Distribution cost cutting structure

Question

Hey guys, wanted feedback from the forum what the structure would look like for a prompt like this. Thanks in advance!

Your client is a large manufacturing company that makes high quality pots, pans, and other stainless steel cookware. Their products are sold in specialty stores and department stores.

Last year, the company spent over $2 million in distribution costs, which they feel is too high. You have been hired to help them figure out how to save money in product distribution.

Answer 1

First off, you should ask some clarification questions such as:

How much is distribution out of revenues (or you just ask for revenues)?
What type of specialty stores do they sell to?
How distribution is organized? Through third-party distributors or internally or both?
What is the business model? Do they sell to the stores or do they stock the product at the store and get paid once the good is sold to the end user (or a mix)?
What is the incentive structure?

Then you can structure it accordingly to the pieces of information that are provided to you.
I would try to consider a very practical structure that considers (for instance)

finished good product stocking costs (if part of the distribution costs)
packing costs
shipping costs
return costs (and policy)

For shipping costs, you can try to segment by the type of store, distance from manufacturing plant(s), type of distributor, etc.

I just gave you some ideas to consider. The key message I want to state is that your structure has to be MECE and insightful. In order to be insightful, you have to craft a structure that is connected to the pieces of specific info you have.

In case you want to improve at structuring in line with the above, happy to coach you.

Best

Answer 2

For any case, there can be many ways of approaching it; just sharing one line of thinking below:

Here, we have have been given a somewhat specific problem - that one specific variable cost has been increasing. For questions like this it is even more important not to try and regurgitate a canned higher level framework that would miss the point of the question we are asked.

The starting point I would use is to try and understand what are the key points we need to diagnose the issue. In my mind, the core question is to find out what is driving the costs, and from there you can brainstorm solutions. Specifically 3 main questions are:

1. Is this a market problem? Are other competitors experiencing similar increases and/or are there macro factors in play?
2. Is this a third party issue? E.g. can we isolate this to specific distributors, or specific regions?
3. Is this our issue? Can we isolate it a specific product line or specific distribution cost lever (shipping, storing, packing, etc.)? Has this come up in the past?

From here you can clearly see we have 3 main buckets to explore in our framework, with some sub-buckets to dive into. Your framework does not have to be similar to this, but by making sure you cover all the bases you can make it clear to the interviewer you have thought through all possible options.

Answer 3

Hi there,

I love this prompt because it tests whether the candidate can truly framework! A bad candidate will just say “Fixed costs are x and variable costs are y” etc.

Here are some options:

Option 1

Internal (figure out how to optimize internally)

External (look to pay/outsource distribution)

Option 2

Procurement

Packaging

Transport

Storage/Warehousing

Option 3

People

Processes

Tools/Tech