Consulting Study Group: Indian Institute of Management, Vastrapur - 380015, Gujarat, India Phone - 0091 79 6327611

IIMA Consulting Study Group
Indian Institute of Management, Vastrapur – 380015, Gujarat, India

Phone – 0091 79 6327611
Table of Contents
Dry Cleaners Case -guesstimation...............................

Office Supplies Distributor Case - bottomline..............
Cosmetics Case – bottom line.....................................
Case Number: ATK1 – bicycles , Profits...................
Case Number: ATK2 – Cookies – Industry analysis........
Case Number: ATK3 – Oil – improve bottom line...........
Emergency Room Operations
Improvement/Reengineering......................................
Case Number: 1 - Power.............................................
Case Number: 2 – Oil and Org. Effectiveness...............
IIMA Consulting Study Group Co-Chairs, 2000 - 2002

Nitish Ranjan Sinha Atul Sinha Somshankar Sinha
Shweta Anand Kumar Tushar Thomas Jacob
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Andersen Consulting - Strategic Services
Dry Cleaners Case -guesstimation
Question:
How many of dry cleaners are located in Philadelphia?
Possible Solution:
Assume there are two million people in Philadelphia.
Estimate the size of market by segmenting the population:

• Assume the population consists of 25% adult men, 25% adult women, and
50% children
• Assume children have no dry cleaning and only 25% of adults use dry
cleaning
• Estimate the average number of “units” of clothing each man and woman
brings weekly to the cleaners. For this case, assume that 3 shirts/blouses
and 1 suit are brought to the cleaners each week
• Thus the total size of the market (per week) is one million units of clothing
(2 million people x 50% x 25% x 4 units per person)
Estimate the average number of units a dry cleaner can handle per week.
• Assume that the average dry cleaner has two workers who typically handle
20 - 30 customers (or 80 - 120 units of clothing) per hour
• If the average dry cleaner is open eight hours a day, 5 days/week, they
typically handle 3,200 – 4,800 units per week (80 - 120 units x 8 hours x 5
days)
Divide the total market size by the average units handled per dry cleaner to
estimate the total number of dry cleaners (1 million / 3,200 – 4,800).
There are between 208 and 313 dry cleaners in Philadelphia.

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Office Supplies Distributor Case - bottomline
Situation:
Supplies Mate (SM), a distributor of office supplies in Central London, has

experienced declining profitability over the past five years.
Question:
How can the distributor address this profitability trend?
Suggested Frameworks:
Profitability model with emphasis on understanding fixed vs. variable

operating costs.
Key Facts (to be shared as the case progresses):
Company
• Profitability has slipped from 12% to 8% over the past five years
• Revenues have grown by 15% over the past five years
• SM distributes from one central warehouse in downtown London that it
has owned for 20 years
• SM has built a reputation for customer service, “Personal on-time delivery
and support every time.”
Customers
• Large businesses (60%), medium-sized business (20%), small businesses
(20%)
• Many of the medium-sized and most of the small business accounts were
acquired recently and are located on the perimeter of the city (not to be
given unless asked for specifically).
Competitors
• Fragmented industry
• Client is one of the largest and most successful distributors
• Category killer OfficeMax has just entered the market, but the client’s
revenues have grown due to its focus on customer service

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Products
• Sells a full-line of office supplies (e.g., paper, pens, toner), “All your office
supply needs. “
Order Fulfillment
• Most orders take over the phone and processed by data entry specialists,
some large customers transmit order electronically
• Orders appear on terminals as individual line items, several line items
may comprise an order
• Stock pickers take an order, pick all the items and send the completed
order to packaging, staging and distribution
• Trucks are stocked each morning with deliveries for that day
• Company-employed drivers deliver to clients
Costs
• Industry standard costs as office supplies are commodities
• Typical fix costs are property, plant and equipment, technology
infrastructure and some portion of labor are utilities
• Typical variable costs are supplies, labor, fuel, etc.
• Cost are comparable to competitors using the same data entry and order
picking methods
• Sixty percent of order fulfillment costs are fixed
Good Conclusions:
Conclusions will address cost problems. The order picking system and
delivery systems can be rationalized to lower costs. Orders can be grouped
and picked simultaneously by one picker or some kind of “assembly line”
picking system can be proposed. Alternative delivery systems (i.e., Federal
Express or the like) can be proposed, but likely at the expense of personal
customer service. All these options are possible, but would likely lead to
minimal cost reductions.
Excellent Conclusions:
Conclusion will recognize this as a revenue problem. The company has been
growing revenue by adding unprofitable accounts. Many of the newly
acquired small and medium-sized accounts have the same order fulfillment
and customer service costs as larger accounts, but do not generate an
adequate volume and are therefore, unprofitable to service under the
existing business model. Additionally, smaller businesses often make a large
number of smaller orders. Rationalizing the client list or offering a reduced

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level of service to small and medium-sized clients can yield immediate gains
in profitability. Candidates should offer creative solutions to servicing smaller
clients profitably.

