did you ever wonder how a real consultant would do in a real case interview that’s what you’re gonna see today I’m Giulio a next bein consultant and today in this video I’m gonna interview Bruno an expert Kinsey consultant I’m gonna use a case that is very similar to what I got in the last interview with my final round at Bain and at first glance is just a simple profitability case where the interviewer just wants to see if you can build and analytically work with a profit tree but in reality it’s not I’ve used this case for coaching hundreds of times and I’m confident to say only probably three out of ten candidates can actually do an offer deserving performance at their first try but enough chitchat already let’s get to the case and see how Bruna deals with it so your client is a auto biomanufacturing the United States ok and they are faced with in the last five years a profitability decrease their profitability has decreased from five to 2.5% well the competitors average rules from three point five percent to more than that nowadays yeah so we’re at two point five and competitors are above three point five okay you’ve been hired to help them restore their profitability over the next two years or so okay how would you help them do that okay great question so couple clarifying questions first did our competitors profitability as decreased as well our competitors profitability has increased has increased to three point five from three point five to something that we don’t know okay so they used to be a three point five lower than us because we were at five yeah and they have increased their profitability while we have decreased that’s right okay that’s interesting it doesn’t seem like it’s an industry-wide problem right another question are we a regular auto manufacturer is this global a real luxury cars or just mass market we have all kinds of cars okay the brands within our manufacturer we do sell only in the United States okay so we’re just in the united that sounds good so the first step that i would do to solve this problem is to find out if this is a revenue problem or a cost problem and if we have data on that we’d like to get that now just so I can focus on the right branch or I can develop my issue tree matter whichever you prefer okay we do have data on that so our revenues have increased from 21 billion to twenty two point five billion dollars twenty to twenty five okay while our costs have increased from twenty billion dollars to twenty two billion dollars okay so it does seem like a cost problem just to confirm that it is a cost problem how’s our pricing our average price per car doing and I’m asking this because it could be that our revenues have increased because we have dropped prices increased volume sold and this raising cost is just to reflect the increase in cost to make more cars okay that makes sense our price has stayed the same from $30,000 to $30,000 per average when I mix of products changed because maybe the average is the same but we’re selling more sports cars for a lower price and yeah this question so not really no okay the mix hasn’t changed okay so we don’t have a pricing problem which means that we don’t have a revenue problem that’s right so we need to explore costs better and what I do now is to understand the cost structure of this company and get a cost breakdown to see which cost has increased okay and I see here there are direct costs and there are indirect costs I believe this is how most manufacturers would categorize those costs we think the direct cost are fixed and variable costs I believe all indirect costs are fixed and yeah I’d like to know the cost breakdown so within variable that would there would be parts there would be energy there’d be label for manufacturing and perhaps yeah sales would be indirect and then within fixed costs there is the factory right is there a new direct cluster and me see okay well that’s pretty close but we do have a cost breakdown that our client use okay so you can use the face yeah that’s okay we can go with materials costs okay so labor costs factory related costs okay and other costs for the indirect costs okay great so no energy yeah okay sounds good and what what happened to this costs okay so material costs have gone from 50% of total costs to 52% of total costs okay labor costs has stayed stable state has stay stable and twenty percent twenty before and 20 percent afterwards right and of course the total has increased because total plus CSS right and both factory costs and indirect costs have decreased from 15 each to 14 each ok so it went from 15% of 4% okay that sounds good so just to get a it seems like the problems on materials okay I just want to tie back to the two billion plus increase just to see how much of that was caused by material so before I had fifty percent of twenty billion so we had ten billion dollars yeah and now we have 52 percent of twenty two didn’t so if this were fifty percent of twenty two would be eleven billion dollars yeah now I have two percent of twenty – which is 0.4 t four billion right so 1% would have been points 22 billion so yes point forty four so now material costs is at 11.40 four billion right so we have increased two billion total costs and we have increased one point forty four billion so that’s a 75% mature costs represent roughly 75% of the total cost increase okay so I’m gonna focus on materials because it represents most of the costs increase because it’s the line that has gained the cost line that has gained most share and then if you can’t solve the cost problem in the profitability problem through material costs we’re gonna come back and work on labor indirect and fixed alright to make sense okay what do you want to do so I wanna investigate why