Problem Definition
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.
Comments
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.
Short Solution (Expand)
Detailed Solution
The following framework/structure gives a short overview of the case:
I. Business
1. What general options does CarsCo have for his business unit?
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.
II. Profitability
2. How would you approach the problem at hand?
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.
Main conclusion
- Looking at revenue, CarsCo is among the average.
- Looking at the margins, all competitors have acceptable rates except CarsCo.
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.
III. Analysis
3. What are the most important costs that occur in the automobile industry and in their relative percentage?
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.
4. On which information or data should an analysis of costs of material be done?
Main conclusion
- The suppliers Sup 1 and Sup 2 have an above average and unusual high margin for a supplier in the automobile industry.
- This leads to an overall decrease of CarsCo’s margins in the market.
IV. Conclusion
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.
Important is that he continuously gets closer with the help of his or her conducted analysis and suggested possibilities to explain the high margin of the suppliers.
Difficult Questions
How would you deal with the corrupt manager?
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.
Dismiss the manager with publicity
+ 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.
Dismiss the manager secretly
+ 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
Remove supplier
+ 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.
Do nothing
- You are seen as a weak problem solving manager.
- CarsCo continues to have a negative or small margin in the market.
