Overview

1. Overview These cases are taken from actual BCG interviews. Some are just a question, while others have background data and explanations of the interviewee’s experience in the interview. The slide number is listed in parentheses for reference. • Question Only • Case 1 – Airport Parking (2) • Case 2 – Telecom Mkt Mix (3) • Case 3 – Popcorn Bag (4) • Case 4 – Liquid Nitro (5) • Case 5 – Plane Broadband (6) • Case 6 – Chinese Kraft (7) • Cases w/ Details • Case 7 – Postal Supplies (8) • Case 8 – Pharma Distrib (16) • Case 9 – Energy Refiner (24) • Case 10 – Flat Glass (26) • Case 11 – Specialty Metals (28) • Case 12 – Grocery Margins (38) • Case 13 – BBQ Grills (43) • Case 14 – Bank Profits (51) • Case 15 – Cellular (54) • Case 16 – Plane Maint. (57)

2. Case Question Case 1 • Our client owns a parking lot two miles away from an airport in Texas. What price should she charge?

3. Case Question Case 2 After deregulation, our telecommunication client is trying to decide what market mix it should focus on to become the most profitable. How do you determine what mix to focus on and how to handle the other market mixes?

4. Case Question Case 3 • Our client makes grease-resistant paper used in making microwaveable popcorn bags. It has just developed a new, more grease-resistant paper. Given costs and potential revenues, does it make sense to add this to the product line?

5. Case Question Case 4 • We have technology to build two sizes of liquid nitrogen plants or the option to import the liquid nitrogen. What strategy should we pursue and if we should build a plant, should it be a small or large plant?

6. Case Question Case 5 • Our client has developed a new broadband technology that is safe to use in airplanes. It does not interfere with the normal operations of the planes and has been approved by the relevant regulatory entities. What is the market? Will our investment work?

7. Case Question Case 6: Chinese Kraft Foods We have a client like Kraft Foods and they want to open operations in China. What do we need to be aware of with this expansion?

8. Case Question Case 7 • Your client is a franchisor of postal supplies shops. They receive a percentage of gross revenues from their franchisees. They are considering redistributing $100,000,000 to their store owners hoping to attract new owners to the market. Should they do it?

9. Background Information • The franchise consists of 5000 stores. • In addition to normal operating costs, franchise owners must pay an annual fee to the franchisor (our customer)

10. Background Information • Average revenues are 1,000,000 and average costs 800,000 (per store). The sale of postal supplies provides the highest contribution margin (40%).

11. Suggested Approach • Calculate the impact of the redistribution • Calculate per store redistribution: • 100,000,000/5,000 = $20,000 per store • What does this mean? • Store owners are netting 200,000 per year (20% CM) • Redistribution will allows owners to net 220,000 per year (22% CM) • Will a 2% margin increase attract new store owners? (I said no)

12. Suggested Approach • Think about the bottom line for our customer. • How does our customer (the franchisor) make money? • Annual fee from each store • % of gross revenues from all stores

13. Suggested Approach • How can we increase each revenue source. • Annual fee from each store • Increase the total number of stores • We previously established that a 2% margin increase probably will not attract new store owners • % of gross revenues • How can we use 10,000,000 to increase gross revenues at each store? • Marketing Campaign

14. Suggested Approach • Recommendation • Distribute 20,000 to each store owner with the stipulation that it is used in a locally-based marketing campaign.

15. Suggested Approach • The lingo on this one threw me off a little (franchisee, franchisor etc). At one point I got lost but jumped to an analysis of the client revenue sources, I think that saved me.

16. Case Question Case 8 Our client is a pharmaceutical distributor for the U.S. market. They have two major business units; prescription drugs and over-the-counter (OTC) drugs. The client has analyzed both business units and determined that the prescription drug unit is performing above expectations but that the OTC unit has been unprofitable for several years. The client has decided to exit the OTC market and seeks your help in ensuring this is the correct decision and determining the best method to exit the OTC market.