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Cosmetics Case – bottom line
Situation:
BeautyAsia (BA) is a health and beauty consumer products company

headquartered in Malaysia. It manufactures and sells a line of cosmetic
products ideally suited for the Malaysian marketplace. Although it has been a
successful company for over twenty years, it has been losing money for the
past two years and its market share has declined. The CEO has asked you to
assist in diagnosing the problem and generating a few possible solutions.
Question:
What should BeautyAsia do to restore its profitability?
Suggested Frameworks:
Given the client’s decline in market share, the 3Cs model (i.e., Competition,
Competencies, Customers) is an effective framework.
Key Facts (to be shared as the case progresses):
Company
• Market share declined from 90% to 60% in the past two years.
• Manufacturing is excellent
• Inventory management systems are unsophisticated and ineffective,
resulting in excess inventory and order fulfillment problems
• Brands are widely recognized throughout Malaysia
• No new products have been launched in the past eight years
• BA sells its health and beauty products primarily through local mom and
pop shops (i.e., convenience stores)
Management considered selling its current products outside Malaysia, but has
been distracted by problems in its home country
Competitors
• Several large multinational manufacturers have entered the market
• Competitors have flooded the market with new products
• Multinational competitors sell their products through supermarkets

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Consumers
• As a result of multinational competitors entering the market, consumers
have been exposed to new types of products and their health and beauty
product tastes have become broadened and become more sophisticated
Products
• BA has multiple product lines ranging from lipstick to skin creams
• BA’s products appeal to price-conscious consumers
• The health and beauty products industry is growing approximately 15%
per year
Channels
• BA products are currently sold through small proprietary shops
• Supermarkets are becoming increasingly popular in Malaysia
• Supermarkets have high order fulfillment and stocking requirements
Good Conclusions:
• Multinational competitors are creating a new distribution channel for

health and beauty products. The channel shift is causing BA to lose
market share. BA needs to update its inventory systems to compete in
the new channel and reduce its costs.
• Competitors are driving changes in consumer tastes toward greater
product variety and quality. BA has not kept pace with new product
introductions. BA needs to improve its marketing/market research.
Excellent Conclusions:
• BA’s manufacturing expertise gives it an opportunity to sell high quality

private label products at a discount to current prices in the supermarkets.
• There is danger in challenging multinational competitors by offering a
wider assortment of products in the supermarket channel. Alternatives for
BA include: strengthening its position in the local shop channel; focusing
on profitable customer niches (premium, low price, etc.); targeting only
certain product categories like lipstick and blush for distribution through
supermarkets.
The cost to BA of regaining its lost market share is extremely high. BA may
be better off preventing further loss in market share and focusing on
improving its current profitability instead
Firm: A.T. Kearney

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Case Number: ATK1 – bicycles , Profits
Case setup (facts offered by interviewer):

 Your client is a manufacturer of bicycles
 They have been in business for 25 years
 They manufacturer and sell three categories of bicycles:
 Racing bikes: High end, high performance bikes for sophisticated
cyclists
 Mainstream bikes: Durable, but not overly complicated bikes for
everyday riders
 Children’s bikes: Smaller, simpler versions of their mainstream bikes
for children
 Profits at your client have decreased over the past five years
Question:
 What is driving the decline in overall profits?
 What recommendations might correct the situation?
Suggested solutions:
The first question is to determine what has caused overall profits to
decrease. To accomplish this the candidate must first understand what has
transpired in each of the three product categories over the past five years
during which profitability has slipped. The following are questions and
answers that would be provided in an interview scenario.
 What are the client’s margins for a bicycle in each of the three segments?
Racing: Cost = $600/unit, Profit=$300/unit
Mainstream: Cost = $250/unit, Profit = $75/unit
Children’s: Cost = $ 200/unit, Profit = $50/unit
 What has happened to the market size of each of the three segments over
the past five years?
Racing: Has remained constant at its present size of $300MM
Mainstream: Has increased at 2% growth rate per year to its present size
of $1.0B
Children’s: Has increased at 3% growth rate per year to its present size of
$400MM
 What has happened to our client’s market share in each of these

segments?
Racing: Market share has decreased from 60% to 30%
Mainstream: Market share has increased from 0% to 5%
Children’s: Market share has increased from 0% to 3%
 Who are the client’s major competitor’s in each market segment? What
has happened to their market share in each segment over the past five

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years?
Racing: There is one main competitor and a host of small firms. Your main
competitor has increased market share from 30% to 50%
Mainstream: There exist many, large competitors, none of which holds
more than 10% of the market
Children’s: As in the mainstream segment, there are many competitors,
none with more than 10% of the market
The above information provides enough information to put together a picture of why
profits have decreased over the past five years : Your client, with a commanding
position in a flat market segment (racing), expanded into new segments (mainstream
and children’s). As this occurred, market share decreased dramatically in the most
lucrative segment (racing), creating an unfavorable mix.
The extent to which profits have decreased can be deduced from some quick math :
profits have slipped from $60MM five years ago (=60% x $300MM x 33% racing
margin) to $44MM today ( = (30% x $300MM x 33% racing margin) + (5% x $1B x
23% mainstream margin) + (3% x $400MM x 20% children’s margin)).
The dramatic decrease in market share in the racing segment is at this point still
unexplained. Questions that would help formulate an explanation include:
 Have there been any major changes in product quality in your client’s racing
product? Or in its main competitor’s racing product?
No
 Have there been any major price changes in your client’s racing product? Or in its
main competitor’s racing product?
No
 Have there been any major changes in distribution outlets for your client’s racing
product? Or for its main competitor’s racing product?
Yes. Previously your client and its main competitor in the racing segment sold
exclusively through small, specialty dealers. This remains unchanged for the
competition. Your client, however, began to sell its racing bikes through mass
distributors and discount stores (the distribution outlets for mainstream and
children’s bikes) as it entered the mainstream and children’s segment.
 How do the mass distributors and discount stores price the racing bikes relative
to the specialty stores?
Prices at these stores tend to be 15 to 20% less.
 What percent of your client’s racing sales occur in mass distributors and discount
stores?
Effectively none. This attempt to sell through these distributors has failed
 How has the decision to sell through mass distributor’s and discount stores
affected the image of the client’s racing product?
No studies have been done.
 How has the decision to sell through mass distributor’s and discount stores
affected your client’s relationship with the specialty outlets?

