CONSULTING CASE INTERVIEW

PREPARATION GUIDE

2005 - 2006 Recruiting Season

-2nd Edition-

December 5, 2005

BUSINESS SCHOOL
CONSULTING CLUB
 © 2005 Michigan Consulting Club

Contents

Editor’s note

Introduction to cases
• Administering cases
• Receiving cases

The case list

The cases

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE -1-

 © 2005 Michigan Consulting Club

Editor’s Note
Dear Michigan Consulting Club Member,

If you are reading this, then it is likely you are interested in pursuing a consulting career upon graduation from business
school. In order to increase your familiarity with the consulting interview format, the Michigan Consulting Club has
established a multilateral training program focusing on the different parts of the recruiting and interviewing process. This
book focuses on the ‘case-interview’ portion of the consulting interview and is to be used in conjunction with other case-
oriented club training materials.

The elements tested in a case interview are core to firms’ hiring decisions. These cases, or mini-business problems, are a
glimpse into a consultant’s (and often the interviewer’s) life as they are frequently taken from real client experiences.
Given practice and experience, cases become a natural way of thinking about how you would structure approaches and
solutions to nearly any type of problem. Along the way, we hope you will find you enjoy solving problems in this manner,
and would enjoy performing this type of work for a living.

In order to facilitate your preparation, your fellow club members have recorded their real-life case interview experiences
and their customized frameworks and solution elements. These cases act as a strong reference point for what to expect
during a consulting interview, but are in no way all encompassing. Since each case comes down to a conversation
between the interviewer and the candidate, it is very plausible that one candidate could receive the same case from two
different interviewers and have two very different conversations about the business problem. In fact, we encourage this.

Finally, you may have noticed that you are reading this compilation in landscape format. This is intentional. Consultants
think in terms of PowerPoint slides much more often than essay-style documents. They also constantly work to devise the
most succinct way to illustrate and frame-out a problem, necessary action steps, and a solution. This said, the ’05-’06
preparation guide has broken from the tradition of book-based cases by adopting PowerPoint deck-based cases. You will
find this format dovetails well with how you write your notes in cases, and how you will convey information as a
consultant.

Good luck, and remember your fellow club members are here to help,

2005-2006 Board
Michigan Consulting Club

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE -2-

 © 2005 Michigan Consulting Club

Contents

Editor’s note

Introduction to cases
• Administering cases
• Receiving cases

The case list

The cases

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE -3-

 © 2005 Michigan Consulting Club

Administering Cases
Great case experiences are not solely determined by strong candidates cranking out
amazing issue and financial-based analyses. The interviewer’s interaction with the
candidate and ability to convey information will very easily change the style of a case.
Given the interviewer’s position of power in the discussion, there are several things to keep
in mind prior to, during, and after a case interview.

Preparing for interview During interview After interview

• Read the case over 2-3 times • Track time (about 25 minutes is • Provide feedback
average)- balance finishing case • This is possibly the most
• Familiarize yourself with the
and letting candidate struggle critical step of the case
relevant numbers and details
interview process
• Prepare for candidate ‘curve-balls’
• Determine your ‘character’ • Honestly let the candidate know
• Candidates can often think of
• Rushed partner or disinterested strengths, but more importantly
very different approaches to
client representative? areas for improvement
cases. Before discounting
• Without honest feedback and
• Prepare for how you will address questions as wrong, ask the
constructive criticism, it is very
irrelevant questions or requests for candidate for their thinking… if
difficult to improve
data you do not have it makes sense, go with it
• Make up fake data and let
• Consider what a consultant would
candidate go fishing, or let
be looking for in the candidate
them know it is irrelevant?
• Presentation: can I put this
person in front of a client?
• Aptitude: Can this person
accurately do the work?
• Interest: Does this person like
what they are doing?

With
With these
these steps
steps in
in mind,
mind, you
you should
should be
be able
able to
to
conduct
conduct aa concise
concise and
and rewarding
rewarding case
case interview.
interview.
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE -4-
 © 2005 Michigan Consulting Club

Contents

Editor’s note

Introduction to cases
• Administering cases
• Receiving cases

The case list

The cases

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE -5-

 © 2005 Michigan Consulting Club

Receiving Cases
You will have a lot of instruction about general conduct and how to receive specific types of
cases during the Consulting Club’s training program, however there are several things to
always keep in mind to maximize the value of each case you receive.

Because receiving cases is essentially the complimentary puzzle piece to administering

cases, the same framework is used below:
Preparing for interview During interview After interview
• Arrive on-time and prepared • Track time (about 25 minutes is • Accept feedback graciously
• Graph paper or blank paper average)- maintaining pace, not • The interviewer, no matter how
• Pen or pencil (bolder is better) diving too deep too early harsh, is trying to help you
• Brain
• Set up paper and thoughts in a
• Go over case on your own later on,
• Confident business etiquette and familiar way each time
replaying where you could have
presentation do not go unnoticed • Many candidates use the 2
improved your approach
landscape page setup
• Preparation is not in the
• It is beneficial to practice cases introduced in training materials
quantity of cases prepared, but
with a variety of interviewers • Don’t hesitate to clarify issues in the quality of each case
(MBA1’s and 2’s), not limiting your attacked
practice group to your closest • Jot down important case facts for
friends. reference
• If practicing with a fellow student,
• This dynamic change will help • Take your time with math- a slow offer to give the interviewer a case!
you prepare for the variety of right answer is better than a fast
interviewers you will encounter wrong one
• Be polite and do not loose your
cool, even when in a difficult
situation

Good
Good luck,
luck, and
and remember
remember to
to have
have fun!
fun!
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE -6-
 © 2005 Michigan Consulting Club

Contents

Editor’s note

Introduction to cases
• Administering cases
• Receiving cases

The case list

The cases

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE -7-

 © 2005 Michigan Consulting Club

The Case List

Note: Do not read all of these cases as soon as you receive this guide. While reworking
‘completed’ cases both alone and within groups is highly encouraged, pre-reading cases
removes the element of surprise which stems from addressing a case for the first time,
this sensation is very difficult to replicate.

1. Car tires 11 16. Sheep auction 43

2. Super pens 12 17. Security systems 49
3. HVAC service provider 14 18. Termite control 55
4. Multi-purpose tool 16 19. Telecom service provider 60
5. US healthcare 18 20. Smart card manufacturer 62
6. Software product 20 21. Insurance provider 65
7. Frozen dough 24 22. Appliance insurance 69
8. Fertilizer innovation 26 23. Auto parts manufacturer 71
9. School buses 28 24. Electronics retailer 73
10. Pharmaceutical distribution 30 25. Trucking 76
11. Tissue paper 32 26. Hong Kong port 79
12. Charcuterie processor 34 27. Argentinean bank 87
13. Music retailer loyalty 37 28. Sandwich bags 89
14. Retailer discounting 39 29. Gift wrapping paper 96
15. Book retailer 41 30. Automobile manufacturer 99

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 © 2005 Michigan Consulting Club

Contents

Editor’s note

Introduction to cases
• Administering cases
• Receiving cases

The case list

The cases

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE -9-

 © 2005 Michigan Consulting Club

Format Introduction

In this case preparation guide you will find four types of slides. The type of each slide
is noted in the upper left corner.

This is where the initial business problem is posed and the interviewer is provided with any
Establishing the additional information they can provide to the candidate upon request. These slides are to be kept
Case by the interviewer.

This handout will eventually make its way to the candidate’s hands. However, when this handoff
Candidate Handout / occurs is at the discretion of the interviewer. Some interviewers may choose to overwhelm their
Assignment candidate with a large amount of information early on to see them struggle, others may be
reluctant to provide information unless asked specifically. Assignments for the candidate are
exactly that, and should be expressly completed under the eye of the interviewer.

Additional These slides are a continuation of the ‘Establishing the Case’ slides, either adding more
Questions/ information to provide the candidate (upon request or due to timing), or taking the case in a new
Information for direction. These slides are to be kept by the interviewer.
Candidate

These slides suggest where the case could/should go based on the initial case information and
Sample Solution backup data. These frameworks are by no means the only possible solution, but should provide
Elements the interviewer some structure for where the candidate should be heading. These slides are to be
kept by the interviewer, but information can be shared as the interviewer sees fit.

As
As evidenced
evidenced by
by the
the loose
loose framework
framework inin each
each case,
case, you
you are
are encouraged
encouraged to
to establish
establish
variants on these cases for additional practice
variants on these cases for additional practice
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 10 -
Quick
Quick Brainteaser
Brainteaser Case
Case
© 2005 Michigan Consulting Club

Case 1: Car Tires (I of I)

McKinsey & Company, Round II

Additional Information to
Problem Statement Narrative Sample Solution Methodology
Provide Upon Request
Please estimate the number • About 10M new cars are • There are 70M cars on the
of passenger car tires sold sold each year road
each year in the United • 60M old cars
States. • Cars last about 7 years • 10M new cars
before needing replacement • Tires last three years

• Tires last 45K miles • 60M installed cars / 3yrs

• 20M cars need new tires
• People drive 15K miles/ yr each year
• 20M x 4 tires: 80M tires
• Assume people purchase
new tires when needed • 10M new cars
• @4 tires / car: 40M tires
• Assume no growth in • @5 tires / car: 50M tires
‘installed cars’
• Total tires sold each year
• BONUS: New cars get 5 tires • 120M tires (no spare)
(includes spare), old cars • 130M tires (w/ spare)
get 4 new tires

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 Establishing
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© 2005 Michigan Consulting Club

Case
Case

Case 2: Super Pens (I of II)

A.T. Kearney, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request(1)
Your client is a bank vault manufacturer, mostly Information to provide upon request
focusing on the large walk-in type. It’s a very mature • Pens cost $20 to manufacture at capacity
business and they are the largest supplier in the
industry. In order to diversify their business and provide • The technology is very compact, very thin, very
growth, the client has bought a company that specializes reliable, and incredibly secure; essentially fraudulent-
in high technology security devices. One of this proof.
company’s biggest and most promising products was a
pen that has the ability to distinguish if the person
signing anything is in fact the owner of the pen. Things to think about during case
• How did the candidate arrive at a list of potential
clients and industries
The client would like you to define the following:
• Did the candidate use a specific framework for
• Who would the customers of this technology be? vetting target customers, etc.?
• How do we market to them? • How did the candidate construct a value proposition?
• Asking questions around current customer
• What is our value proposition? costs/revenues and how the pen would improve this
• Who is the actual customer vs who may be buying?
• i.e.: credit card companies, or individuals

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 12 -
 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 2: Super Pens (II of II)

A.T. Kearney, Round I
This
This is
is aa potential
potential customer
customer solution,
solution, the
the case
case could
could (and
(and should)
should) be be adapted
adapted forfor Banks,
Banks, Government,
Government, Corporations,
Corporations, High
High
Net
Net Worth
Worth Individuals,
Individuals, Exclusivity/Loyalty
Exclusivity/Loyalty programs,
programs, etc.
etc.
Interviewer
Interviewer should
should feel
feel free
free to
to allow
allow full
full market
market estimation
estimation scenario
scenario in
in all
all cases
cases to
to allow
allow for
for more
more robust
robust mathematical
mathematical analysis
analysis

A credit card substitute …With viable economics… …Creates potential value.