17. Background Information • The client’s customers range from hospitals and clinics to one-stop pharmacies like Walgreens • Your client does not have any exclusive OTC customers; All customers are prescription drug customers who also buy OTC drugs • OTC drugs are less profitable for both our client and its customers; the client’s customers sell OTC drugs because consumers want to purchase both prescription and OTC drugs at the same location

18. Background Information • Our client has 3 major competitors and several small regional competitors • Major competitors are similar in types of clients and overall margins • No overlap in customers; a hospital/ pharmacy will buy from only one of the 4 main pharma distributors • Regional competitors sell only minimal quantities to our client’s customers and are used primarily for one-off purchases

19. Background Information • Annual Revenues for Client • Prescription – $40 Billion • OTC - $1 Billion • Annual Costs for Client • Prescription • Drugs – 90% of Prescription Sales • Warehousing - $1.3 Billion • Delivery - $1.5 Billion • Marketing - $0 • General Admin Expenses - $200 Million • OTC • Drugs – 95% of OTC Sales • Warehousing - $35 Million • Delivery - $40 Million • Marketing - $25 Million • General Admin Expenses - $5 Million

20. Suggested Approach • Identified three main areas to address during the analysis • 1) Importance of the OTC unit to the client • 2) Market Factors • 3) Potential Exit Strategies

21. Suggested Approach • Value of OTC Unit • Compute an analysis of the monetary benefit of keeping and divesting the OTC unit • Determined that many costs would still be incurred even after divesting the OTC unit • Warehousing, Delivery & General Admin • Estimated the current loss for the OTC unit and compared to the estimated costs still incurred after divesting the OTC unit • Concluded that the client would be losing more money after divesting the OTC unit than they are currently losing

22. Suggested Approach • Market Factors • Identified that customers may no longer purchase from our client if our client does not offer both prescription and OTC drugs • Market is growing and competition is fierce so the potential for lost profits is significant if our client does not maintain its current market share • Concluded that the risk of losing customers would result in greater profit declines than maintaining the OTC unit

23. Suggested Approach • Exit Strategies • Concluded that the best approach would be to maintain the OTC unit • Supporting Reasons • Client would lose more money by divesting the OTC unit than keeping it due to overlapping costs between the OTC and prescription drug units • High risk of losing customers if the client did not also offer OTC drugs would ultimately lead to greater declines in profits than the small losses incurred from the OTC unit • OTC unit ensured we could maintain current market share and while not profitable, it served as a major factor in maintaining our client’s profitable prescription drug unit

24. Source: Final Round Internship Interview Case 9 Our client is the largest energy refiner in the US. They don’t find crude reserves, they buy crude from others and reduce it into liquid fuels (e.g. diesel, unleaded…). They have a potential investment opportunity. A middle eastern government has found methane on their land and wants our client to build a plant in their land. Our client would refine the methane and could sell their fuels without restriction. The government would sell the methane exclusively to the client. Should our client take up this investment opportunity?

25. Background Information • Price of refined fuel is $80/barrel • Fixed Costs • Cost of building a plant is 1 Billion dollars • Variable Costs • Cost of methane from the government is $40/barrel • Shipping and Distribution Costs are $10/barrel • All other costs make up an additional $10/barrel Ask them this at the end: What figures would you be most concerned about out of the info. you have?

26. Question Case 10 Your client is a producer of flat glass in Mexico. Mexico has recently undergone deregulations, and consequently, a large global competitor is about to enter Mexico. Your client wants to expand it’s product offering and is specifically thinking about producing end products. Among its top options are residential windows, table tops, and shower doors. What are some factors they should think about when making their choice? Lets say we find out they want to enter the U.S. market selling residential windows. What are some factors/concerns they should think about? How far should they ship into the U.S.?

27. Background Information • Labor in Mexico is a 1/3 of the cost of U.S. labor ($2.5 / window and $7.5, respectively) • Freight costs are $10/1000 miles (linear) • Each window can be sold for $11.5 dollars

28. Case Question Case 11 • Our client is the CEO of a large specialty metals manufacturer based in Chicago. Our client recently expanded its manufacturing capacity and then landed a contract that essentially uses all the newly built capacity. However, the new contract requires our client to meet much more stringent timelines which are higher than both our client and the industries norms. • How can our client meet the requirements of this new contract from both a cost and reliability standpoint?

29. Background Information • Contract Requirements • Customer is based in Denver, CO • Approx 1000 miles from Chicago • Customer requires 40 loads to be delivered every week for 50 weeks per year • Our client can manufacture the 40 loads per week but cannot currently meet the requirement to have all 40 loads delivered on time each week

30. Background Information • Our Client uses a 3rd Party Trucking firm to delivery all of its goods • The 3rd party will deliver all the goods; however, some loads show up on Thursday, others Saturday, and others sometime during the next week. This is unacceptable to the customer • Our client pays $2.25 per mile to have the 3rd party firm delivery the loads (only have to pay for the one-way delivery to the customer, do not pay for the return portion of the trip)

31. Background Information • Costs associated with an in-house delivery operation • Truck Lease - $1,500 per month • Truck Driver - $60,000 per year • Gasoline - $2.00 per gallon • Maintenance – $0.10 per mile • Trucks can deliver two loads per week (one load per trip = two trips per week) • Our client incurs costs on both the delivery to the customer and the return trip back to Chicago • Trucks gas mileage rates at approx 5 miles per gallon