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Again, no formal analysis has been performed.
Although some analysis and/or survey should be performed to answer more

conclusively the last two questions, a possible story can be put together. There has
been no appreciable change in either quality or price (or any other tangible factor) of
your client’s racing product relative to its competition. It is not the product that is the
problem, but rather its image. As your client came out with lower end, mainstream
and children’s products and began to push their racing segment through mass
distributors and discount outlets, their reputation was compromised. Additionally, the
presence of the racing products in the discount outlets has put your historic racing
distributor (the specialty shops) in a precarious position. The specialty shops must
now lower price to compete, thereby cutting their own profits. Instead, they are likely
to push the competition’s product. Remember, your client has no direct salesforce at
the retail outlets. The specialty shops essentially serve as your client’s sales force.
The above analysis offers an explanation of what has affected the top side of the
profitability problem. Still to be examined is the cost, or bottom side, of the
profitability issue. Questions to uncover cost issues would include:
 How does the client account for its costs?

The client has a single manufacturing and assembly plant. They have separate
lines in this facility to produce racing, mainstream and children’s products. They
divide their costs into the following categories: labor, material and overhead.
Overall costs have been increasing at a fairly hefty rate of 10% per year.
 What is the current breakdown of costs along these categories for each product
segment?
Racing: Labor = 30%, Material = 40%, Overhead = 30%
Mainstream: Labor = 25%, Material = 40%, Overhead = 35%
Children’s: Labor = 25%, Material = 40%, Overhead = 35%
 How has this mix of expenses changed over the past five years?
In all segments, labor is an increasing percentage of the costs.
 Does the basic approach to manufacturing (i.e. the mix of labor and technology)
reflect that of its competition?
Your client tells you that there is a continuing movement to automate and utilize
technology to improve efficiency throughout the industry, but it is his/her opinion
that their approach, maintaining the “human touch”, is what differentiates them
from the competition. (Unfortunately, he’s right!!)
 Is the workforce unionized?

Yes
 What is the average age of the workforce?

52 and climbing. There is very little turnover in the workforce.
 What is the present throughput rating? How has it changed over the past five
years?
Presently the plant is producing at about 80% of capacity. This has been
decreasing steadily over the last several years.

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 What is the typical reason for equipment shutdown?

Emergency repair
 Describe the preventive maintenance program in effect at the client’s facility?

Preventive maintenance is performed informally based on the knowledge of
senior technicians.
 How often has equipment been replaced? Is this consistent with the original
equipment manufacturer’s recommendations?
The client feels that most OEM recommendations are very conservative. They
have followed a philosophy of maximizing the life of their equipment and have
generally doubled OEM recommendations.
The above information is sufficient to add some understanding to the cost side of the
equation. Your client has an aging workforce and plant that is behind the times in
terms of technology and innovation. This has contributed to excessive breakdowns,
decreased throughput, increased labor rates (wages increase with seniority) and
greater labor hours (overtime to fix broken machines).
In proposing recommendations to improve the client’s situation, there is no single

correct approach. There are a number of approaches that might be explored and
recommended. The following are some possibilities:
 Abandon the mainstream and children’s segment to recover leadership in the

racing segment
Issues to consider in this approach:
 How much of the racing segment is “recoverable”?
 What are the expected growth rates of each segment?
 How badly damaged is the relationship with the specialty outlets?
 Are there alternative outlets to the specialty shops such as internet
sales?
 How will this move affect overall utilization of the operating facilities?
 Maintain the mainstream and children’s segment, but sell under a different name
Issues to consider in this approach:
 Is there demand among the mass and discount distributors for bicycles
under their name?
 What additional advertising and promotions costs might be incurred?
 What are the expected growth rates of each segment?
 What is driving the buying habits of the mainstream and children’s
market?
 Reduce costs through automation and innovation

Issues to be considered:
 What technological improvements are to be made?
 What are the required investments?
 What are the expected returns on those investments?
 How will these investments affect throughput?
 To which lines are these investments appropriate?

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 Are the mainstream and children’s segments potentially “over-

engineered”?
 What impact will this have on the required workforce levels?
 If layoffs are required to achieve the benefits, what impact will this
have on labor relations?
 Reduce costs through establishing a formal preventive maintenance program

Issues to be considered:
 What organizational changes will be required?
 What analysis will be performed to determine the appropriate amount
of PM?
 What training is required of the workforce?
 What technical or system changes are required?
 How will the unionized workforce respond?
Key takeaways:
This case can prove to be lengthy and very involved. It is not expected that a
candidate would cover all of the above topics, but rather work through selected
topics in a logical fashion. It is important that the candidate pursue a solution that
considers both revenue and cost issues to impact profit. Additionally, a conadidate’s
ability to work comfortably with the quantitative side of this case is important. The
above recommendations for improving profitability are just a few among many. The
candidate may come with their own ideas.