$10,000 in annual charges for each $20: Production cost per pen $100/year in fraud per customer
card in circulation currently

1%: Industry accepted fraud rate 0.001%: Anticipated fraud rate $0.01/year in fraud with pen

100M cards exist across USA If pen costs <$100, then beneficial
for card companies

However, added costs… …and incomplete reach… …could negate proposition.

$500 per card reading site in Pens would only work at retail • Drawbacks:
modifications and training establishments, and would be • Needing to keep track of a
to accept new technology insecure over internet, phone, and pen
other ‘unsigned’ transactions • Incomplete reach
100K card readers estimated • Expensive replacement
across United States These transactions are estimated • Expensive infrastructure
at almost 50% of all credit card • Adoption in the credit card
transactions industry may not be viable…
perhaps another industry?
• Swiss banks perhaps?

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© 2005 Michigan Consulting Club

Case
Case

Case 3: HVAC Service Provider (I of II)

The Boston Consulting Group, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request
Your client is an energy firm that has a lot of extra cash • Only provide additional information after being
and wants to know if they should consolidate HVAC specifically asked by candidate.
(heating, ventilation and cooling) service firms in the
• Atlanta market consists of 500 firms
Atlanta area.
• Average annual revenue: $10M
• Revenue growth: 3%
The client would like to know if this is a viable • Acquisition cost: Perpetuity cost of profits
investment they should consider. • Cost of capital: 13%
• Cost structure (% of revenues)
• Labor: 50%, Technicians are 100% utilized
• Equipment: 25%
• Administrative: 20%
• Profit: remaining 5%
• Savings areas:
• Labor dispatching efficiency: 5% decrease in labor
• Equipment5% decrease through bargaining power
• Admin: 1% net decrease after IT and advertising
investments
• Client’s finance department requires a 3-yr break-even
• Assume all cost savings occur immediately
• Assume revenues will remain stable for each target

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 14 -

 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 3: HVAC Service Provider (II of II)

The Boston Consulting Group, Round I

Candidate should Cost Center Cost (% rev) Cost ($) Savings (% cost) Savings $ New Cost ($)
calculate Labor 50% $5M 5% $250K $4.75M
implications of Equipment 25% $2.5M 5% $125K $2.375M
changing cost Administrative 20% $2M 1% $20K $1.98M
structure… Profits 5% $500K $895K PROFIT

Current profit Interest rate Cost of firm Expected profit Undiscounted Break-even
Then want to $500M 10% $5M $895K 5.58 years
conduct a break- (CoC – growth) (stating: over 5 yrs is fine)
even analysis. TOO LONG = NO GO

• No industry experience
A solid interview will
address other • Cultural issues (small operations purchased by large company)
potential risks… • National entrants overpowering effort

Reducing purchase price

And suggest
improvements for Seek further cost improvements (IT systems, warranty costs, etc)
break-even. Improve revenues through advertising efficiency, brand name, referrals, etc.

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 15 -

 Establishing
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© 2005 Michigan Consulting Club

Case
Case

Case 4: Multi-Purpose Tool (I of II)

The Boston Consulting Group, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request
Your client is a diversified hardware • Only provide additional information after being
manufacturer that produces a multi-purpose specifically asked by candidate.
hand tool. For several decades, your client was
• Price: $50, constant over time
the only company to make such a tool. Over the
past 2 years, the company has seen a decline in • Current volume: 100M units/yr
revenue.
What is driving the decline, and what can you • Channel: Hardware retailer- can not break contract
recommend as a solution?
• Price elasticity of demand: 0.5 (20% reduction in price
will raise demand 10% & visa versa)

• Several new competitors in past 2 years

• Selling similar product for $30
• Channel: Discount retailers (Wal-Mart, Target)

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 16 -

 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 4: Multi-Purpose Tool (II of II)

The Boston Consulting Group, Round I

Initial revenue driver …Drill to increased Given contract, client …And take action to
questions… competition. must investigate price… improve revenues.

Increased competition? Competitors competing Price elasticity of In the short run while
Yes! on price ($30 vs. $50) demand is 0.5 contracts are tied with
current channel,
Substitute products? Competitors in different Customers not very increasing price to
Yes! channel price sensitive increase revenues to
$5.4B from $5B is
Decline in market Client can not change Increasing price by 20% recommended
demand? No, demand is channel to $60 will reduce Longer term, the client
higher than ever with do- demand to 90M units, etc should investigate
it-yourself work (our entering a broader array
market) increasing Follow-up question: of distribution channels
Why not increase price to ensure maximum
Marketing budget by 40%? To further product reach
reduction? No, been increase revenues?
very stable. Further, the client
A: Demand may be non- should explore a
linear, and unpredictable
Decline in distribution premium-value
at large price changes
channels? No- one proposition to compete
stable contract. in price reduction market
and retain margins

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 17 -

 Establishing
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© 2005 Michigan Consulting Club

Case
Case

Case 5: United States Healthcare (I of II)

McKinsey & Company, Round II

Guidance for interviewer and

Problem Statement Narrative
information provided upon request
I have just been talking with with Rick Wagoner, GM’s • There is no additional information to provide. The
CEO, about his company’s skyrocketing health care purpose of this case is to test poise and pressured
costs. GM pays for the health care of about 1.1M thought. If the candidate makes an assertion, play
families, which equates to about $8-9B or $1500 per car ‘devil’s advocate’ and try to get the candidate to
sold. After a while, he began discussing the United reverse him or herself. Some examples may include:
States’ healthcare problem on a national level. • Privatized vs. socialized medicine
• Subsidized medicine development/sales vs.
The US spends 15% of its GDP on health care while unsubsidized
Japan spends 7-8% and Germany spends 10%. • Healthcare availability for all
However, he says there is no evidence that health care is • Boutique hospitals vs. full service hospitals
better in the US: average life expectancy is actually • Preventative vs. reactionary medicine
decreasing and about 45M people are uninsured.

He wanted me to explore possible causes and solutions

for the increasing cost trend with decreasing
effectiveness/quality. He made a point of saying he
didn't want to discuss politics, and shied away from
fancy frameworks in our discussion

Might you help me think about what to tell him?

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 18 -

 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 5: United States Healthcare (II of II)

McKinsey & Company, Round II

There
There are
are any
any number
number ofof responses
responses to
to this
this open-ended
open-ended case,
case, therefore
therefore the
the interviewer
interviewer is
is encouraged
encouraged to
to
allow
allow the
the candidate
candidate to
to drive
drive the
the case.
case. Some
Some common
common elements
elements maymay include:
include:

Supply Demand
The US is essentially subsidizing word drug Nutritional planning, exercise, no-smoking, etc. are
consumption by paying higher prices. US expenditure No much cheaper to promote rather than having to deal
Higher
pays for the majority of R&D and risk-premium costs proactive with complications (heart disease, diabetes) down the
drug
for the pharma industry. Possible solutions are to pre- line. Possible solution: government (or employer)
costs in
persuade drug companies to charge the same prices symptom sponsored programs promoting prevention activities.
USA
everywhere, or threaten re-importation. Discuss long- care Discuss healthcare incentive to do this… where is the
term implications on R&D and curing diseases. financial return?

There is a growing trend of wealthy citizens seeking If a large number of doctors choose to live in a
out specialized care from private centers with Doctors’ particular area (a large city, for instance), and there are
Emerging providers accommodating by opening specialized not enough patients to sustain a normal practice, the
ability to
modular clinics that only offer high-margin procedures (heart doctors could order additional (and possibly
induce
Care surgery), but are not burdened by low margin, but unnecessary) tests to generate additional revenue.
necessary, ER’s, etc. This takes needed funds out of demand Possible solution: fees per patient rather than fees per
full-service facilities. Discuss regulations or risks. service performed. Challenge on practicality

Healthcare providers need to make lots of money. The US treats every patient in the ER regardless of
They have invested in careers, R&D, capital, etc, and Lack of insurance. However, it is much more expensive to
need a return. This creates a motive of wanting to health handle something in the ER rather than when the
Profit care for
motive MANAGE disease rather than CURE disease to problem first occurs (regular doctor visits, etc)
maximize return. All healthcare players make more lower Possible solution: Provide adequate health care for
money from a longer-term cash flow than onetime class lower class before problems become emergencies.
treatment. Discuss socialization vs. current model. Possible free-rider and socialization discussions

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 19 -

 Establishing
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© 2005 Michigan Consulting Club

Case
Case

Case 6: Software Product (I of IV)

The Boston Consulting Group, Mock Interview

Problem statement narrative Information provided upon request(1)

Your client is a software maker that has one • Client goal: grow revenues
product.
• Product: Document authoring software (MS
Word, etc)
The CEO would like to know whether the
company should offer multiple products instead • Possible product segmentation considered:
of one. business vs. home products

• Company recently completed market study:

see next page for results

• Currently only offer product to business market

(business curve on chart)

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 20 -
 Candidate
Candidate Handout
Handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 6: Software Product (II of IV)

The Boston Consulting Group, Mock Interview
Market Study Results
Product 600
Price

500

400
Home
Business
Combined
300

200

100

0
0 5 10 15 20 25 30
Users (M)

Price Business Home Combined

200 11 M 15 M 26 M
400 10 M 5M 15 M
500 9M 2M 11 M
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 21 -
 Additional
Additional
© 2005 Michigan Consulting Club

Questions
Questions

Case 6: Software Product (III of IV)

The Boston Consulting Group, Mock Interview

Use
Use this
this slide
slide as
as ‘interviewer’s
‘interviewer’s guide’
guide’ after
after
providing
providing graph
graph to
to candidate
candidate

Additional questions for candidate Solution guide

• If we are currently selling to businesses for • 9M units x $500 = $4.5B revenues

$500, what is our total revenue?

