Management Consulting Interview Question - Profit for a Beverage Manufacturer
This is a Business Interview Question. This question is useful for anyone preparing for the consultant, business analyst, program manager, or category manager role.
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Interviewer: Your client is a Beverage Manufacturer in India, observing a decline in profits. You have to analyze the problem and help them to solve it.
Priyanka: I will start with the clarifying questions so that we have a better understanding of our client's problem. I will take a few seconds and make a note of all the questions that I want to ask.
Interviewer: Sure, please go ahead.
Priyanka: Firstly I would like to understand - What are the product categories that our client deals with? And have we seen a decline across a certain product category?
Interviewer: The client manufactures Beer/Soft drinks and the Decline is across all categories.
Priyanka: To understand the client even better I would like to know In which part of the value chain does our client operate?
Interviewer: Our clients own the entire value chain from manufacturing to distribution.
Priyanka: How many manufacturing units does the client have?
Interviewer: Our client has a huge plant in the Southern part of India.
Priyanka: I would also like to confirm if the decline is specific to our client or industry-wide.
Interviewer: It is Specific to our client.
Priyanka: Finally how long has the client been facing this decline and what is the magnitude?
Interviewer: The decline is since last 1 year and it's a 10% decline.
So quickly summarising all the information that we discussed: Our client is a beverage manufacturer based out of Southern India that has seen a ~10% decline in profits in the last 1 year and the issue is specific to our client.
Priyanka: Now I will start by analyzing the profits through revenue or costs.
Profits can decline either due to a decrease in revenue, an increase in costs, or both.
Is there any specific side that we are aware of?
Interviewer: The issue is due to an increase in Costs.
Priyanka: So we will deep dive into the Costs side now.
For this, I will look at the value chain of the client and look at the costs associated with each component. I will try to look at the value chain for our Beverage Manufacturer.
The value chain can be visualized as Research and Development, Raw Materials Procurement, Manufacturing, Storage & Transportation, Distribution, and finally Sales/Marketing.
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Interviewer: The value chain looks good. Why don’t you look at the cost for each component?
Priyanka: So within R&D, I will look at Human Capital i.e. Research person’s salary, Tech cost, and Patent Cost.
Next in the case of Raw Materials Procurement, I can think of Material costs in terms of price and quantity required, Supplier costs like contracts with suppliers
Further, in the case of Manufacturing, I will look at Machine costs, Labour costs - their salaries, and Tech costs like networks, and server costs.
For Storage and transportation, there will be costs involved for leasing Warehouses, and logistics costs.
For Distribution, there will be the Salary of Field Salespeople, their Travel costs, and Training costs.
Finally, for Sales & Marketing, I will look at the dollars spent on marketing & advertising.
Is there a specific cost component that I should focus on?
Interviewer: Let’s focus on Manufacturing cost
Priyanka: So I will double-click on the Manufacturing cost now.
Talking about Manufacturing cost, I am thinking of breaking it down into
People-related cost, Process related cost, Technology cost
The “People” aspect refers to the human resources available to the business. The cost incurred here will be mainly Wages & salaries, and Employee benefits.
The “Process” aspect will have activities related to doing the day-to-day tasks like running machinery, maintaining the factory and rent of the factory, and overhead costs.
“Technology” caters to the tools required to implement and automate processes these could be investments in software, hardware, networks, or databases.
Where should I double-click now?
Interviewer: So the machinery cost has increased.
Priyanka: I will again deep dive here into machinery cost, I am thinking of why the cost is high. It can be in running the current machine so the Cost of Fuel, Coolants, etc. might have increased. The cost of maintaining the current machines is high
Our client might not have invested in regular maintenance or upgrades over time, which could lead to inefficient equipment and higher costs now
Or our client is not great at Negotiating with vendors for maintenance or spare parts. This can also lead to higher maintenance costs
Also regarding new machines, the client might require High Upfront Investment
Interviewer: So you have correctly identified the issue. Why don’t you look at the solutions?
Priyanka: Now I will look at solutions that we can implement
So in the Short term:
Renegotiate contracts with vendors to potentially reduce maintenance costs
Instead of replacing entire machines, consider upgrading specific components to reduce cost.
Organize proper refresher training for staff on maintaining old machines and operating new ones.
In the Long term:
Conduct a cost-benefit analysis to evaluate the return on investment (ROI) for new machinery.
Explore financing options like equipment leasing or loans to spread the cost of new machinery over time.
Invest in modern equipment to future-proof the business by ensuring efficiency and competitiveness in the long run.
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