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  • ChairCo Manufacturing Profitability Analysis Chart Based

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    Aniruddha Ghosal
    231 views7 pages
    ChairCo manufactures metal parts for chairs and is facing declining revenues. Exhibit 1 shows that between 2010-2011, ChairCo's prices decreased from $10 to $9.5 per unit while volumes dropped from 50 million units to 40 million units. Exhibit 2 compares ChairCo's costs to a competitor's costs, showing the competitor has lower costs for materials and labor. Exhibit 3 demonstrates that ChairCo's customers are moving production to Asia, with the percentage of chairs sold in the US from Asia increasing from 30% in 2010 to 50% in 2011. To remain competitive, it is recommended that ChairCo shift its manufacturing operations to Asia to reduce costs and be closer to customers.

    Original Description:

    Case Interview

    Original Title

    ChairCo Case

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    ChairCo manufactures metal parts for chairs and is facing declining revenues. Exhibit 1 shows that between 2010-2011, ChairCo's prices decreased from $10 to $9.5 per unit while volumes dropped from 50 million units to 40 million units. Exhibit 2 compares ChairCo's costs to a competitor's costs, showing the competitor has lower costs for materials and labor. Exhibit 3 demonstrates that ChairCo's customers are moving production to Asia, with the percentage of chairs sold in the US from Asia increasing from 30% in 2010 to 50% in 2011. To remain competitive, it is recommended that ChairCo shift its manufacturing operations to Asia to reduce costs and be closer to customers.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    231 views7 pages

    ChairCo Manufacturing Profitability Analysis Chart Based

    Uploaded by

    Aniruddha Ghosal
    ChairCo manufactures metal parts for chairs and is facing declining revenues. Exhibit 1 shows that between 2010-2011, ChairCo's prices decreased from $10 to $9.5 per unit while volumes dropped from 50 million units to 40 million units. Exhibit 2 compares ChairCo's costs to a competitor's costs, showing the competitor has lower costs for materials and labor. Exhibit 3 demonstrates that ChairCo's customers are moving production to Asia, with the percentage of chairs sold in the US from Asia increasing from 30% in 2010 to 50% in 2011. To remain competitive, it is recommended that ChairCo shift its manufacturing operations to Asia to reduce costs and be closer to customers.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 7

    Type: Profitability, Operations, Chart Based

    Give the exhibits in the subsequent slides only


    when the candidate asks for the relevant data.

    If the candidate asks, tell them that there are no


    specific financial targets.

    Guidance for interviewer and


    information provided upon request

    ChairCo BCG Round 1


    Problem statement narrative
    Our Client, ChairCo manufactures metal parts* that
    are used to manufacture chairs. ChairCo primarily
    sells these parts to US based chair manufacturers.
    They are facing declining revenues and the CEO has
    asked us to evaluate the problem and suggest
    corrective measures.

    Industry: Manufacturing

    *Metal bases that are used in the revolving office


    chairs.

    Difficulty: Easy

    - 37 -

    ChairCo BCG Round 1

    Additional Questions to Steer Discussion


    Questions for the candidate

    After seeing Exhibit 1, the candidate should make an observation that prices and volume are
    decreasing and both these issues need to be addressed.

    Why did ChairCo have to decrease prices? Because competition has decreased prices.

    Why did competition decrease prices? Because metal parts are a commodity and they might
    have a lower cost structure than us.

    Why do you think our competitor has a lower cost structure? Material and labor could be the two
    major reasons.

    Why is our client loosing unit sales despite decreasing price? Because their customers are
    moving to low cost countries.

    Can the client reduce costs? Client is already very efficient and cannot decrease their costs
    without shifting operations to China, Indonesia etc.

    - 38 -

    ChairCo BCG Round 1

    Suggested Solution and Structure


    Solution Guide

    Exhibit 1 Volumes have decreased and so have prices ($10 to $9.5). Ask candidate why he/she
    thinks the price must have gone down. The most logical answer should be that since this is a
    close to commodity product, prices for the entire industry have fallen down and ChairCo had to
    respond. Competitors might have become more cost competitive because their operations are
    located outside US.

    Exhibit 2 - Competition has significant cost savings in material and labor. The most logical
    reasons are that they are based in low wage counties such as China, Indonesia and that they are
    using an inferior/cheaper metal.

    Exhibit 3 ChairCo customers are moving geographically away which explains the drop in
    volume despite the drop in price.

    - 39 -

    Recommendation

    Next Steps

    Analyze which country has low cost


    base, high proximity to customers and
    low barriers (regulations, etc.) to set up
    manufacturing.

    ChairCo BCG Round 1

    Conclusion

    To become cost competitive and gain proximity to


    customers (chair manufacturers), ChairCo has
    to shift manufacturing to Asia.
    Risk downsizing in US will lead to a PR
    backlash.

    - 40 -

    ChairCo BCG Round 1

    2011

    $380 M
    40M Units

    Exhibit 1 ChairCo Sales

    $500 M
    50M Units

    2010

    - 41 -

    ChairCo BCG Round 1


    Exhibit 2 ChairCo Vs. Competitor cost

    ChairCo Costs

    Transportation

    Labor

    Materials

    0.5

    4.9

    ChairCo

    0.6

    1.5

    1.5

    2.5

    Competitor

    2010

    $1.5

    $7.5

    2011

    $1.6

    $7.4

    Cost Structure

    Tax
    0.5

    COGS

    IT
    1.1

    SGA

    Overhead

    - 42 -

    Europe

    ChairCo BCG Round 1

    5.0%
    5.0%
    2010

    60.0%

    30.0%

    Canada

    US

    5.0%
    5.0%
    2011

    40.0%

    50.0%

    Asia

    Exhibit 3 - Manufacturers of Finished Chairs selling in US

    10.0%

    80.0%

    5.0%
    5.0%
    2009

    - 43 -

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