Price Home Business Combined

• If we segment our demand and sell separate
200 200x15M = $3B 200x11M=$2.2B $5.2B
products to separate markets, what do our 400 $2B $4B $6B
revenues look like? 500 $1B $4.5B $5.5B

• Is there anything else to think about? • Segmentation shows the revenue max price
is $400 (w/ revenue of $6B) if price
discrimination is impossible

• If price discrimination is possible, charge

$500 to business, and $200 to home users
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 22 -
 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 6: Software Product (IV of IV)

The Boston Consulting Group, Mock Interview

Incremental Costs Product Differentiation/ Cannibalization

• The candidate may discuss elements needed to create • Little/no ability to create different products for different
two versions of the product- these may include: markets could lead to price-led cross-segment product
• Programming cannibalization
• Testing/ QA
• Packaging • Creating switching barriers would allow company to
• Sales/marketing differentiate between product lines without concern for
• Distribution cannibalization

• The interview can go in this direction, asking the

candidate to outline a viable cost structure per segment

Licensing Complimentary Products

•Related to the product/market differentiation issue, the • Rather than separating current product into two separate
firm could gain incremental revenue by either: products-

• Establishing separate product sales/licensing costs for • Client could offer a series of complimentary products to
business/ home users ($200 for 1-3 licenses, and $550 their core product, adding incremental revenue and
for additional, etc) segmenting their customers based on how many
• Approaching other vendors for bundling deals to attach additional features they wanted (i.e.: adding interrelated
product with other products programs at a price)

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 Establishing
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© 2005 Michigan Consulting Club

Case
Case

Case 7: Frozen Dough (I of II)

A.T. Kearney, Round I

Problem statement narrative Information provided upon request

Your client is a Consumer Packaged Goods company. • Distribution Channels:

More specifically, they produce frozen dough for uses in • Wholesale restaurant suppliers
making bread loaves, pizza crusts, cookies, bagels, etc. • Supermarket chain bakeries
This is a family-owned company with $2 billion in annual
sales with two primary distribution channels. • Dough is not branded- no customer differentiation
You have been hired to assess a problem the company
is experiencing with spoilage. The client is experiencing • Shelf life is 180 days, with customers requiring 60 days
a significantly higher spoilage rate than that of
competitors. • Very similar recipes across industry
• High recipe switching costs
Competitors’ spoilage rates average about 2.5%,
however, the client’s rate last year was 10%. They
• Spoilage occurring at client distribution centers, not
succeeded in reducing the spoilage rate to 7.5% by
customer locations
implementing a strict First-In-First-Out inventory
management system at its warehouses and by instituting
a program that carefully tracks the number of days left in
the shelf life of the dough and once it gets close the
inventory is donated to a charity for a tax break.
Despite all the effort, they are still significantly higher
than competitors. What can be done to further reduce
the spoilage rate?

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 24 -

 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 7: Frozen Dough (II of II)

A.T. Kearney, Round I
Candidate
Candidate should
should want
want to
to investigate
investigate along
along value
value
chain
chain for
for weaknesses/
weaknesses/ benchmark
benchmark differences
differences

Purchasing/
Demand Sales &
Materials Manufacturing Customers
Forecasting Distribution
sourcing

Indications Rather old Materials come Old production 3 Distribution Same customers as
(only provide forecasting tool has from similar equipment centers (DCs): competitors
to candidate tended to generate vendors as all other West, Midwest, East
upon request) overly cautious manufacturers Foreman told us in
US sales only
production interview that he
numbers, but does Materials do not tends to hedge Will sell dough for
not account for all spoil, spoilage only against forecasting any use- regardless
spoilage cost occurs after by overproducing- of sales volume
product has been it is a pain to retool
Some products
manufactured the machines all the
have very low
time
customer-turn

Potential Improve forecasting Long term: invest in Customer-level SKU

recommended tool to better reflect updated machinery rationalization,
actions demand with expedited eliminating low-
retooling times volume SKUs

Overall
Overall Recommendation:
Recommendation: Overproduction
Overproduction and
and low
low volume
volume SKUs
SKUs
are
are leading
leading to
to spoilage,
spoilage, improving
improving forecasting
forecasting and
and equipment
equipment
while
while rationalizing
rationalizing SKUs
SKUs will
will dramatically
dramatically improve
improve situation
situation
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Case

Case 8: Fertilizer Innovation (I of II)

McKinsey & Company, Quick on Your Feet

Guidance for interviewer and

Problem statement narrative
information provided upon request
Your client is an agricultural products manufacturer. • “Green Nutrient” measures the amount of fertilizer
They invented a product called “Green Nutrient”. This is required, allowing for a “variable fertilizer rate”
going to help the farmers by allowing a variable fertilizer
• Two main benefits: Reduces overuse (reduce costs)
rate.
and increase under-use (increase yield)
• Benefit #1: 20% reduction in fertilizer cost per acre
The company is interested in a pricing strategy and go- • 1 bag / acre @$15/ bag
to-market options. • Benefit #2: Improve yield 2%
• Current average yield: 100 bundles/ acre @$ 2.5/ bu
• No competition
• Farms average about 400 acres
• 1000 Large farms: 1000 acres
• 3000 Medium farms: 400 acres
• 6000 Small farms: 200 acres
• Product lasts 10 years
• Product production cost: $10K per unit
• Unit works the same regardless of farm size
• Discount rate: 0%

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Solution
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Elements
Elements

Case 8: Fertilizer Innovation (II of II)

McKinsey & Company, Quick on Your Feet

Requisite Math

$3.00 fertilizer savings per acre (0.30 * $15)

$5.00 yield increase ($2.5 * 100* 0.02)

WTP per acre: $8.00 or $3.2K per average farm per year

Second-Best Answers First-Best Answers

1. Large: If we price the product at $80k we sell 1000 1. Skimming: start by pricing at $80k and then $32k and
profit $70M then $16k;

2. Large & Medium: If we price the product at $32k we

sell 4000; profit $88M – BEST OPTION 2. Offer a service to the farms at up to $8/acre that will
achieve a price discrimination based on acreage.
3. All farms: If we price the product at $16k we sell 1000 (perfect price discrimination)
profit $60M

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Case

Case 9: School Buses (I of II)

A.T. Kearney, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request(1)
Your client is a school bus manufacturing company that Information to provide upon request
has just been purchased by a leading international truck • Company is open to any and all ideas
manufacturing company. • Bus market is growing with population
• Customers: Schools, counties, local governments
• 3 players (including client) with 33% share each
The CEO of the truck company has asked the president • Prices have been historically high given concentrated
of the newly acquired school bus company to improve market, not likely to change
his organization’s profits. The president of the school • 1 plant in ‘renaissance zone’ with low taxes
bus company has in turn, asked us to help determine
• All production equipment fully depreciated
what areas will provide the best results.
• Comparatively low labor costs
• Material costs are high but comparable with others
• One competitor struggling financially, one unknown

Tips for interviewer

• This is not a numbers case- pay attention to how
candidate frames problem and tackles solutions
• Take liberty with story, allowing candidate to drive
direction and pace; fill in details as you see appropriate

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 28 -
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Solution
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Elements
Elements

Case 9: School Buses (II of II)

A.T. Kearney, Round I

Improving internal operations Exploring synergies with new parent company

High domestic raw material costs raise the question: If trucks and buses purchase parts from similar
can we do better elsewhere? original equipment manufacturers (OEMs), then
Sourcing consolidating purchasing operations may add buyer
Offshore/ power and eliminate purchasing duplication
Near-shore Sourcing parts globally may reduce raw material costs
and increase profitability
Buses and trucks are built on similar platforms. Scale
may exist in R&D for any new products as well as
Modularity stocking duplicative components, when eliminated
would reduce inventory and handling costs
This is a dangerous ploy. Leveraging low cost labor
and low tax production may lead to increased short
If the bus plant is not operating at full capacity, it may
Compete on term sales (and potentially higher profits) Act as take advantage of tax situation and low labor to
Price However if a competitor is able to follow, customers supplier cheaply supply parts to truck company
may see all benefit and there is no going back if it is a
mistake
Selling buses to those who purchase trucks and visa
Co-leverage versa adds to the potential client list of both
sales & companies, potentially allowing for steal-share growth
Our low cost of production position may lend to a distribution in a stagnant industry
favorable position in a complementary industry.
Seek new Luxury, and other custom bus production requires
high labor element, where we have advantage. How many other bus manufacturers can offer bundled
markets goods to governments and schools requiring trucks as
Further, higher margins make for attractive target Bundling well? By bundling pricing, the group can become a
central supplier for transportation equipment

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Case

Case 10: Pharmaceutical Distribution (I of II)

A.T. Kearney, Round I

Questions to ask candidate after providing

Background information to read to candidate
background information
Your client is a large pharmaceutical distributor in a market The client has a long history of profits, but for the past four
primarily consisting of three main players. The three firms have a quarters, profits, the company’s stock and employee morale have
combined market share of 96%. The client has been growing via all been down.
acquisitions, and it operates in four business segments which are
all operated independently:
The CEO has called you in to provide an assessment of how to
Drug Distribution is the core business representing 85% of sales. improve profits.
Our client buys drugs from pharmaceutical firms and distributes
them to hospitals, etc. They typically buy and sell both brand
name and generic drugs, and this area has historically low How would you approach this meeting?
margins.
What areas would you look at to improve profits?
Manufacturing and distribution of medical products, includes
instruments, ER kits, supplies, etc.
Pharmacy Services is the “other” category comprised mostly of Interviewer Note:
acquisition targets with no other logical home. Services include This is a structuring and thought case- a solid performance would
temporary staffing and owning and operating retail pharmacies. establish how the divisional structure’s silos can be eradicated for
The drug vending machines segment supplies machines to tremendous cost savings
hospitals that distribute high frequency drugs to aide nurse Allow candidate to walk through profitability framework, but guide
productivity. the discussion toward reducing costs among business units
Ask candidate (if not already doing so) to outline what they would
<CONTINUED IN NEXT BOX> imagine the primary corporate-level cost buckets to be)

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Solution
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Elements
Elements

Case 10: Pharmaceutical Distribution (II of II)

A.T. Kearney, Round I

Admin. / Overhead Purchasing Manufacturing Sales Distribution

Interviewer Separately run between Scale appears to exist in Only one division- Run as separate Run as separate
guidance for divisions, but not very maintenance, repair and medical products - uses organizations between facilities across country
each area (do not scalable operations purchasing manufacturing and it is divisions, selling to the for each division, all
read verbatim) not a core competence, same clients- large running at about 50%
perhaps outsourcing? benefit in combining capacity

Possible This client exhibits the textbook case for ‘de-silo-ing’ and creating a matrix organization. By operating under consolidated cross-
candidate division groups, the organization will be able to run with a much more efficient cost structure and leverage its cross-divisional
recommendation strengths to increase revenues

Pharma Med. Equip Pharmacy Drug Vend. Pharma Med. Equip Pharmacy Drug Vend.
Distribution Mfg. & Dist. Services Machines Distribution Mfg. & Dist. Services Machines

Admin & Admin & Admin & Admin & Admin &
Overhead Overhead Overhead Overhead Overhead

Purchasing Purchasing Purchasing Purchasing Purchasing

Current Proposed
Siloed Matrix
Mfg Mfg
System System
Sales Sales Sales Sales Sales

Dist. Dist. Dist. Dist. Dist.