material costs have increased and what do you think that’s a good question so let’s think of the possibilities here why has material costs increased one clarifying question that I’d like to ask is do we know if our competitors material costs have increased as well we don’t really know that no okay because that would be really informative information to have because they probably buy the same parts from the same supplier so what I would do here is break down materials into the different types of materials so we have steel we have outer parts we have tires glasses like electrics all this stuff we buy and I would try to understand which one has increased and then I’d ask why again so say if steel are we purchasing different types of C or from different suppliers or what’s going on but the first step would be to understand which category of purchased parts is increased okay alright we do have data on that actually so our materials are broken down into auto parts steel plastics and others okay so you were your vehicles yeah and as a percentage of materials Auto Parts has increased from 60% to 65% as a percentage of materials yeah so we’re talking about a eleven point forty four billion yeah okay auto parts went from 60 to 65% that’s right okay steel and plastics both decrease from 15 to 13 percent okay and other costs has decreased from 10 percent to 9 percent okay that’s interesting so it seems like it all comes from auto parts we can’t know for sure unless we do the math so I’m gonna do the math really quickly we had sixty percent of 10 billion we used to purchase six billion in auto parts and now we’re purchasing 65% of 11.40 for doing okay tough math to do here so let me divide this into fifty percent plus ten percent plus five percent 50 percent of 11.40 for is well 50 percent of point four four is points 22 and fifty percent of 11 is five point five so five point five plus points 22 is 5.72 that’s 50% of the total bill that’s right then 10 percent is point 14 or 144 I’m just gonna let’s do the exact math here okay and then five percent is ten percent of the fifty percent so it’s zero point five seven two so so me all up we have six 2 plus 4 is 6 plus 7 is 13 7.36 wait wait wait wait pause did you see that 65 percent of eleven point forty four billion is seven point four thirty six not seven point 36 brooder been a mistake there and i didn’t notice the vendors are so close that I didn’t catch my attention they both rounded 27.4 and I actually only noticed this when I was editing this video in a real case interview it’s actually possible that the interviewer doesn’t notice a mistake but it’s not likely and what would have happened if I had noticed it I’d have asked him are you sure and that he would have one chance of finding a fixing him to his mistake if he did he’d be fine no big deal if he didn’t that he’d be trouble is that right yeah that’s right okay so we went from six billion to seven points 36 which is an increase of one point 36 one point 36 billion so not all costs from materials increased come from auto parts but the vast majority of it we’ll compare one point 36 billion to one point forty four billion total material increase so let’s focus on auto parts we need to understand why outer part costs that’s gonna do we have any information on what happens to our suppliers the types of parts we buy or something in supply chain not at all what do you think okay so let’s raise some hypothesis on what could have happened you either will buy more parts and some extent would have to buy more parts per car because the materials cost has raised more than the total revenue right so that’s why we’re having profitability problem or we’ll pay more per part on average do we know which one of those who is the most responsible we don’t know what I’d like to see how about this is both okay so cool so if we’re purchasing more parts per car maybe our mix of parts has changed or we have new products which is another source of mix changing but then it’s we caused it instead of the orchids or the waste is hired in our manufacturing chain right now if the dollar per part has increased so if we’re paying more per part that’s either because we have switched to more expensive suppliers or that happened at same suppliers and if it did happens in the same suppliers then either they’re making more money so their margins up or their costs are up and they’re sending their costs to us okay why would I be making more money perhaps because I’ll give you some ideas within here maybe they have bought one another and now they’re more concentrated and we can really bargain with them or they have created switching costs so we can’t change suppliers maybe the tooling of the equipment or they have patents of certain parts designs it could also be that we are getting really poor in negotiation so maybe we’ve changed our purchasing force or our CP oh and our guys are not doing a really good job negotiating these spots okay all right I can believe that okay now as it turns out the problem is that workers of auto parts manufacturers in the USA have become recently unionized okay and this has caused a large increase in labor costs with salaries and benefits increase for our suppliers for all USA manufactures our suppliers okay no just our suppliers but all suppliers of auto parts in the USA okay so this happened to our competitors as well it did but other players in the market have all forced the production of their auto parts to other countries okay and we’re currently considering outsourcing the production of our auto parts to China okay what factors would you take into consideration to decide whether or not this is a good idea okay so just see if I understand our materials bill has increased because our suppliers have