32. Suggested Approach Overview • Develop a list of comparison opportunities to address the delivery of our client’s product • Keep current 3rd Party Trucking Company • Create in-house trucking line to transport product ourselves • Find new 3rd Party Trucking Company • Perform an analysis based identified criteria • Cost Analysis • Reliability Analysis

33. Suggested Approach Cost Analysis • Current 3rd Party • $2.25 per mile • In-House Trucking • Need to compute a per mileage cost • Mileage • 40 loads * 2000 miles each trip = 80,000 miles per week • Trucks • 40 loads / 2 loads per week = 20 trucks per week • 20 trucks x ($1,500 per month / 4 weeks) = $7,500 total cost per week • $7,500 / 80,000 miles = $0.094 per mile for trucking costs (round to $0.10 or $0.09)

34. Suggested Approach Cost Analysis • In-House Trucking cont… • Drivers • 20 trucks per week = 20 drivers • 20 drivers x $60,000 annual salary = $1.2 million • $1.2 million / 50 weeks = $24,000 per week in driver costs • $24,000 / 80,000 miles = $0.30 per mile for driver costs • Gas • $2.00 per gallon / 5 miles per gallon = $0.40 gas per mile • Maintenance • $0.10 per mile (given) • New 3rd Party Trucking Company • Told not to consider this option for the sake of time

35. Current 3rd Party Cost per mile $2.25 (given) Transportation Cost per Load 1000 miles x $2.25 = $2,250 In-House Trucking Cost per mile Truck Fleet - $0.10 Drivers - $0.30 Gas - $0.40 Maintenance - $0.10 Total Cost per mile = $0.90 Transportation Cost per Load 2000 miles x $0.90 = $1,800 Suggested Approach Save approx. $450 per load by using In-House Trucking 3rd Party $2,250 minus In-House $1,800 = $450 Saving per Trip

36. Suggested Approach Reliability Analysis In-House Trucking • Control employees • Truck fleet dedicated to firm • Provide strong incentives and punishments to meet contract requirements Current 3rd Party • Don’t control employees • Compete with other firms for delivery truck capacity/ scheduling • Difficult to incentivize • Limited damages for 3rd party when fail to meet necessary contract requirements

37. Suggested Approach Conclusion • From both a cost and reliability perspective, recommend client drop current 3rd Party Trucking Company and create an In-House Trucking division.

38. Question Case 12 • Grocery stores margins are less than competitors • Why?

39. Data • We have 10% margin • Competitors have 12% margin • Where is the 12% coming from?

40. Additional Data • There is difference in product mix • We are selling 80% food, 20% non-food items • Competitors selling 60% food, 40% non-food • Margins on food items is less

41. Follow-up Question • What other factors are contributing to lower margin? • Benefits in the distribution channel • We have products delivered directly • 60% direct • 40% centrally distributed • They have centrally located distribution facilities • 30% direct • 70% centrally distributed

42. More Data • It costs a certain percent more to distribute it directly

43. Case Question Case 13: BBQ • Your client manufactures barbeque grills, has been in business for 100 years, and operated at a loss for the first time last year. What happened and what should they do about it?

44. Background Information • Main competitor recently moved manufacturing operations to China. Market is moving toward wholesale distribution of BBQ grills.

45. Suggested Approach • Simple frameworks • Revenue – Cost = Profit • Manufacturing Costs = raw materials + labor + overhead

46. Suggested Approach • Did revenues fall? • Q. How does the client distribute BBQ grills • A. Traditionally through mom-and-pop stores • Q. Have they been able to break into the wholesale market? • A. Yes, but sales quantity lags that of competitors

47. Suggested Approach • After more questions I established that our client’s grills were priced higher than those of their competitor’s – this price disparity was a recent development (within the last few years). Further, rising manufacturing costs were the source of this price increase.

48. Suggested Approach • I then asked for information on the manufacturing costs of both our client and their competitor. • The interviewer asked me how I would get this information. • The client would share freely. • The competitor would probably refuse to provide information but we could estimate costs with a bid request sent to other manufacturers in China • I found the competitor was able to cut costs (mainly labor) by moving their factory to China.

49. Suggested Approach • We discussed the implications of us following suite and moving operations to Mexico or China. • In the end I recommended the client move it’s manufacturing facilities to Mexico to cut labor costs and try to obtain an advantage from lower shipping costs.

50. Questions from partner interviews • Partner name