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Firm: A.T. Kearney
Case Number: ATK2 – Cookies – Industry analysis

 Your client is a U.S. based manufacturer of branded cookies (cookies that
carry the name of the manufacturer)
 Recently private label cookies (those carrying the name of the retailer)
have emerged and threatened branded cookies
 Private label cookies emerged five years ago
 Two and one-half years ago they made up 10% of the overall cookie
market (brand being the other 90%)
 Today they make up approximately 20% of the overall cookie market
(i.e., there has been a steady, linear increase of private label portion of
the overall cookie market during the past five years)
 The overall cookie market has been relatively flat over the past five
years
 Private label cookies are made by the same manufacturers who make
branded cookies, they are just sold under the name of the retailer
 There are essentially three major competitors to consider:
 Your client, who makes only branded cookies
 A second major player, that makes both branded cookies and supplies
cookies for private labelers
 A collection of small outfits, that make both branded cookies and
supply private labelers
 Distribution occurs primarily through one of two types of outlets:
 Grocery outlets: all grocers sell branded cookies, most also carry their
own private label cookies. This represents approximately 90% of total
cookie sales
 Mass merchandisers (ex. Walmart, Sam’s, etc.): sell only branded
cookies
Question:
 How large would you estimate the overall U.S. cookie market to be in
terms of $?
 How large of a threat do you believe the trend in private label cookie sales
to be to your client?
 Based on your assessment, what is an appropriate strategy for your client
to follow?
The first question, estimating the size of the U.S. cookie market, has no right
or wrong answer. It is a test of a candidate’s ability to make reasonable
assumptions and work quickly with numbers on an “order of magnitude”
level. One acceptable response would be to estimate the number of U.S.

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households, estimate household consumption over some period of time,

estimate the average cost of a bag of cookies, and project out for one year. In
this case, after an estimate has been made, the candidate would be told to
assume the market size is $1Billion to simplify any future calculations. As
stated in the upfront information, the market is assumed to have been flat for
the past five years.
The second question is more involved. It involves determining to what extent

your client is threatened by the increasing percent of the overall cookie
market represented by private label sales. To better answer this question
information should be gathered pertaining to what is driving the demand for
private label cookies, to what extent this has already affected your client’s
sales, and what the likelihood is for the trend to continue. The following are
questions and answers that would be provided in an interview scenario.
 What are the sales trends for the client over the past five years?
Your client’s sales have been flat at $600M for the time frame of five to
two and one-half years ago. Over the past two and one-half years, sales
have decreased steadily down to a present level of $560MM.
 How has market share of the private label segment been split over the
past five years between your client’s main competitor and the other
smaller players?
The smaller players combined had 100% of the private label subsegment
five years ago. Two and one-half years ago your client’s main competitor
began supplying private labelers. Today, this main competitor owns 40%
of the private label subsegment, the smaller players own the remaining
60%
 How has market share of the branded segment been split over the past
five years?
Your client held 60% of this segment five years ago, 67% two and one-half
years ago and 70% today. Its main competitor held 30% five years ago,
25% two and one-half years ago and 23% today. The combined smaller
players owned 10% five years ago, 8% two and one-half years ago and
7% today.
Analsis of the above information tells a very important story. The private
label segment was launched five years ago by the smaller players. As private
label first cut into the branded segment, it came at the expense of your
client’s main competitor and the smaller players, not your client. In response
to this, your client’s main competitor entered into the private label segment
two and one-half years ago. This further hurt their own sales and those of the
smaller players, but also began to hurt your client’s sales. Additional
information is required to understand what is driving the demand for private
label cookies

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 How does the quality of a private label cookie compare to that of a

branded cookie?
Consumer studies have shown that there is a noticeable difference in taste,
texture and quality in favor of the branded cookies
 At the manufacturing level, what is the difference in cost of production and price
between branded and private label products?
It costs approximately $1.50 to manufacture a bag of private label cookies which
will sell for $2.00 to retailers. It costs approximately $2.00 to manufacture a bag
of branded cookies which will sell for $2.75.
 How do the same numbers translate at the retail level?

A retailer, paying $2.00 for private label cookies can sell that product for $2.50.
The $2.75 bag of branded cookies can be sold for $3.50.
The key finding is that from a cost-price-margin perspective it is advantageous for

both the manufacturers and the retailers, with all else equal, to sell a bag of branded
cookies. Other factors must be contributing to the demand for private label cookies.
Think about the incentives at each level in the chain (manufacturer, retailer,
consumer). The following questions can help fill in details
 Have any of the manufacturers been able to gain additional shelf space for
branded products by supplying grocers with private label products?
No
 Has their been excess capacity at your client, its main competitor or the smaller
competitors that has been used up through the manufacturing of private label
products?
There was some excess capacity at the smaller competitors and your client’s
main competitor (your client is unsure as to how much).. There is little excess
capacity anywhere in the industry today.
.
 Has your client’s relationship with its retailers suffered as a result of it not
supplying private label products?
Not noticeably
 Are grocery stores using private labels in other food categories?

Yes, there has been a major push by grocery stores to populate shelves with
private labels
 Is competition increasing or decreasing among grocers?