higher costs this happened with all suppliers in the chain in the u.s. yeah and we’re going to consider it who should buy these parts in China are we considering buying all the parts or just some of them as many as needed to bring our profitability back to find myself okay and you need to make sure that it’s you want to know how would I decide how would I have declined the size if we should purchase these parts in China all right okay sounds good can can I take a minute to think yeah take your time okay so I would 2:05 different factors to see if we should outsource or actually import parts from China instead of buying them from American suppliers the first one is if it’s actually going to be cheaper if it’s not going to be cheaper in China for some reason I don’t want to do that yeah the second one is if it meets the quality standards that we expect okay because otherwise we’re gonna lose the quality of our product and this is probably not acceptable yeah the third thing is can we have a predictable supply chain if we bring parts from China all right it doesn’t make sense to get cheaper products but then have manufacturing more expensive or having the factory stop working and so on yeah the fourth factor I’d look at are other risks that are not considered in the previous three buckets and finally if there aren’t better alternatives because maybe all of this box is checked for China but then there are better alternatives so let me explore in a bit more detail regarding Cheaper are the parts going to be cheaper the way I’d answer this question would be to answer three questions the first is figure out the cost of the parts there okay in China the second step would be to consider what are the fixed costs in developing new suppliers so it will cost something to have them make the parts and learn to make our parts at our quality standards and the third thing is what is the cost to bring parts from China to the US and then there’s all the shipping parts the tariffs the exchange rates and okay okay also there’s a fourth factor which we didn’t put here but we will probably need some operation there some people checking suppliers and visiting them as well okay regarding quality I would try to understand what is the manufacturing expertise of these suppliers what are the quality controls that they do it can be trust them and then also I’d like to see prototypes of our parts just to see if this actually happens in real life or if it’s all theoretical on paper they’re really good but you know yeah okay regarding the predictable supply chain to look at three factors it as well the first is the import issue how is the process to import parts from China how predictable is it how much leads time do you need to order these parts and can we work with these types of lead times okay so assuming the supply chain is predictable what are the steps and the times of the process the second factor is geopolitics are there geopolitical risks that can make us you know not receive parts for a whole month and then what should we do about it okay yeah the dividuals closed down the business and the third thing is something that would decrease the risk in supply chain which is inventory how much should we raise inventory how much can we raise inventory to mitigate these risks and this uncertainties and if so how much is it gonna cost and again this brings us back to the cheaper points up there okay okay now some other risks to consider one of them is intellectual property can we trust our blueprints to these Chinese suppliers I know some of them have had trouble and other industries in the past are we willing to risk our designs with them and if so which designs okay and this enters a broader picture which is probably the next step of this analysis if we choose to send our parts of China which parts probably not all of them you have to make sense but that’s our next step the second risk that I would emphasize here is the media or the public perception we’re going to be responsible for you know taking drops out of America having some suppliers bankrupt we use Chinese parts in our cars is it possible that we will lose market share doing this I know our competitors are doing but maybe we’re gaining some some sales because we’re you guys who you know trust American suppliers and give Americans jobs and so on we need to try to size the impact of that and the third class of risks that I’d look at here is the operational risk so and this includes supply chain demand all the other things but is it possible that we cannot get parts in a certain situation because of language barriers is it possible that a certain event causes the port’s not to work well so all the predictable things that we we had looked at in the quality in these five key factors what if they become unpredictable these are risks okay okay and finally I’d look at alternatives so we can develop American suppliers to make them cheaper again maybe renegotiate with the Union because if they have if they have cost our our parts to be too expensive to the US it doesn’t really matter that they have higher sellers if through then they get fired and yeah or make them cheaper in other ways maybe integrate the supply chain better teach them how to be more efficient as well another alternative is other countries their Southeast Asia there’s Mexico there’s a ton of other countries that could be viable and perhaps even cheaper than China or with less risks and then the other one is are there certain parts that we can internalize and manufacture them within our company so this could make them cheaper more predictable and they try to evaluate these alternatives just to see if there’s any one of them that’s better than China okay all right that’s it that was pretty good okay