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Case

Case 11: Tissue Paper (I of II)

A.T. Kearney, Round II

Guidance for interviewer and

Problem statement narrative
information provided upon request
Your client is a tissue paper manufacturer. Their • Only provide each piece of information after being
products includes facial tissue, napkins and bathroom asked for it specifically by the candidate
tissues. The client has a consumer business and a
commercial business. • An assessment of historical price vs. quantity data
showed that the price elasticity of demand for the
product is 2.0
The CEO of the firm is facing pressure to improve the
firm’s profitability. To improve profitability, the CEO is • Piloting the price change is not possible given
considering increasing the average price on commercial
timeframe
products by 10% and wants to know whether he should
do it.
• Product Price: $100/ton
• Product sales volume: 1000 tons
You have two weeks to conduct the assessment.
• Fixed Costs: $20K
• Variable Costs: $70/ton

• Current market share: 40%

• 3 players control 90% of market

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Solution
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Elements
Elements

Case 11: Tissue Paper (II of II)

A.T. Kearney, Round II

Base profit scenario 10% price increase profit scenario

Revenue Revenue
$100/ton x 1000 tons = $100K $110/ton x 800 tons = $88K

Costs Costs
Fixed: $20K Fixed: $20K
Variable: $70/ton x 1000 tons = $70K Variable: $70/ton x 800 tons = $56K

Profits Profits
$100K - $70K - $20K = $10K profit $88K - $56K - $20K = $12K profit

Increases profits by 20%

Areas candidate should be concerned about…

•Competitors stealing share

• Industry is operating at capacity, and it would take a long time for
competitors to add production ability to steal our market share
• This is a long-term concern

•Decrease in volume will lead to overall revenue reduction, however

increased price offsets and leads to increased profits

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Case

Case 12: Charcuterie Processor (I of III)

A.T. Kearney, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request(1)
Our client is a consumer goods company. We are Information to provide upon request
consulting to the food division. • The client’s value chain is available on the next page
as a handout to the candidate
They sell processed pork products like sausages. The • The market is mature and stable
product is a retail branded product available in retailers • Market Share:
such as Kroger. • Client: 30%; major competitor: 30%; new entrants
(primarily forward integrating packers and growers):
The client’s profitability has been declining. They would 40%
like to know why has this been happening and what your • Packers process hogs – only 8% of material applicable
recommendation for correcting the situation is. to our market
• Costs: 50% material (rising) / 50% other (stable)

• New entrants approaching retail with very low prices

• Client revenues are down with stable prices, can not

currently compete on price

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
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 Candidate
Candidate Handout
Handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 12: Charcuterie Processor (II of III)

A.T. Kearney, Round I

Client Value Chain

Packers Processors Retail/ Distribution

Hog producers
Prepare material for prepare consumer Sell final products to
grow and sell hogs
processing products (client) end-users

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Solution
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Elements
Elements

Case 12: Charcuterie Processor (III of III)

A.T. Kearney, Round I

Client Value Chain: What the candidate may see

Packers Processors
Hog producers
Prepare material prepare consumer Retail/ Distribution
grow and sell hogs
for processing products (client)

New competitors also suppliers: raising prices to client and lowering prices to retail

Areas the candidate may chose to focus for solutions

• The client may choose to backward integrate to Packing and/or Producing in order to beat the packers at their own
Backward-integrating game
• SOLUTION: This does not make strategic sense, as sausage material is only ~8% of the packing business

• The client may choose to approach packers who have not yet forward-integrated into processing and establish
Partnering exclusive purchasing deals
• SOLUTION: Two major packers have not yet forward integrated, and would likely be very interested in a deal

• By consolidating the sausage manufacturing business, the client would have increased buyer power over suppliers
Acquiring and would be better positioned to combat rising material prices
SOLUTION: If the packers do not lower material prices, they will still steal all price-conscious customers

• Position the client product as a premium brand. A long history of production and ‘secret spices’ may convince
Branding customers that value may not be something you are looking for in a sausage
• SOLUTION: This would effectively segment the market by premium/value- addressing profitability via higher margins

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Case

Case 13: Music Retailer Loyalty (I of II)

DiamondCluster, Round I

Guidance for interviewer and

Problem Statement Narrative
information provided upon request
Your client is a music retailer that has grown through • This is a qualitative case covering a quantitative
acquisitions, acquiring 45 retailers in the past 5 years. subject. Walk the candidate through HOW they would
They operate 750 stores nationally. They have already establish the program, not actually establishing it.
decreased costs through operational improvements, but
the firm now has 15 brands, which has left customers • Products offered are media-specific:
confused, so the client is undergoing a re-branding • CD’s
effort. • DVD’s
• Posters
They are concerned that they have no information on • Accessories
their customers, only sales data, and therefore cannot • All genres
segment customers across product lines or genres.

The client wants to implement a loyalty program to

identify and understand their customers. They want you
help the figure out how to construct the loyalty plan.
How would you develop the business case for this
initiative, quantify the benefits, and determine the cost?

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Solution
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Elements
Elements

Case 13: Music Retailer Loyalty (II of II)

DiamondCluster, Round I

Revenue/ Efficacy
Acquisition / Program Type Cost Measurement
Measurement

Rewards such as free CDs Conduct pilot in one region • Purchase:

Monetary

or DVDs, or even cash, after and compare it with another • In-store equipment

Pilot Program

Startup Costs
a certain dollar value of (this is what they actually • Data mining software
purchases is reached did), essentially setting an • Advertising
experiment and control
population using statistical
Informational

Provide ‘members’ with analysis to compare the two

proprietary artist or concert populations.
information such as a fan
club. Have customers enroll in •Major cost:
the program system-wide • Cost of incentives (CD’s,
Requirement for

by only allowing members etc)

Continuing
Operations
Provide customers with access to special reduced •Other costs:
Deals
Promotional

promotional material that prices (similar to grocery • Tracking & upgrading

the client receives for free stores). system
from record labels, such as • Marketing &
concert tickets, t-shirts, segmentation analysis
stickers, etc.

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Case

Case 14: Retailer Discounting (I of II)

A.T. Kearney, Round II

Guidance for interviewer and

Problem statement narrative
information provided upon request
Our client is a retailer in New York State. They have 120 • Only provide each piece of information after being
stores across the state and they are constantly asked for it specifically by the candidate
competing with other retailers for customers. They are
NOT a low-cost retailer in the state but on certain days • Campaigns are run on the same day as competitors
they give out heavy discounts on their products to
attract customers. They create brochures for weekly • Stores are as accessible (if not more so) than
deep discounts and deliver them to their customers by competitors
inserting them in newspapers in the morning.
• Store product-mix is similar to competitors
The client’s competitors are also doing the same and the
• Our discounts are similar to those of our competitors
problem is that this scheme is not generating enough
(in price and product)
return on investment for our client as compared to
competitors. How would you analyze the situation to see
where the problem could be and how would you • We are using the same newspapers as our competitors
compare the execution strategy of offering these
discounts of our client with that of their competitors?

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Solution
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Elements
Elements

Case 14: Retailer Discounting (II of II)

A.T. Kearney, Round II

Getting customers into stores Servicing customers once inside store

• On what days are we running these discounts compared to our • Service levels on sales days- are customer service representatives
competitors? Friday vs. Saturday? readily available?
• Is inventory adjusted in accordance with sale days?
• What newspapers are we using to deliver the brochures? Which is
• Back-end logistics: are prices updated in-store and in computer
best for our customers: Times or Post?
systems? (THIS WAS THE PRIMARY ISSUE- systems were not
updated and customers were highly confused by discrepancy)
• What is the layout of brochures compared to competitors?
• Generating additional revenue from each customer on non-
discounted products?
• How accessible are the stores compared to our competitors?

Follow-up series of questions for candidate

• How do we figure out which items to put on sale, and which to feature in newspaper inserts?
• How do we sell non-discounted products to people entering the store purely for discounted items?
• How can we better manage our inventory around these sales periods without overstocking or stocking out?

Planning & Analysis Bundling

• Used electronic communication along supply chain to alert suppliers • By discounting one product (such as hamburger meat) and selling
to anticipated dramatic demand shift for supply & restocking (at buns, ketchup, mustard, relish, tablecloths, paper plates, etc at full
appropriate levels) price nearby would dramatically increase revenues

• Use retro-active demand analysis to determine which sales are the • The same could be true with salad dressing, dessert toppings, etc.
most effective for gross revenue purposes

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Case

Case 15: Book Retailer (I of II)

Booz Allen Hamilton, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request
Your client is a book publisher who deals in fiction, and • Only provide each piece of information after being
wants to increase profitability. Sales for the company asked for it specifically by the candidate
are as follows (read this chart to the candidate- watch for • Book prices are $15 regardless of category or size
notes organization):
• No difference in fixed costs across categories
• Material costs are the same for all books
Category Profit/ Unit Annual Volume • Bigger authors require higher royalties than smaller
authors
Small Sellers ($3) to $2 <500K
• Author is the primary driver to determine a ‘best-seller’
Breakout $10 500K – 1M
Potential • There are huge economies of scale in printing
• Small sellers are primarily distributed via independent
Bestsellers $5 >1M
bookstores, requiring higher per-unit distribution costs
• 80% of space dedicated to small & breakout sellers
The client wants to understand why profits look the way • Can not currently determine which books will become
they do, and what it can do to improve profitability. breakouts

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Solution
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Elements
Elements

Case 15: Book Retailer (II of II)

Booz Allen Hamilton, Round I

Candidate may propose action in…

Interviewer possible
Product mix in stores Demand forecasting Back-end logistics
follow-up
• What risks do you see It appears 80% of stores • Forecasting which • Tying forecasting with
in doing this? are geared toward sales books may become book orders could
• Product Mix: slow of products with an breakouts would allow reduce ‘multiple small
sellers are required expected profit of for massive headway order’ costs for small
to get people to ($0.50), perhaps on competition and big sellers that become
purchase reallocating this mix to profits breakouts
bestsellers be more favorable to
bestsellers and break- • Suggested model • Moving to a tiered
• Demand out books would inputs: model, selling small
forecasting: Getting increase profits • Media mentions sellers online or in
the breakouts • Fads lower-overhead
wrong would be • Pre-orders establishments (see
very costly • Tie-ins risks to left)
• Online sales
• Logistics: • Author’s previous
- Little downside sales
• Subject matter
compared to recent
hits

Possible
Possible derivative
derivative case:
case: Conduct
Conduct analysis
analysis from
from publisher
publisher viewpoint
viewpoint

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Case

Case 16: Sheep Auction (I of VI)

Bain & Co., Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request(1)
Your client is looking at investing a significant amount • Only provide each support slide after being asked for
of money to create an online auction company that the information by the candidate
facilitates sheep sales from producers to large • Slides:
customers.
• Overall market size (in lbs of sheep)
• Sheep prices (in $/lb)
They will only do this if they could make roughly $10 M • Farmers (producers) who use computers
annual profit in 5 years, and they have enlisted your help • Sheep sold at auction vs. contract
in determining the go/no-go decision.
• All large processors (buyers) use computers
• Sales via auction and contract will not migrate- there is
no steal share between channels

• Follow up questions for candidate upon completion of

the calculation (which should total far short of $10M)

• What would you do to achieve the $10M level?

• If launched, how would you market this product?

