

me:  let’s break down the different parts of the costs:

sales and marketing: not much difference in there. small amount of increase

rent: remains the same for the three years.

general and admin: this part has gone up. 5% increase this year, 5% next year.

• this part is not going up too bad, but probably we could cut costs by implementing better management system? there are successful corporate management systems out there.

research and development: remains the same

personnel: this part has gone up dramatically. 30% increase this year, 50% next year

• definitely have to do something here. how about switching salary to per-hour basis? this would encourage the lawyers to try to work longer hours to boost revenue. (I’m pretty sure your employees are gonna hate me.)

you probably wanna ask the number of employees and their work hours. depreciation and amortization: not changed.

interests: not changed

taxes: gone up. 25% increase this year, 40% next year

• normally I would assume nothing much can be done here. but some firms do consider hiring professional accountants and accounting consulting firms to look at their books. 

ask myself: how many employees are there at your firm? their salary structure?

exhibit 3 employees by industry

the billable hours overall declined over the last year as compared to the previous. I would suggest we try to boost the financial services sector, while trying to hold the other sector constant.

the bonus is not telling much information, but we should probably switch to per-hour based bonus to encourage employees to work longer hours and bring more revenue.

total number of employees = 77

total revenue $46 million

$300 per hour billed to clients

total work hours: $46 million/$300 = 153,333 hours of work

work per employee: 153,333/77 = 2,000 hours per year = 38 hours per week (or if you are not allowed to calculators, say there are roughly 50 weeks year, then it is a little less than 40 hours per week work hours for the lawyers.)

• this is a very small amount of work time devoted. 
• should try to encourage employees to work longer hours.
• probably structure the bonus in a per-hour basis

I: summarize for me

me: there are several problems here with the firm.

first, looking at revenue, the financial sector is weak, especially considering this is a NY based law firm. and the billable hours are declining.

second, looking at the cost side, the firm is paying a lot of money on personnel costs, which is increasing. and the work hours for the employees are 38 hours per week, which is not much. the taxes are also going up, but that might not be something we have control over. (ask the interviewer, is this assumption right.)

actions:

first, i would recommend strengthen the financial sector. possible strategies are to lower the price, conduct better marketing research and launch better marketing and sales campaigns. also try to at least hold the other sector constant, don’t let them slip.

second, i would switch the salary and bonus structure to per hour based. this could save us a lot of money on personnel costs, while encouraging employees to work longer hours.

third, the marketing at the firm needs revisiting. costs are up but the revenues are falling. that does not make sense to me.

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