Generally increasing. Grocer chains are expanding and the number of grocers to
be found serving a given area has generally increased over the past five years
 What general macroeconomic trends have occurred over the past five years?
The economy has been slowing over the past five years. There is concern about
recession
The above information begins to expose a clearer story. A number of factors have
contributed to the emergence of the private label segment: manufacturer’s interest
in utilizing excess capacity, grocer’s desire to sell products with their name on it
(they may believe this creates return customers in an increasing competitive

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environment), consumers concerns about a troubled economy (price vs. quality

tradeoffs).
At this point the candidate would be encouraged to state what they believe the
magniturde of the private label threat to be to the client. There is no right answer.
One can argue either way.
If the threat is seen as high, the likely recommendation is for your client to begin
supplying private label products. The candidate should recognize that in competing in
the private label segment, the basis of competition is primarily cost. At the same
time, the client’s branded product should be protected. The following tactics might
prove appropriate:
 Seek to wring costs out of all phases of the operation

 Utilize all existing excess capacity
 Gain maximum product knowledge as quickly as possible
 Understand low cost positions on product ingredients and mix
 Review process improvement/ manufacturing efficiency opportunities
 Undertake overhead reduction efforts
(Any of these points could be discussed in great detail)
 Ensure there is no customer confusion between private label offering and
branded product
 Seek partnering agreements with retailers
 Joint advertising and promotions
 Explore deals with mass merchandisers to enter private labels (remember, mass
merchandisers presently sell no private label)
If the threat is seen as low, the likely recommendation is for your client to stay with
branded cookies only. The candidate should recognize that in competing in the
branded segment the basis of competition is one of differentiation. Additionally, your
client should do all it can to halt or reverse the momentum of the private label
segment. The following tactics might prove useful:
 Pursue a maximum differentiation strategy

 Invest in brand image to support premium price
 Make it difficult to copy product: innovate wisely through product
advances, smart product line extensions, frequent changes to the
product
 Manage price gap: explore price increases where appropriate
( Again, any of these points could be discussed in great detail)
 Explore exclusive partnering with mass merchandisers
 Consider alternative distribution channels
 Seek partnering agreements with grocers regarding branded products
 Educate grocers as available
 Customers who buy private labels are the most price sensitive. They
also tend to be the least loyal customers and spend less per store visit.
 Grocers financial stake in private label products extends beyond the
product margins. There is lost profit from branded products that could
occupy the same shelf space, advertising costs of the private label

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products, etc.
Key takeaways:
This case has no right or wrong answer. It forces the candidate to take a stand in a
“grey” situation and defend it. It also provides a large amount of data upfront which
the candidate must quickly sort through and determine what is important and what is
not. The key is to understand the story behind the data. How did the private label
segment emerge? What is driving it? How has it affected manufacturers, retailers and
consumers?

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Firm: A.T. Kearney
Case Number: ATK3 – Oil – improve bottom line

 Your client is a U.S. based oil refinery
 The refinery has a single location and is a small to medium-sized refinery
 Your client, although profitable, believes it is lagging behind the
competition and could improve
 You are brought in as part of a joint consultant-client team that will review
overall operations and make recommendations on ways to improve the
bottom line
 You have been assigned to work with the maintenance division
 The maintenance department’s primary objective is to prevent equipment
failure and to repair equipment when it does fail
 Understanding of its organization is important. It consists of three primary
areas: nine assets areas, one central maintenance area and one group of
contractors. The first two areas are employees of the client, the third an
external source of labor.
 An asset is a physical area of the plant that contains various pieces of

equipment (pumps, heat exchangers, etc.). There are nine assets. Each
asset has a Maintenance Supervisor who is responsible for all
maintenance to be performed in his/her asset. Working for the
Maintenance Supervisor in each asset is, on average, eleven
“craftsmen”. The craftsmen are the actual workers that perform the
maintenance. The craftsmen are unionized and divide into twelve
different craft designations (e.g. electricians, pipefitters, welders, etc.).
Each craft designation has a defined set of skills they are qualified to
perform. They are not allowed to perform skills outside of their defined
craft, or help in the performance of activities involving skills beyond
their craft. Collectively the twelve different crafts can perform any
maintenance job that might arise at the refinery. The maintenance
supervisor and his/her assigned craftsmen are “hardwired” to their
asset. That is, they work only on equipment in their given asset.
 Central maintenance is a centralized pool of Maintenance

Supervisors and Craftsmen, who are dispatched to support the
different assets during times of high workload. They are employees of
your client and fit the description contained in the above Asset
explanation. The only difference is that they may work in any of the
different assets as determined by workload. There are a total of 11
Maintenance Supervisors and 100 Craftsmen that comprise Central
Maintenance

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 Contractors are a group of outside Supervisors and Craftsmen who

support your client during times of high workload. They also are
capable of performing any maintenance job that may arise, but differ
from your client’s Craftsmen in that they divide the collective skills
required into five designations rather than twelve. Thus, the craftsmen
of the contractor are capable of performing a broader set of skills.
They, like your client’s craftsmen, don’t perform skills outside of their
defined craft but do allow different craft designations to help each
other. There are an average of 7 contractor Maintenance Supervisors
and 140 contractor Craftsmen at the refinery on any given day.
Question:
 What opportunities exist to increase profits?
 What recommendations can you make to capture savings related to the
identified opportunities?
 What are the cost savings associated with your recommendations?
The first question involves identifying opportunities to improve profits. The

candidate must start with either revenues or costs. Although one could make
the argument that maintenance supports revenue by maximizing the
operating time of the refinery equipment, maintenance should be seen to be
a support function. Thus, it is more appropriate to focus on costs and cost
reduction. The following questions will help the candidate gain insight into
cost reduction opportunities.
 How does the maintenance department track its costs?
If the candidate phrases the question about material or overhead costs, the
interviewer would inform the candidate that detailed reviewed showed no
major opportunities. The candidate would be steered toward labor costs and
given the following tables regarding maintenance labor costs for the past
year.
To support understanding of the following tables, Turnaround work is long

term preventive maintenance (e.g. complete rebuilding of a boiler) that may
be performed once every few years. All other work (short term emergency
repairs, small scale preventive maintenance, other routine work, etc.) fits into
the category of Daily work
Craftsmen Daily work Turnaround Total

Client $ 8MM $ 2MM $ 10MM
Contractor $ 5MM $ 9MM $ 14MM

Phone – 0091 79 6327611
Total $ 13MM $ 11MM $ 24MM
Supervisor Total
Client $ 1MM
Contractor $ 0.5MM
Total $ 1.5MM
Since the Craftsmen table represents a larger dollar amount than the
Supervisor table, it is logical to pursue cost savings opportunities in this area
first.
 What is the utilization of Craftsmen in the assets? In central maintenance?