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 43 -
 Candidate
Candidate handout
handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 16: Sheep Auction (II of VI)

Bain & Co., Round I

Annual Sheep Sales

Lbs of Sheep
Millions 450

400

350

300

250

200

150

100

50

0
2005 2006* 2007* 2008* 2009* 2010*

Year (*expected)

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Candidate handout
handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 16: Sheep Auction (III of VI)

Bain & Co., Round I

Sales Price/100lbs sheep

Auction Profitability by Channel
$30

$25

$20

$15 Profits
Cost of Sales
$10

$5

$0
Online Auction Model Traditional Auction Model

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 Candidate
Candidate handout
handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 16: Sheep Auction (IV of VI)

Bain & Co., Round I

Sheep Sales by Channel

100%

90%

80%

70%

60%

50% Contract

40% Auction

30%

20%

10%

0%
Sheep Sales

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 Candidate
Candidate handout
handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 16: Sheep Auction (V of VI)

Bain & Co., Round I

Farmers ‘Online’
50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%
2005 2006* 2007* 2008* 2009* 2010*

Year (*expected)

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Solution
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Elements
Elements

Case 16: Sheep Auction (VI of VI)

Bain & Co., Round I

**Use 2009 numbers to show 5-year ‘maturity’ and steady-state for profitability- this
model assumes a 100% penetration- candidate should deduct that penetration is
Expected
irrelevant given overall industry profitability**
Calculation
(Approximate) 400M x 50% x 30% x $10 $6.66M Profit
lbs sheep auctioned ‘online farmers’ per 100 lbs sold =
Less than $10M

Time permitting follow-on questions… …And sample answers.

• What would you do to reach the $10M profit level from • Train farmers and sheep producers on computer use
here? • Provide central computer locations near farm sites to
facilitate farmer interactions
• Expand the auction tool to other animals

• If this product were already launched, how would you • Trade magazine advertisements
choose to market it? • Door to door sales & training representatives
• Commissioned farmer representatives
• Relationships with sheep processors ‘pull-driven’
• Value proposition: cost savings in moving heard to
auction site: producers could pick heard up at farm

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Case

Case 17: Security Systems (I of VI)

Bain & Co., Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request(1)
Your client is a financial investor interested in investing • Only provide each support slide after being asked for
in a start-up national security company the information by the candidate
• Slides:
The security company sells and installs alarm systems • Target company’s current situation
and then provides monitoring service, patrolling the • Demographics and growth by income
neighborhood and following up if the alarm goes off. • Competitive landscape
• Competitive estimated revenues and earnings

The client has hired you to size the market and • 10M suburban households
recommend if this is a good investment or not. • 1M new suburban households each year

• System is priced ‘at-cost’

• 1-2 large local players per market

• Large local players are entering national market and

competing with large national player

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
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 Candidate
Candidate handout
handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 17: Security Systems (II of VI)

Bain & Co., Round I

Client
Client Market
Market Situation
Situation

Number of homes
10 Million
in market

Home growth
1 Million
last year

Competitors Largest national player appears to have financial difficulties

System Price $1,000 installed

Service Price $30 per month

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 Candidate
Candidate handout
handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 17: Security Systems (III of VI)

Bain & Co., Round I

2005: US Homes by Value

100%

90%
1% growth
80%

70%

60%

50%
1% growth
40% >$1M

30% $500K to $1M

2% growth $200K to $500K

20%
$100K to $200K
10%
4% growth
<$100K
4% growth
0%
US Own security systems

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 51 -

 Candidate
Candidate handout
handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 17: Security Systems (IV of VI)

Bain & Co., Round I

Competitive Landscape
100% National Player 5 Local Player 5

National Player 4 Local Player 4

90% Local Player 3
National Player 3 Local Player 2
80%
National Player 2
70%

60%

50%

40% Other Players

National Player 1
(10,000)
30%

20%

10%

0%
National Market Local Market

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 52 -

 Candidate
Candidate handout
handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 17: Security Systems (V of VI)

Bain & Co., Round I

Competitive Estimated Revenues and Earnings

EBIT (%) 30%

25%

20%

15%

10%

5%

0%
National National National Local Local
Player 1 Player 2 Player 3 Player 1 Player 2

Revenues ($M) 1,500 270 100 30 20

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 53 -

 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 17: Security Systems Company Market Entry (VI of VI)

Bain & Co., Round I

Market Sizing
(Annual Revenue) $1000 x 1M + $30/mo x 12 x 10M = $4.6B
System New Homes Service Months Existing Homes Annual Revenue

70% of alarm buying market is growing at 1% per year, with the overall alarm buying market
growing at or less than population growth
Market Growth
This makes market growth unattractive

The national market is dominated by one player with several other strong players making entry
very difficult
Competition Reach
The local market is highly fragmented with apparently 1-2 major players in each market, making
entry in this space equally difficult with local de-facto monopolies

Large national players appear to be operating with rather low EBIT numbers – this may be due to
Competitive spread out infrastructure and inefficient utilization of resources
Environment Smaller local players have stronger EBITs, however this leaves them in a strong position to
compete, and entry will be difficult

Market
Market does
does not
not appear
appear to
to be
be attractive
attractive at
at this
this time
time

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Case
Case

Case 18: Termite Control (I of V)

The Boston Consulting Group, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request(1)
Your client is a termite control company that provides • Only provide information and each support slide after
solutions for eliminating termites from homes. Their being asked for the information by the candidate
current solution involves setting up baiting systems (a
similar concept to mouse traps) – the baiting system • Client has 20% share with 100K new installations/yr
consists of stations that are set-up around the house to
• Some customers perceive spray as health risk – some
attract and kill termites.
new customers will switch, others won’t (%’s unknown)
A competitor has come up with a new solution that
involves liquid sprays for killing termites. They have just • Assume existing customers will not switch
started selling this treatment. How should the client • Client has capability to produce spray
respond?
• Systems are equally effective

• Slides for candidate to review:

• Client and competitor pricing
• Client and competitor cost structure
• Customer retention rates

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 55 -
 Candidate
Candidate handout
handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 18: Termite Control (II of V)

The Boston Consulting Group, Round I

Pricing By Channel

Baiting System Spray System

Initial Installation $1500 $1000

Annual Renewal & Prevention $300 $200

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 56 -

 Candidate
Candidate handout
handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 18: Termite Control (III of V)

The Boston Consulting Group, Round I

Fully-Loaded Cost By Channel

Baiting System Spray System

Initial Installation $1100 $750

Annual Renewal & Prevention $250 $100

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 57 -

 Candidate
Candidate handout
handout
© 2005 Michigan Consulting Club

(upon
(upon request)
request)

Case 18: Termite Control (IV of V)

The Boston Consulting Group, Round I

Client Historical Retention Rates

Percentage of customers in year 0 that renew their subscription in subsequent years

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 58 -

 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 18: Termite Control (V of V)

The Boston Consulting Group, Round I

Baiting System Spray System

Candidate should look at
the profitability of each Initial Installation $400 $250
option… Annual Renewal & Prevention $50 $100

Expected profit per customer:

… And realize declining Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9
expected annual Bait system profit 400 45 40 35 30 25 20 15 10 5
renewals negate majority Spray system profit 250 90 80 70 60 50 40 30 20 10

of profit differences. Summed Baiting Profits 400 445 485 520 550 575 595 610 620 625
Summed Spray Profits 250 340 420 490 550 600 640 670 690 700

• Discounting would virtually eliminate profit difference between products (all spray profit over bait is 5 yrs out)

Aggregating indications • Incumbent client can leverage built-in fear for customers (toxicity) of new, cheaper, product
between systems…
• If there is a low/no startup cost for new product, there is little/no downside risk of entry

Allowing the spray market to cannibalize baiting sales will lead to drawn out per-customer profit, and will increase
…Allows for a concise profit-reliance on renewals.
client-tailored Given entrant and startup costs, client should equip fleet for spray application, but should advertise benefits of baiting
recommendation. over spray (time tested, safer for kids & food, etc), along with ability to accommodate both applications such as: ‘Your
full service termite eradication expert since 1925.’

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 59 -

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© 2005 Michigan Consulting Club

Case
Case

Case 19: Telecom Service Provider (I of II)

The Boston Consulting Group, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request
Your client is a telecom service provider. They have 2 • Only provide information after being asked specifically
products – long distance and wireless. Their customers by the candidate
are businesses, and they use a sales force to sell
products. • Client and competitor are only players in market
• Sales of $6B for client; $10B for competitor
The only competitors’ sales force has higher $ sales per • Client customers spend equally on both products
sales person and the client has hired you to determine
why… • Client revenues are 80% long distance, 20% wireless
with a target of 50/50 split
• Sales force of 3000 representatives each company
• Our representatives have 10yrs more experience
• 3-5 clients per representative for each company
• Client representatives spend 45% of time selling;
competitor representatives spend 55%
• Difference is spent on administrative tasks
• As opposed to competitor, client has quota system
established on a per-product basis
• Sales greater than quota generate higher
commissions

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 60 -

 Sample
Sample Solution
Solution
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Elements
Elements

Case 19: Telecom Service Provider (II of II)

The Boston Consulting Group, Round I

Long-distance Heavy Sales Representative Experience

80/20 Revenue split is off Experience level may lead

50/50 industry spend- representatives to sell ‘older’
Sales Discrepancy benchmark target in favor of ƒ product they are familiar with
long distance
By conducting a • $6B / 3000 Representatives
root-cause = $2M/ Rep client
ƒ
• $10B/ 3000 representatives
analysis… = $3.3M/ Rep competitor
Productivity Quota system
• $1.3M/ Rep differential Competitors able to leverage Representatives incentive
~25% more time scheme not aligned with
corporate revenue goals
Accounts for about 25% x $2M
or $500K difference

• Example: ‘The sales per representative discrepancy appears to have three primary drivers:
The candidate will be • Our reps are tied up with administrative tasks while they could be out selling 25% more
able to answer the • Our quota system rewards our reps to ‘sell what they know’ – not what we want them to sell
client’s question… • Our representatives are very experienced, but technology is changing and they need to be current with their
product knowledge

•Retool processes to increase rep time selling, likely by increasing administrative staff
…And provide a •Implement training program for representatives so they understand both products equally
pragmatic set of •Adjust quota system to align with corporate goals
solutions. • Specifically, determine which product is more profitable, and steer quota toward this product
• Determine a more ‘balanced’ quota system that does not reward reps for concentrating work in one area

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 61 -

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Case
Case

Case 20: Smart Card Manufacturer (I of III)

