Hot Wheels

The following information can be shared if asked:

• KCP serves the Korean, Japanese, and US markets
• They are seeing good, growing profits in Japan and Korea, but US profits are falling
• The US Market is not declining overall, it’s increasing/growing (KCP's competitors in the US market are seeing growth)

In the first phase, the candidate needs to figure out if there is a geographic specificity to the client's falling profits. The interviewee needs to ask if we’re seeing differences in the different markets the client serves.

The candidate needs to realize that our client's presence in the US market needs further investigation.

If asked, you can provide the following information:

• Our clients sells the same products across all markets
• They specialize in 5 different products – carburetors, A/C units, wheels, airbags, and seatbelts

To calculate profitability, the candidate will need to know the following profit margin:

• Carburetors = 52%
• Wheels = 25%
• Airbags = 20%
• A/C units = 40%
• Seatbelts = 50%

It’s very important that the interviewee asks about what types of original equipment our client manufactures.

The interviewee needs to identify that total profits have been decreasing, and that falling sales in Wheels, Airbags, and Seatbelts is the culprit.

At this point, the interviewee needs to figure out what parts matter and what is causing sales to drop. If they ask, you can clarify the following:

• Our client has not seen rising costs
• We have seen falling revenues
• Our client has not changed prices at all
• No unusual government regulations/tariffs

The interviewee may inquire about the current delivery time. Our client currently manufactures in Asia, where costs are low, then ships the products eastward, over the Pacific Ocean to the US.

• It takes our client 2 days to manufacture a product once ordered. It then takes 20 days to ship across the pacificand ~2 days to transport by road and rail in the US
• Local competitors do not have to ship to the US, so they only take a total of 4 days to manufacture and ship to buyers

Other answers can be given on the spot for other suggested possibilities, but they should all lead to the realization that profits are falling because of lack of demand for those products translating into fewer items sold.

What do you think could be causing falling quantities? → Possible answers to this question include:

• Brand issues (answer - the client is a reputable brand)
• Failure to meet orders (answer - we are supply constrained and need to prioritize production, but we have not been failing to meet orders)
• Change in consumer preferences (answer - this could be something to look at)
• Less demand for certain products (answer - the products are in high demand)
• Competitors taking market share (answer - this is currently happening. We are losing sales to competitors)

The candidate should come up with the following insights from the exhibits:

• For our client’s struggling products (Wheels, Airbags, and Seatbelts), consumers really care about time to delivery, which our client isn't providing but local competiton is
• For carburetors and A/C units, those really align with our client’s strengths

The candidate should realize the 20-day difference in delivery times, and recognize that this is where our disadvantage in time to delivery comes from.

Now that the interviewee realizes that the failing product lines are failing due to the transit of goods across the Pacific ocean, they must brainstorm some methods to fix this.

Some possible answers are:

• Moving operations to the US
• Building a warehouse in the US to store goods in anticipation of orders
• Flying products over

Ultimately, the interviewee needs to realize that all of those options are both more expensive and take time + capital to implement, dramatically affecting margins. They should also realize that it is not an option to price compete, as this will also reduce margins.

The ideal solution for our client is to stop selling the product lines that are currently selling poorly in the US: Wheels, Airbags, and Seatbelts.

Additionally:

• They could look to increase the prices we charge on carburetors and A/C Units, or promote them more aggressively in the US
• They could also look to continue to leverage their presumed strengths regarding time to delivery in Japan and Korea for Wheels, Airbags, and Seatbelts
• They could look to identify parts with characteristics similar to carburetors and A/C units that we can be sold in the US market to replace lost profits and create new revenue streams