And for contractors?
Assume each area is utilized 100% of the time, 50 weeks per year, 40
hours per week.
 How does the labor cost of craftsmen ($24MM) on a refinery-sized basis

(i.e., $cost / per barrel of crude oil processed) compare with industry
averages?
Consulting your industry data base shows that costs appear to be about
20% above the average of peer refineries.
This is an important question to determine if there is a problem with
costs (don’t assume there is, the client may be performing better than
industry average!)
 Is there any particular reason why turnaround work is so heavily skewed

toward contractors?
Turnaround work tends to be more cyclical. An external workforce is used to
absorb some of this additional work. Keep in mind that both client and contractor
Craftsmen are capable of performing any maintenance job at the plant.
After further analysis of the tables the key fact that should become appear odd is the
large difference in the cost per unit of labor between your client’s Craftsmen and the
outside contractor’s Craftsmen. Often candidates will ask for the hourly wage rates of
these two groups. There is sufficient data to calculate these numbers. The calculation
is:
Annual cost of client craftsmen = $10MM/ ( 11 Craftsmen/asset x 9 assets +

100 Craftsmen in
Central maintenance)
= $50,000 / year
Annual cost of contractor craftsmen = $ 14 MM/ 140 contractor Craftsmen

= $100,000 / year
Again, this difference should provoke a series of questions to understand the

difference.

Phone – 0091 79 6327611
 Is there any difference in the work performed by the client and contractor
craftsmen?
No, other than the different levels of Turnaround work vs. Daily work performed
as noted in the previous table. Both groups are capable of doing any job with
roughly equal levels of quality.
 Is there any difference in efficiency between the two groups of Craftsmen?

The candidate would at this point be asked how they would measure this.
After reaching an understanding of the difficulty involved in measuring the
efficiency of a workforce (especially a unionized workforce), the candidate would
be told that through a series of interviews with maintenance supervisors, there is
a consensus that contractor Craftsmen are roughly twice as productive as client
craftsmen.
This is a critical point in the case. The candidate must recognize that in the present
environment the client is largely indifferent about units of labor. You can have a
client worker who is half as efficient or a contractor worker who is twice as
expensive. The key now is to determine if there are ways to create an opportunity
where the client would no longer be indifferent.
 What is causing the inefficiencies associated with the client’s labor?

Again, the candidate would be encouraged to offer their own ideas.
After some discussion the candidate would be told that many of the Maintenance
Supervisors complain endlessly about restrictions placed on them by the existing
union labor contract and the tightness of craft designations.
The interviewer would probe to ensure the candidate understands why the
present craft designation create the inefficiencies. Essentially work is too finely
divided. It makes planning and supervision extremely cumbersome. As an
example, if one of six crafts required to perform a job is absent or late, the entire
job must shut down, as craft designations are not allowed to support other craft
designations.
 Is it possible to change the existing union contract?

The present labor contract is a three year contract that is due to be
renegotiated/renewed in six months.
 Will the union resist changes to the existing contract?

Indeed!!
At this point, the candidate should recognize a major (albeight difficult) opportunity
to reduce labor costs. The client would essentially like to have its own employees
look and function like its contractors, but continue to get paid at present rates. In
reality, management will need to make wage concessions in order to change present
work practices. However, through planned negotiations a scenario can be created
which presents a favorable opportunity for your client to begin to replace outside
contractors with its own Craftsmen.
There are several ways to address the third question of the case, the actual savings
that might be achieved. One quick method is to assume that these changes would
bring maintenance costs back in line with industry average. Utilizing the cost
benchmark mentioned earlier, one could assume costs could be reduced to
$24MM/1.20 = $20MM, a $4MM savings.

Phone – 0091 79 6327611
A second, and more detailed, method would be to take the extreme scenario where
the client’s Craftsmen is paid its present rate, but is made as efficient as the
contractor’s Craftsmen. In this case, you begin with the present level of 200 client
craftsmen who are functioning as 100 equivalent contractor Craftsmen (they’re one-
half as efficient). By improving their efficiency, you are effectively “creating” 100
equivalent contractors. Thus, you are immediately able to replace 100 contractors
and save $10MM. This could be taken one step further by assuming you would want
to replace all contractors. This would save an additional $2.5MM ($4MM existing
contractor expense - $2MM required to hire additional client craftsmen + $0.5MM in
contractor supervisors). As noted earlier, in reality, this approach would require wage
concessions to the union, so actual savings may be something significantly less.
Key takeaways:
This case requires the candidate to quickly digest a large amount of organizational
issues and then quickly check some ratios to uncover the basic problem (the client
workforce is inefficient). Creativity must then be used to structure a recommendation
that would create a more favorable situation for the client. As in other cases,
acceptable solutions need not follow the exact method above nor cover all of the
above points.
Emergency Room Operations