The Boston Consulting Group, Round II

Guidance for interviewer and

Problem statement narrative
information provided upon request(1)
Circa-late 1990s: • Only provide information after being asked for the
Your client is a global high tech company that is a information by the candidate
diversified manufacturer (chips and cell phones for
example). The company has decided to enter the • ADDITIONAL INFORMATION ON NEXT PAGE
Smartcard market and wants to know where in the value
chain they should enter. • Client has already determined to enter- only want to
know where and why
On Smartcards, there is a computer chip that provides a
broad array of functionality. It can process transactions
• Market is currently growing at 25%-30% annually
locally, provides a higher level of security. The
technology is currently used in Europe and a little in
• Ask candidate to draw their thoughts about value chain
Asia, however it is not currently used in the U.S. It can
before telling them what the value chain elements are
be used for loyalty programs, transit, credit cards, ATM,
• Do tell candidate elements of value chain
etc.
• Let candidate ask about specifics within value chain

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 62 -
 Additional
Additional Information
Information
© 2005 Michigan Consulting Club

to
to Provide
Provide

Case 20: Smart Card Manufacturer (II of III)

The Boston Consulting Group, Round II

Terminals/ Local System Continuing

Card Development
Processing Implementation Operations

Concentration 4 players with equal 10 players with equal 12 players with equal Highly fragmented
share share share

Competitive Patented technologies Products are mfg based Major IT consulting Geographically based
Tactic w/ little intellectual firms
property
10%
Profit Margins 15% 10% 20%

Other All products are in Natural extension of Track records are highly Requires workers with
performance current products (ATMs important electrician skills
& Disk drives)

Share of $1 25% 25% 20% 30%

spent in industry

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 63 -

 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 20: Smart Card Manufacturer (III of III)

The Boston Consulting Group, Round II

Expected Profits/ $
Industry Revenue Corporate Alignment Competition Entry Strategy

Card Development $1 x 25% x 15% = Medium/ High Low Acquisition

3.75¢

Terminals/ $1 x 25% x 10% = High Medium Internal

Local Processing 2.5¢ Development

System $1 x 20% x 20% = Low Medium Partnership/

Implementation 4.0¢ Acquisition

Continuing $1 x 30% x 10% = Low High Acquisition

Operations 3.0¢

While
While system
system implementation
implementation is
is more
more profitable,
profitable, card
card development
development isis more
more aligned
aligned with
with client
client
and
and has
has less
less competition-
competition- recommend
recommend acquiring
acquiring one
one of
of four
four firms
firms in
in market
market

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Case
Case

Case 21: Insurance Provider (I of IV)

The Boston Consulting Group, Round II

Guidance for interviewer and

Problem statement narrative
information provided upon request(1)
Your client is a car insurance company. Their claims • SEE CLIENT AND COMPETITOR PROCESSES ON
processing department is under pressure to reduce NEXT PAGE TO ADDRESS QUESTIONS IN THIS AREA
costs. How might you help them?
• Let the candidate draw assumptions whenever
possible to develop time spent on each task
If the candidate asks what is driving their cost reduction
pressure, add…. • Customers purchase insurance on price, not claims
processing convenience
Apparently the CEO believes her competitors’
processing cost is less. Nor necessarily the
competitors’ overall payout, but the actual processing
itself is cheaper.

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 65 -
 Additional
Additional
© 2005 Michigan Consulting Club

Information
Information to
to
Provide
Provide
(NOT
(NOT A
HANDOUT)
A
HANDOUT)
Case 21: Insurance Provider (II of IV)
The Boston Consulting Group, Round II

Process Differences Guideline for interviewer

• Candidate should want to calculate how

Our Phase B efficient each operation is:
Inspector receives appointment • i.e.: how many claims can an
time from agent and visits the inspector process in a day?
damaged car
Phase A
(Same across companies) Inspector prepares a report and • Things they should include:
Call center receives a call from
estimates a reasonable payout • Travel time
customer • Inspection time
• Time spent to review quotes
Agent assigns an inspector
and informs customer of • Report writing time
process (different processes Competitor Phase B • Total time worked each day
depending on
client/competitor) Agent instructs customer to
have car inspected by three • Candidate should find travel time is
mechanics and fax in quotes making our process more time-intensive,
Agents review quotes based on and changing process may save in short
proprietary system and decide term…
reward amount- not necessarily • However, is there any risk associated
lowest amount
with this?

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 66 -

 Candidate
Candidate Handout
Handout
© 2005 Michigan Consulting Club

ASSIGNMENT
ASSIGNMENT

Case 21: Insurance Provider (III of IV)

The Boston Consulting Group, Round II

Previous Costs Proposed Costs

Revenues 100
Phase A 10
Phase B 20
Payouts 60
Profits 10

Candidate:
Candidate: Please
Please complete
complete and
and explain the 22nd
explain the nd column
column

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 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 21: Insurance Provider (IV of IV)

The Boston Consulting Group, Round II

Previous Costs Proposed Costs

Revenues 100 100
Completing the Phase A 10 10 (same)
Cost Diagram… Phase B 20 10 (something less)
Payouts 60 70 (variable)
Profits 10 10 (variable)

• Implementing the new structure already used by competitors may cause payouts to drift in
…and voicing unexpected directions (either up or down)
concerns about • Potential for fraud must be addressed prior to full system wide rollout
risk… • Some customers may prefer the ease of a scheduled visit rather than having to undergo footwork
on their own (especially if serious accident)

Survey selection of client base (and potential client base) anonymously to determine acceptance of
…Leads to a model
client-tailored Institute pilot program in a select area to determine effect on payout and client morale- if positive
recommendation. in both regards, rollout system wide

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Case
Case

Case 22: Appliance Insurance (I of II)

The Boston Consulting Group, Round II

Guidance for interviewer and

Problem statement narrative
information provided upon request
Your client is an insurance company that sells home • Client sells to all households in US via two channels
appliance insurance. They have hired you to help • Direct Mail Channel:
efficiently increase product sales, what would you do? • Target 60M non-moving households each year
• 50M mailers sent
• $0.50 per mailer to send
IF THE CANDIDATE ASKS FOR SPECIFICS, ADD… • 0.5% sales conversion ratio
• Sales Team Channel
The client covers all appliances in the home for • Target 40M moving households each year
$400/year. Therefore any problems with the washer, • 80% coverage
dryer, air conditioning, refrigerator, range, etc, all get • 5% conversion ratio
complete repair or replacement • 1000 members of sales team
• $100K annual salary
• Coverage is highly concentrated in specific
regions- little coverage in northeast

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 69 -

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Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 22: Appliance Insurance (II of II)

The Boston Consulting Group, Round II

Candidate should want to calculate acquisition

…And then for the sales team.
cost per customer for direct mail…

Direct Mail Sales Team

Target market 60M Target market 40M

Mailers sent 50M Coverage (%) 80%
Cost per mailer $0.50 Coverage (homes) 32M
Total mail cost 25M Conversion ratio 5%
Conversion ratio 0.5% New customers 1.6M
New customers 250K Team size 1000
Cost per customer $100 Individual salary $100K
Total team cost $100M
Cost per customer $63

Candidate should drive to a set of conclusions &

Additional conversations given time…
recommendations
• Sales team coverage is less costly , therefore firm should • How might our sales channels affect the insurance
concentrate on building capability in this area industry’s problems with ‘adverse selection’ (how those
• Specifically: build capability in northeast who most need insurance tend to purchase more than
those who do not)

• Appears mailers are sent indiscriminately, by sending • Example: door-to-door sales may allow for specific
targeted mailers to high-potential candidates selection of areas & homes rather than indiscriminate
• This would likely lead to higher conversion ratios mailing

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Case
Case

Case 23: Automobile Parts Manufacturer (I of II)

A.T. Kearney, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request
Your client is an automobile interior plastic product • The customer has no plans to increase order quantity
manufacturing company. The client’s market share is
20% and the industry’s growth rate is nominal. • Two products with particulars below
Over the past two quarters, their profits have stagnated Internal Production Outsourced Production
and the CEO is concerned. Plastic Rugs Small Parts Plastic Rugs Small Parts

The company has only one customer and the customer Quantity (tons) 100 40 180 80
Full Cost $6 $4.7 $8 $4.7
continuously forces the client to price down. The Price $7 $5 $7 $5
company has one factory outside of Detroit and the
factory is running at 70% utilization. The company
• Small parts are more labor intensive to produce than
manufactures 42% of the product on that factory and
mats
outsources the remaining 58%.
• Mats lend more ‘brand recognition’ to products than
The CEO would like to improve factory utilization as well
as improve profitability… could you help develop some small parts
recommendations? • Parts produced internally have a higher quality than
outsourced parts
• Outsourced work has lower labor cost than internal

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Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 23: Automobile Parts Manufacturer (II of II)

A.T. Kearney, Round I

If the candidate determines the proper internal/ external

Candidate should want to calculate current profitability…
mix, then they should recalculate profitability as…

Internal Production
Internal capacity: 140 / 0.7 = 200 tons ; max out internal mats mfg!
Outsourced Production

$1 x 100 + $0.30 x 40 + -$1 x 180 + $0.30 x 80

Internal Production Outsourced Production

Rug (P) Rug (Q) Equip. (P) Equip. (Q) Rug (P) Rug (Q) Equip. (P) Equip. (Q) $1 x 200 + $0.30 x 0 + -$1 x 80 + $0.30 x 120

100 + 12 + -180 + 24 Rug (P) Rug (Q) Equip. (P) Equip. (Q) Rug (P) Rug (Q) Equip. (P) Equip. (Q)

$200 + 0 + -$80 + $36

= -$44
= $156 : Improvement of $200!

The standout candidate will address other concerns of the

sourcing decision, such as…
• Future client demand
• Effect on brand name and positioning
• Labor relations
• Undiversified client base
• Quality control

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Case
Case

Case 24: Electronics Retailer (I of III)

The Boston Consulting Group, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request(1)
Your client, Circuit Co., is a national consumer • ADDITIONAL INFORMATION ON FOLLOWING PAGE
electronics retailer similar to Best Buy. For the past five
years, Circuit Co. has grown its revenues and earnings • Details about the pilot program (Read verbatim)
primarily through new store openings. However, Circuit • Traditionally, all of Circuit Co.’s ground-level
Co. knows that this type of growth can not be maintained employees were “generalists” in the sense that
forever. For the past year, the company has focused on every one of them did all of the jobs that needed to
several initiatives aimed at improving same-store sales be done: stocking the shelves, answering customer
and earnings. One of these initiatives has fallen by the questions, running the cash register, etc. The pilot
wayside and you have been hired to analyze the program involved setting up a group of
situation. “specialists” in the digital camera area who were
Specifically, in the third quarter of 2003, Circuit Co. ran a solely responsible for answering customer
pilot program in the digital camera departments of its questions and selling digital cameras. The
Southwest Region stores. The CEO wants to know: remaining employees remained “generalists.”
1. Was the program a success? Generalists maintained their previous wages.
Specialists were paid a small draw plus
2. What improvements can be made to the program? commissions based on digital camera revenues.
3. Should Circuit Co. roll the program out to the rest
of the country? • Trial success criteria:
• Incremental revenues exceeded incremental costs
• Program did not create significant problems for
general store operations

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 73 -
Additional
Additional Information
Information
© 2005 Michigan Consulting Club

to
to Provide
Provide

Case 24: Electronics Retailer (II of III)

The Boston Consulting Group, Round I

Pilot Program Financials Additional Points

•Only provide each item when asked • SKU portfolio did not change
•Note: Company still growing by adding stores
3Q 2002 3Q 2003 • Pilot had no effect on other operations
Digital Camera Rev. ($M) 502 899
Total Store Rev ($M) 7.75 12 • Q3 runs June- September
# of stores 199 296
Digital Camera COGS ($M) 251 674
• Generalist wage changes insignificant

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Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 24: Electronics Retailer (III of III)

The Boston Consulting Group, Round I

• Digital camera revenues increased by about 80%

• Stores increased by ~50%, therefore camera revenue per store increased about 30%
Analysis of
• However, COGS increased about 170% or 120% after normalizing for store openings
financial
performance… • This means digital camera profits actually declined during the pilot program, even though
revenues increased dramatically

• It appears specialists were focusing on selling low margin cameras in order to earn revenue-
driven commissions

…Leads to • In terms of revenues, the program was a success, however the client suffered in terms of profits.
clients’ answers.