I’m not gonna asking for a recommendation here because I didn’t give you any any datum of any kind yes so you can’t really say anything but they feel really liked your analysis I guess that I think you did too preservation he might come back to with some to him with some data in the future wait for it okay sounds good do you think it did a good job in this case yeah he did what do you think it did best what do you think I could have done better okay so definitely the best point in your analysis were that you in the second question you raised some really good points and what you would consider the second question was why materials increased yeah I’m gonna go the third question then why what we should consider when outsourcing your bike to China when deciding whether we should or not although some really good ideas here were developing new suppliers would be would have fixed costs in China and that’s something that very few people would think of another month was predictability of the supply chain yeah and even so that was a good idea in itself and having that impact inventories was something that hardly anyone would think of okay don’t worry those are real good points and one thing that I wished you did and it helps that I do the project out of manufacturing probably yeah guys don’t expect everyone to think of all these issues yeah but at the same time you can always learn from this and it won’t work all for our Pro stability cases regarding automobile companies Bennett you can always know from now on that predictability in the supply chain allows you to have lower inventories and unpredictable and unpredictable supplied supply chain will not have you have higher venturi yeah that’s something you can know for all cases and it works for all other issues yeah any manufacturer even McDonald’s right yeah the App Inventor ease of burgers and Brad’s and so on yeah and still like for all other issues so we’re talking let’s see you have financial costs because you’re out for a C to another country your problem that probably means that you either have [Music] risks that currency risk so your currencies gotta go up or down and that might change your costs or you’re gonna have hedging costs to prevent that right anyway you’re gonna have that in any case where you’re doing something in one country and another yeah regardless of whether you’re outsourcing your production or you’re starting to arrange my name when when its re-entry yeah that’s right and one thing I wish to different was in the beginning of the case I asked you to help me solve the client’s problem and you went straight into and usually what’s happening yeah you know I wish to unset oh so I messed up yeah yeah well that’s okay like that’s what most people do and it’s not the end of the world but I would have been much happier to have you do it differently and say well so the first thing I want to do is figure out what their problem is but then afterwards I want to come up with options of course it depends on what the problem is but of course if I can’t solve this specific problem I’m going to come up with solutions and all other ends of my profitability tree yeah something like that yeah so I’m gonna do it right now so you’re gonna help increasing improving the profitability step number one is to find the root cause of what’s causing this profitability decrease so if it’s a cost problem which cost is right probably it’s a revenue problem is it price or volume and in which product line or rich region is causing the problem yeah step two is to find solutions to that root cause and if we can’t find any solutions to that root cause what other drivers can we work on to improve the profitability problem and then in step three would be to try to quantify each solution and see how much it will help solve the profit problem and also think from a more qualitative strategic level if the solution makes sense around because maybe it has a really high profit potential but it’s not gonna work in real life well that’s that’s how I should have done the first question of this case and then we went on to the issue in our channel there is a video we’re gonna talk specifically about this issue he’ll talk about what should have been done how to do it differently and why it’s better it’s called the five tactics to stand out in profitability case interviews and it should be right here on the right hand top corner of your video if you’re like most candidates out there you found the Diagnostics part of this case not so hard but the last question the hardest one we know that and we found that way too and we were preparing that’s why we built a free course on the case interview fundamentals where we teach you how to answer any type of question an interviewer can ask you regardless of case type of Industry anything and we want you to do that without memorizing frameworks we want you to learn to think like a consultant because that’s what really impresses interviewers and brings home offers chasing different fundamentals has been helping hundreds of candidates get there and VB offers so I don’t want you to be the one to miss out on that if you’re interested just go to Crafton KSS comm slash free course and sign up right now if you want to watch other videos about case interview case interview examples how to stand out how to think like a consultant to subscribe to our channel hit the bell button to get notified when we release new ones and finally if you like this video you’re they also gonna like the other one that’s on your screen where I interview Bruno with a McKinsey style case a tougher one harder than this one that you could probably find in a first or final round in McKinsey Boehner BCG okay I hope you liked this one and I’ll see you in the next video