The automobile manufacturer CarsCo has difficulties with the profitability of his pick-up unit in Thailand. The candidate is supposed to evaluate the situation by answering a line of questions that are presented in the “suggested approach” section.
The case is focused on the company’s Pick-up unit in Thailand only. Other parts of the company (countries or business-units) are not considered. First, the interviewee can discuss general possibilities of the manufacturer’s business. Afterwards, the situation presented in the case and the company’s profitability should be analyzed with a strong focus on costs.
The following framework/structure gives a short overview of the case:
Although told to discuss whatever comes into his mind, the interviewee should answer in a structured manner.
A good way is to build a decision tree. The first two branches could answer the questions whether pick-ups should be manufactured or not with a “YES” or a “NO”.
The structure should be developed with the candidate before discussing the next question. A general understanding of the situation and possibilities of the market can be enquired.
Usually, there are a few possibilities to develop the business (restructuring, mergers & acquisition, new business models and markets). If the candidate names more than one possibility, he should reduce it to one.
As this is a profitability case, the profit equation should be discussed:
Profit = Revenue - Costs
Since the solution of the case lies within the costs, the interviewee should be led towards revenue first.
As a result, it could be concluded that there is a problem rather with costs than with revenue and the solution is not to be found there.
Because the costs of material are responsible for up to 75% of the overall costs, the interviewee should focus on them in order to find potential for optimization.
At the end additional actions to reduce the costs can be discussed.
In this particular case, Sup1 and Sup2 were able to achieve such a high margin because the procurement director of CarsCo was corrupt and bought materials for excessive prices in order to make money for himself.
Several solutions are possible. The aim of the question is to test the common business sense and the ability to think through possible consequences of actions.
Challenge the candidate by opposing his position with possible problems and other solutions you would prefer.
+ Other corrupt managers are alerted and stop their illegal activities
+ You are seen as strong problem solving manager
- Indemnification can be claimed via legal action
- Bad PR and negative impact on sales that surpasses indemnification and better future supplier contract.
+ No bad PR and impact on sales
- The next manager might also fall for the corrupt offer of the supplier
- Really bad publicity if incident becomes public and legal action against company
+ Other suppliers are alerted and less likely to become part of such a deal in the future.
+ You are seen as strong problem solving manager
- Bad PR and negative impact on sales that surpasses indemnification and better future supplier contract.
- Could result in a lawsuit from the supplier side.
- You are seen as a weak problem solving manager.
- CarsCo continues to have a negative or small margin in the market.
The Value Chain - as e.g. by Porter - is a classic framework to structure the activities of a business and add value to products by transforming resources.
Learn to crack Profitability Framework Consulting Cases, which are the number 1 reason for real consulting projects and hence are an important case type.
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1. What general options does CarsCo have for his business unit?
2. How would you approach the problem at hand?
3. What are the most important costs that occur in the automobile industry and in their relative percentage?
4. On which information or data should an analysis of costs of material be done?