Improvement/Reengineering
Scenario: Our client, a large academic medical center in a major

metropolitan area, has hired Deloitte & Touche Consulting Group to reduce
expenses in their Emergency Room. They have identified the ER as one of
their highest costs departments, and have set a target of reducing operating
costs by 25% within two years. They would like our assistance in identifying
the opportunities for cost reduction, redesigning the operations to eliminate
the costs, and implementing the changes.
How would you structure an approach to this project?
Additional Information
Our client’s ER operating costs are approximately 40% higher than other ER’s
in the local community hospitals, but only about 10% higher than other
benchmark academic medical centers
Many of the local homeless people utilize the ER as a primary care clinic, i.e.,
they come in when they have colds, cuts and bruises, or just need a meal or
a place to sleep

Phone – 0091 79 6327611
There are no urgent care centers or physicians offices that are open nights or
weekends within a 10 mile radius
The ER is staffed with highly skilled, licensed personnel (e.g., residents,

attending physicians, and nurses), that see every patient that comes to the
ER. They have not considered using Nurse Practitioners to see less critical
patients or Patient Care Technicians to assist nurses and physicians with
simple tasks that do not require licensed personnel (e.g., assistance with
personal hygiene, simple bandage changes)
Use of residents in the ER leads to a high level of testing for many patients
with routine complaints
Case Discussion
This is a fairly straightforward case to assess how well the candidate can
“peel the onion”. The candidate should first attempt to determine whether
the client’s 25% cost reduction goal appears reasonable. They should
mention analytic approaches such as benchmarking and a high level review
of workflows and patient flows. Once they determine that based on
benchmarks it will be difficult to reduce operating expenses by more than
10%, they should mention that a more radical approach will be required if the
client still wishes to eliminate the full 25%.
Areas to explore to achieve the first 10% include:

• Potential to reduce staff based on staff levels versus benchmarks
• Matching staff to workload by time of day
• Identifying opportunities to improve skill mix by substituting less costly
staff as appropriate
• Ability to streamline workflows, leverage technology, etc. to create
opportunities to reduce staff further
• Number of management layers
• Potential to have more experienced physicians review resident orders to
eliminate unnecessary testing
• Improved triage to identify patients that need to see a doctor versus a
lesser skilled provider
• Improved triage to identify patients who could be encouraged to see their
own physician the next day in a less costly setting
• Ability to reduce purchase price of supplies and pharmaceuticals

Phone – 0091 79 6327611
• EMERGENCY ROOM OPERATIONS IMPROVEMENT/REENGINEERING

(con’t)
Areas to explore to achieve the next 15% include:

• Developing a fast track system for patients with colds and minor injuries
that could be seen by a nurse practitioner instead of a physician
• Opening one or more urgent care centers in the community to reduce ER
visits by non-critically ill patients
• Developing revenue enhancement opportunities such as opening 24-hour
observation beds to generate ER revenues and simultaneously reduce
costly admissions from the ER to inpatient units for patients that require
extended monitoring (e.g., dehydration, rule out heart attack)
Firm: Towers Perrin
Case Number: 1 – Power – competitive assessment

Topic: Strategy (Competitive Assessment)
Setup
Your client is the U.S. market leader in manufacturing of power equipment. You have been asked to assess
the threat of a new competitor in your market. The competitor is a joint venture formed between a leading
U.S. competitor and a major Mexican manufacturer.
The competitor will manufacture product in Mexico and ship it into the U.S. Their current Mexican
operations will remain unchanged and you are only concerned about the U.S. market.
Question
1. What are the issues and what options does the client have?
Information to be divulged during the interview
Category Client Competitor

Customer Any company that generates power; mostly utilities and large manufacturing
facilities.
Purchasing Decision Traditionally based on quality; utility deregulation has made customers more
price sensitive.
Market Share 1 (Best Brand Name) 5
Relative Price High Low
Product Quality High Moderate
Distribution Method Small sales force Distributors
Other Products None Many complementary
Promotion None Heavy- to gain share in U.S. market
Manufacturing Capabilities Automated, well-run Very manual, trouble integrating
after JV

Phone – 0091 79 6327611
Cost Issues (Example of Product Costs)
Cost Client Competitor

(Labor and Material)
Labor Rates $10/hr $2/hr
Amount of labor used per unit 10 hours 25 hours
Total Labor Cost $100 $50
Material cost $20/ unit $22/ unit
Amount of material used per product 20 units 20 units
Total Material Cost $400 $440
Total Cost Labor + Materials $500 $490
Take aways:
 Less expensive labor rate in Mexico, but less productivity as well
 Client sources material cheaper than the competitor, which saves money in total cost
 Overall cost difference is not as great as we may have originally believed
Answers
1. Issues
You can structure the analysis around the 4 C's (or 3 C's- Customers, Cost, Competitor). At a
minimum, you have to study the cost issues. You want to find out what advantage, if any, will accrue
to the competitor for operations in Mexico. Once you analyze this area, you should discover that the
cost is not really different. Otherwise, you end up making cost-reductions recommendations.
You should also consider the issue of the different value proposition of the client vs. the competitor
(high cost and quality vs. lower cost and quality) in an environment where the purchasing decision is
becoming price driven. Additionally, the competitor has the ability to offer a wide range of
complementary products that the client does not manufacture.
2. Recommendations; sample options
A key point to exploit is that the client and competitor have different value propositions. The client is
the selling not just a "Cadillac," but really a Cadillac engine. The competitor is selling the entire
Honda car.
 Cost Reduction Opportunity

JV could be catalyst for change to reduce costs further. Since the market is becoming more cost
conscious, this could be worth pursuing.
 Changing Value Proposition

Segment the market, target your customer, and position the product to
make sure it is reaching the right quality-conscious consumer. Don't
damage your brand image.
Create a slightly different, lower cost/lower quality product to reach other

attractive segments. This also prevents the competitor from gaining in
your market.