• Recommendation: re-run the program after determining a profit-driven commission plan, based
on results, determine rollout possibility for system

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Case
Case

Case 25: Trucking (I of III)

DiamondCluster, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request(1)
Your client is a trucking company. The company has • CANDIDATE HANDOUT EXPLAINING SOFTWARE
grown through acquiring regional trucking companies, IMPACT ON FOLLOWING PAGE
which are currently each managed as separate
businesses. • If prompted, have the candidate focus on costs – state
demand is very stable, and expensive to increase

The CEO, who is new and is an outsider to the company, • Current pickups or drop-offs/ hr: 2
has asked you to help prioritize some short term • Pickups or drop-offs/ hr w/ software: 2.5
investments, as well as advise on where the company • Hourly rate $100
should go in the long term. • Annual system wide pickups: 4M
• Drop-offs: 4M
• Tax rate: 40%
In terms of the short term investments, the CEO is • No depreciation
particularly interested in a Route Optimization software
that has been developed by one of the regional divisions • Labor is 1/3 of total costs
and has significantly improved profitability within that • Labor is 50% pickups & 50% deliveries
division. So, first the CEO wants to know what the
• Ask candidate to outline their idea of the cost buckets
impact to the firms profitability will be…
• Fuel
• Drivers
• Warehousing
• Trucks, other equipment

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
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 Candidate
Candidate
© 2005 Michigan Consulting Club

Handout
Handout
(upon
(upon request
request
about
about
software
software
Case 25: Trucking (II of III)
function)
function) DiamondCluster, Round I

Region 2:
Region 1:
Pick ups &
Pick ups &
Deliveries
Deliveries

A D

Long Haul
B E
Market A Market B

C F
Impact of software
(local markets)

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 77 -

 Candidate
Candidate
© 2005 Michigan Consulting Club

Handout
Handout
(upon
(upon request
request
about
about
software
software
Case 25: Trucking (III of III)
function)
function) DiamondCluster, Round I

Question: What should the CEO think about if he

Candidate should calculate cost reduction:
is looking to integrate the different businesses?
Watch the candidate frame out what the CEO
8M pickups &
2 pickups/ hr *
drop-offs/ yr *
$100/hr = $400M should think about… the structure and thought
8M pickups & process is more important than the results
2.5 pickups/ hr * * $100/hr = $320M
drop-offs/ yr

Pretax Benefit $80M

What are the benefits?
- Taxes @ 40% $32M Overhead consolidation
Access to markets
Final Benefit $48M Centralized/ non-duplicative warehousing
Efficiencies in long-haul transfers

What are the costs?

This is the cost savings excluding a system wide
Startup integration costs
rollout and system maintenance costs. Since
Severance/ shut-down costs for duplicates
the system already exists in one market, these
Advertising for increased capability
costs can easily be modeled for whole system

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Establishing the
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Case --
© 2005 Michigan Consulting Club

BACKGROUND
BACKGROUND

Case 26: Hong Kong Port (I of VII)

McKinsey & Company, Round I

Guidance for interviewer and

Problem statement narrative
information provided upon request(1)
Your client is Hong Kong port. The management is • CANDIDATE HANDOUTS ON FOLLOWING PAGES
concerned about revenues going down and asks for
• Revenues have been decreasing at 3% / yr for 4 yrs
your advice.
• Current sales of $200M/ yr
When asked to further elaborate on the business, add… • Client has 50% market share
• Industry is growing at 7%/ yr
Let’s assume that the only source of revenue for the • Competitors (both modernized in last 5 yrs): two
client is container processing services related to mainland China ports, Zhanjiang and Shenzhen.
shipment of containers. A manufacturer that wants to
ship a container hires a shipping company. The shipping • Customers: Guangdong (mainland China-based)
company tells him what ship the container should be manufacturers (typical route is China – USA)
loaded on. The manufacturer brings a container to the • Customers are VERY cost sensitive
port and pays the port for taking care of everything
(paper work, possible storing, loading on ship) to be • No difference in shipping cost from HK or competitors
done to load the container on the ship named by the
manufacturer. • Handouts:
• Container Processing Costs
• Port Cost Structure
• Profit Margins (question what they want and why)
• Customer transportation costs
• Map of relevant area

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 79 -
 Candidate
Candidate Handout
Handout
© 2005 Michigan Consulting Club

(Upon
(Upon Request)
Request)

Case 26: Hong Kong Port (II of VII)

McKinsey & Company, Round I

Processing Cost

Port Container Processing Cost

Hong Kong $320
Zhanjiang $300
Shenzhen $310

Cost
Cost differences
differences are
are accepted
accepted due
due to
to differing
differing quality
quality

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 80 -

 Candidate
Candidate Handout
Handout
© 2005 Michigan Consulting Club

(Upon
(Upon Request)
Request)

Case 26: Hong Kong Port (III of VII)

McKinsey & Company, Round I

Port Margins

Hong Kong Zhanjiang Shenzhen

Gross margin 20% 17% 22%
Operating margin 10% 10% 10%

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 81 -

 Candidate
Candidate Handout
Handout
© 2005 Michigan Consulting Club

(Upon
(Upon Request)
Request)

Case 26: Hong Kong Port (IV of VII)

McKinsey & Company, Round I

Port Cost Structures

Hong Kong Zhanjiang Shenzhen

Fixed cost 60% 70% 65%
Direct labor cost 20% 15% 15%
Materials / fuel / variable 10% 8% 8%
SG&A 10% 7% 12%

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 82 -

 Candidate
Candidate Handout
Handout
© 2005 Michigan Consulting Club

(Upon
(Upon Request)
Request)

Case 26: Hong Kong Port (V of VII)

McKinsey & Company, Round I
Map of Area

20 miles

300 miles

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 83 -

 Additional
Additional
© 2005 Michigan Consulting Club

Information
Information

Case 26: Hong Kong Port (VI of VII)

McKinsey & Company, Round I

If the candidate does not drive to manufacturer Guidance for interviewer and
transportation costs in 15 min., provide hints… information provided upon request
• What drives the customer decision in choosing which • Manufacturer transportation costs by port:
port to ship from?
Hong Kong Zhanjiang Shenzhen
• What costs does a manufacturer incur while shipping a Total Cost $300 $210 $180
container from his plant to end customers?
• Hourly labor cost is the same for all trips
• How does the manufacturer get the container to port?
• There is an administrative border between HK and
• How about manufacturer transportation costs? mainland China- trucks have to undergo customs
clearances (and endure long waits)
• 50% time waiting, 50% in customs
• Long lines in evenings, but no lines during day & night
• Customs communications are highly underdeveloped
• Need two drivers for HK, mainland drivers not allowed;
also salaries much higher in HK
• HK government has a stake in the company and
receives significant tax benefits

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 84 -

 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 26: Hong Kong Port (VII of VII)

McKinsey & Company, Round I

Expected Recommendations Creative Recommendations

• Convince HK government to invest in building out the • Orchestrate a single customs clearance (at HK border
customs station at the border to increase throughput or at port) rather than a customs border at each

• Invest in updating customs information and • Establish a separate trucking company to absorb
communication systems border cost
• This is a short-term solution
• Lobby HK government to abolish regulation that
prohibits Chinese commercial drivers to drive in Hong • Incentivize manufacturers to ship during the day or late
Kong at night to avoid evening rush

• These will all reduce manufacturer transportation costs

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 85 -

 Establishing
Establishing the
the
© 2005 Michigan Consulting Club

Case
Case (I)
(I)

Case 27: Argentinean Bank (I of III)

McKinsey & Company, Round I

Problem statement narrative (I) Information provided upon request

Your client is a bank in Argentina who has historically • Small to medium business market is growing
served individuals or large corporations. There are only • Users are very price sensitive
three other large banks in the market, with each having • Client’s cost structure is rather small
equal market share and cost structures. Last year, your • Client’s retail outlets can
client was the first bank to enter the small to medium
business market and made some money. They did this
primarily by offering the businesses the same services
that they offered the small and large companies through
their retail outlets. They would like to understand how
they could become more profitable…

Initial question solution elements Initial question follow-up

If the candidate has asked the appropriate questions • ASK CANDIDATE: Please give me four examples of
about the profit equation, it is apparent that… products that you would offer to the small and medium
• Price can not be easily changed sized businesses…

• The cost structure is currently very good • Possible answers

• Quantity is the only thing to change • Payroll management
- Choice 1: Increase sales to current clients • Funds management services
• Tax services
- Choice 2: Increase sales to new clients • Business insurance

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 86 -

 Establishing
Establishing the
the
© 2005 Michigan Consulting Club

Case
Case (II)
(II)

Case 27: Argentinean Bank (II of III)

McKinsey & Company, Round I

Problem statement narrative (II) Requisite math & solution

Lets do some calculations. Current Structure

$160 M Profit
Right now, we make $1000 Revenue/Product, Have $160 $160 M Fixed
Million in profit, and service 2 products per customer. $480 M Variable
$800 M total Revenue
The current cost structure is 20% profit, 20% fixed, and $800 M Revenue/ $1000 Revenue/Product =
60% variable. 800,000 Products
Variable Cost Per Product = $600 per product
Given the services you have talked about we predict that
customers will increase to 600,000 expected customers,
3 products per customer, the revenue per product stays New Structure
the same, the variable cost per product stays the same, Rev. 600,000 customers*3 products/cust *1000
what is the expected profit? $1,800 M
Fixed Costs $160 M
Variable 600,000 cust * 3 products/cust *600
$1,080 M

Profit $560 M

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 87 -

 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 27: Argentinean Bank (III of III)

McKinsey & Company, Round I

Ask candidate: •Answers (which should be backed up by some rationale) could include:
can you provide • Risk susceptibility
me a couple of • Size (revenues)
ways to segment • Size (employees)
our small and • Industry (service/ production)
medium sized • Lender services
business • Borrower services
customers?