Phone – 0091 79 6327611
Develop complementary products or relationships to package with your

product. Manufacturing other products may not be a core strength, but
partnering with another manufacturer could be worthwhile for the right
market segment.
Firm: Towers Perrin
Case Number: 2 – Oil and Org. Effectiveness

Topic: Organization Effectiveness
Setup
Your client is the upstream business of one of the major integrated oil companies. The upstream business,
also called exploration and production, is the part of the company that explores for and pumps oil out of the
ground.
Management has called you in because the company’s profitability has declined relative to its peer group
(other major oil companies), and they would like to find ways to improve performance. Since oil is a
commodity, the primary way to impact profitability is through cost reductions, either by reducing operating
costs (cost per barrel produced) or by reducing “finding and developing” costs (investments per barrel of
oil discovered).
A key point that is helpful to evaluating this case is to understand that performance improvement can be
achieved through efficiency gains (i.e., doing the same work at a lower cost) or effectiveness gains (i.e.,
achieving better results for the same cost). In the oil industry, this translates into either lower actual
operating costs or higher volumes over which to spread costs.
Question
Your client has asked you to evaluate the viability of two different options:
1. Reorganize the company along geographic lines (i.e., focus on regional businesses), reducing
headquarters overhead charges by shifting administrative responsibility to regional businesses and
eliminating a layer of administration
2. Form joint ventures (i.e., subsidiaries jointly owned by your client and a partner) with competitors in
each region to realize cooperative opportunities and resulting savings
Discuss the merits of each alternative.
The following information is germane to the discussion:
 There are significant regional differences in how the business works (e.g., operations in the Gulf of
Mexico are very different from operations in the Rockies)
 Allowing regional control can improve performance for some business processes. For example,
developing local expertise and focus can result in operational efficiency gains (reduced cost to produce
oil), as well as effectiveness gains (enhanced results from exploratory activities).
 Some business processes gain considerable benefit from centralization or central coordination (e.g.,
R&D expenditures for cutting edge exploration technology, management of information technologies,

Phone – 0091 79 6327611
purchasing, financial management)
Suggested Solution
There are many ways to evaluate each alternative. Two possible approaches follow:
1. Impact on business processes: Consider the key processes that make up the company’s business and
managerial operations (e.g., producing oil, exploration, strategic planning, financial management, etc.)
and evaluate how each is impacted by the alternatives. For example:
 Does the alternative provide an opportunity to reduce the cost of the process?
 How does each alternative impact the functionality of the process?
 What are the tradeoffs between cost reductions and improved functionality?
1. Implementation risks and challenges: Consider the potential risks and challenges associated with
each solution. The above discussion focuses on what the potential benefit is; the subsequent discussion
explores the likelihood of realizing that benefit. Questions to consider could include:
 How easy will implementation be (e.g., How significant are the changes? What are potential
barriers to change)?
 What is the likelihood and cost of failure?
 Is the option reversible (If the solution doesn’t work, how hard will it be to undo)?
Discussion of the alternatives:
Alternative 1 – Reorganization Alternative 2 – Joint Ventures

Key  Cost Savings  Merger Synergies
Benefits  Local Focus
Rationale  Decentralizing administrative functions is  Forming a joint venture will create a
intended to eliminate a layer of corporate regional company with autonomy and the
overhead concurrent benefits of local focus
 Additional benefits will accrue from  Significant savings could be achieved
allowing local focus and tailoring of through merging operations (e.g., joint
activities (e.g., hiring, training and skills operation of neighboring oil fields,
development to support local needs, elimination of redundant administration,
regionally focused business planning, etc.) etc.)
 Additional synergistic benefits may accrue
from merging complementary areas of
expertise
Note: The availability of good joint venture
partners (with appropriate overlap in
operations) would significantly affect the
potential for success.
Additional  The candidate may discuss issues around  The candidate may discuss a variety of
Discussion how local focus could provide effectiveness issues around merging two organizations
Areas and efficiency gains, while potentially (e.g, how to coordinate business processes
trading off benefits from economies of scale and technologies, potential cultural
 Ease of implementation: relatively more differences)
straightforward  Ease of implementation: more complex,
higher risk of failure


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IIMA Consulting Study Group

Indian Institute of Management, Vastrapur – 380015, Gujarat, India

Dry Cleaners Case -guesstimation...............................

IIMA Consulting Study Group Co-Chairs, 2000 - 2002

Andersen Consulting - Strategic Services

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IIMA Consulting Study Group Co-Chairs, 2000 - 2002

IIMA Consulting Study Group Co-Chairs, 2000 - 2002

IIMA Consulting Study Group Co-Chairs, 2000 - 2002

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 What has happened to our client’s market share in each of these

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Although some analysis and/or survey should be performed to answer more

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IIMA Consulting Study Group Co-Chairs, 2000 - 2002

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IIMA Consulting Study Group Co-Chairs, 2000 - 2002

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IIMA Consulting Study Group Co-Chairs, 2000 - 2002

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