• Given the potential return and connection to our current offerings, the benefits far
outweigh the risks- looks like a go! (candidate should structure out thoughts)

So, should we
move forward
with this?

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 88 -

 Establishing
Establishing the
the
© 2005 Michigan Consulting Club

Case
Case

Case 28: Sandwich Bags (I of VII)

The Boston Consulting Group, Sample Case

Problem statement narrative Interviewer guidance & key questions(1)

Your client is a very small consumer packaging • Candidate should be interested in issues such as:
company. One of their product lines, for which they • Capacity of the machine
have one dedicated machine, is plastic bags for food • Demand for each product
storage. They have 3 sizes of bags – 4” (sandwich bag) • Revenue / costs for each product
8” quart bag and 12” (gallon bag). The bags are all the • Production time for each product
same width – the sizes refer to the length of the bag.
• Provide candidate with capacity and demand/ blank-
profitability slides if they ask for that type of data
The client is facing more demand than they think that
• Prompt with “So, based on this information, what
they have capacity to produce. They have called us in to
would you recommend the company produces on its
figure out a 2 key questions:
rollers and why?”
• Answer should be: 4” and 8” bags w/ 12” bags as
How can they best utilize their current bag capacity? overload
Should they invest in a new bag machine? • PART II: “So, the client has some extra demand they
have not met, should they invest in another roller?
What information would you like to know?”
Let’s start with the capacity question. How would you • If asked:
want to start to think about this problem? What • Cost: $750K
information would you want to have? • Payback: 5 years
• Demand growing at population growth
• Mature market, no dramatic changes
• Throughput growing at 2% due to efficiency
(1) If detailed exhibits exist, they will be referenced in this box,
and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 89 -
 Candidate
Candidate
© 2005 Michigan Consulting Club

Handout
Handout
Capacity
Capacity
(Upon
(Upon
Request)
Request)
Case 28: Sandwich Bags (II of VII)
The Boston Consulting Group, Sample Case

4” bags
Key Capacity Data
Machine
1“
ba 500 “bag-widths” produced per hour
g-w
idt
h”
4” 4” 4” 4” 4” 4”
Runs 20 hours / day
8” bags
5 days / week
Machine
1“
ba 50 weeks per year
g-w
idt
h”
8” 8” 8”
Total of 5000 hours of production per year
12” bags

Machine
1“
ba
g-w
idt
h”
12” 12”

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 Candidate
Candidate
© 2005 Michigan Consulting Club

Handout
Handout
Profits
Profits &
&
Demand
Demand
(Upon
(Upon
Case 28: Sandwich Bags (III of VII)
Request)
Request) The Boston Consulting Group, Sample Case
Profitability and Demand by Product Type

# bags / Profit / Annual Demand

bag-width bag ($) (# of bags)

4” 6 .02 9M

8” 3 .03 3M

12” 2 .04 3M

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 91 -

 Candidate
Candidate
© 2005 Michigan Consulting Club

Handout
Handout
(After
(After
completing
completing
previous
previous
Case 28: Sandwich Bags (IV of VII)
math)
math) The Boston Consulting Group, Sample Case
Completed Profits & Capacity

# bags / produced per Profit / Demand Total Hours of

bag-width hour bag ($) (# bags) Profit ($) capacity

4” 6 3000 .02 9M 180k 3k

8” 3 1500 .03 3M 90k 2k

12” 2 1000 .04 3M 120k 3k

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 92 -

 Additional
Additional
© 2005 Michigan Consulting Club

Information
Information

Case 28: Sandwich Bags (V of VII)

The Boston Consulting Group, Sample Case

Should we invest in a new machine? Getting the answer(1)

• Ask: What would you have to believe to say a new • $120K per year from 12” bags
machine is a good idea? (suggestions) • $600K profits over 5 years
• Demand would increase faster than 2%
• A new product could be introduced • Need $150K over 5 years for payback
• Capacity could be rented out • $30K per year
• Prices will increase • $0.03 per bag at 1M bags
• $0.015 per bag at 2M bags
• A NEW PRODUCT… • $0.01 per bag at 3M bags
• Tell candidate: “let’s say the client’s R&D team has just
come out with a new bag. It is a 2-in-1 bag, one side • To candidate: “So, if we could get $0.03 per bag and
holds your sandwich and the other side holds your produce 1M bags we would be happy. Using this
chips or lettuce to keep things from getting soggy. graph (next page), please draw me the curve that
This bag is a 6” bag. Assume that if we stated to represents all of the price/quantity combinations
produce this bag tomorrow it would be accepted, there where we would be willing to make the investment
would be no lag time for people to catch on to using it. in the roller.”

What annual profit per bag would we need to generate in • Does this curve have any endpoints for our client?
order to make the new roller a good purchase…

Extra points for mentioning cannibalization

Don’t worry about discounting

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 93 -
 Candidate
Candidate
© 2005 Michigan Consulting Club

Assignment
Assignment
Demand
Demand
Curve
Curve Case 28: Sandwich Bags (VI of VII)
The Boston Consulting Group, Sample Case

profit per
bag ($)

0.03 x

1 # of bags (M)

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 94 -

 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 28: Sandwich Bags (VII of VII)

The Boston Consulting Group, Sample Case

Getting the answer Bonus

profit per Let’s assume that we take the $0.03 / 1 M bag

bag ($) combination. We can produce 4 bags per bag width,
or 2000 bags per hour. Total production will take 500
hours so we still have 1500 hours of capacity on our
new roller.

0.03 x The client would like to come up with yet another

innovation. They would like to find a use for more 12”
0.015
bags, or perhaps a bigger bag. In the time that we
have remaining, just brainstorm what applications you
might investigate for a large storage bag. …
0.01

This is an open-ended question, follow how the

candidate constructs thoughts and comes up with
solutions.
1 2 3 # of bags (M)

Endpoints? Lower limit depends on demand sensitivity.

Getting $1 profit per bag is probably out as product as
production quantities wouldn’t be worth it. Upper
production limit depends on capacity: 4M bags / yr

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 95 -

 Establishing
Establishing the
the
© 2005 Michigan Consulting Club

Case
Case

Case 29: Gift Wrapping Paper (I of III)

The Boston Consulting Group, Round I

Problem statement narrative Interviewer guidance & key questions(1)

Your client is a gift wrapping paper manufacturer in the • Cost comparison provided on candidate handout slide-
United States. They are considering a proposal to do not provide until candidate outlines potential
outsource their manufacturing to mainland China. You differences and asks for specifics between options
have been called in to assist in the go / no-go decision
making process. They would like to know your • Fixed costs include:
thoughts and your recommendation… • Plant & machinery See diagram for costs
• Employees See diagram for costs
• Variable costs include:
ASK CANDIDATE TO BEGIN BY ESTABLISHING COST
• Raw paper material $20 per ream (same for both)
BUCKETS
• Ink $100 per ream US
$50 in China
AFTER COST BUCKETS ESTABLISHED, ASK HOW THEY • Ink is special wrapping paper ink and an
MAY DIFFER IN CHINA (A: LOWER LABOR COSTS?) unavoidable cost

Shipping cost from China to US is $150 per ream

LET CANDIDATE STEER INTERVIEW FROM HERE…

(1) If detailed exhibits exist, they will be referenced in this box,

and included in full on the following slide(s)
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 96 -
 Candidate
Candidate
© 2005 Michigan Consulting Club

Handout
Handout
Profits
Profits &
&
Demand
Demand
(Upon
(Upon
Case 29: Gift Wrapping Paper (II of III)
Request)
Request) The Boston Consulting Group, Round I

Gift Wrapping Paper Production Comparability Between Markets

United States

+ =

1 Unit Parts & Machines 1 Employee

1 Ream Paper
Cost: $100 each Cost: $100 each

China

+ =

5 Units Parts & Machines 25 Employees

1 Ream Paper
Cost: $20 each Cost: $2 each
2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 97 -
 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 29: Gift Wrapping Paper (III of III)

The Boston Consulting Group, Round I

$100 Parts & Machines

$100 Labor Expensive US based labor
Establish base US
$20 Paper Commodity- difficult to lower
costs
$100 Ink Specialized product
$320 TOTAL COST

$100 Parts & Machines More equipment may increase repair cost
$50 Labor Lower per employee, but hiring/firing costs may increase
Generate comparable
$20 Paper
China costs
$50 Ink Closer to supplier, still expensive
$150 Shipping $370 TOTAL COST

• Shipping is the deal-breaker for China

Compare two fully • Lower shipping costs would increase attractiveness
loaded costs for • What might some alternatives be? Bulk, sheets rather than rolls?
options • More variables to manage in China, not very labor intensive product in US

• Does not look viable at this time

Generate • Track ink, paper, employee costs in China to address long-term potential for move
Recommendation
• Non-examined issues: US shutdown costs

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 98 -

 Establishing
Establishing the
the
© 2005 Michigan Consulting Club

Case
Case

Case 30: Automobile Manufacturer (I of II)

Booz Allen Hamilton, Round II

Problem statement narrative Interviewer guidance & key questions

Your client is a leading auto manufacturer in the United • This is an ‘understanding the market’ case, not a
States. There are three primary players in this market. profitability case. If prompted, refer to ‘getting an
Historically, the market leader had 30% share, our client understanding for the industry.’ The candidate should
and the other player both had 20% market share. not want to drive to the profit equation.

• Elasticity of demand: 5
Over the past 2 years, your client’s share has been
falling, and it wants to know why. • Consumer preferences are the same and have not
shifted

• There are no warranty, capacity, or supply chain issues

• Competitors price with a huge summer sale- we do not

• No major product portfolio changes

• Client market share has fallen from 20% to 18% to 15%

2005-2006 MICHIGAN CONSULTING CASE INTERVIEW PREPARATION GUIDE - 99 -

 Sample
Sample Solution
Solution
© 2005 Michigan Consulting Club

Elements
Elements

Case 30: Automobile Manufacturer (II of II)

Booz Allen Hamilton, Round II

Competitors Client Customers

• Similarly elastic demand • Very elastic demand • Price sensitive
• Have a summer sale • No summer sale • Not complaining about service or
• No extraordinary innovation • No extraordinary innovation quality
• Unknown production • Solid production • Still purchasing cars
• Unknown customer satisfaction • Solid existing customer satisfaction • Preferences have not changed

•Need to regain 20% market share

• This is a gain of about 35% (15% share increasing to 20%)
Math to determine •With a elasticity of demand of 5, increasing share 35% will require a price drop of 7%
price change
•Is a straight price drop the best way to regain customers?

• In order to prevent competitors following a price reduction to regain share, there are several
‘locked’ methods the client can pursue:
Recommended • Discounting higher-margin after-market products or add-on features
solutions • Increase loyalty or trade-in program incentives
• Increase financing incentives ie: ‘90 days same as cash’

Candidate
Candidate should
should discuss
discuss benefits
benefits and
and risks
risks of
of each-
each- aa
final
final recommendation
recommendation is
is not
not required
required
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