Supply chain case interviews
Sam Scott, Associate Consultant at BainPublished: October 4, 2022
Following decades of globalization, today’s companies are facing supply chains with a greater degree of complexity than ever before. In recognition of that reality, our clients are increasingly turning to consultancies to find cost reduction opportunities, minimize the risk of obstruction or image from natural disasters and foreign policy decisions, and (increasingly in the past few years) to identify areas for improvement in environmental sustainability.
Types of cases (Top)
Generally, all supply chain cases aim to assess a candidate’s ability to sort through complex data, yield actionable insights and identify the potential risks from altering the client’s existing operation.
However, that assessment can take a variety of forms, what follows are three common types of supply chain cases that you may encounter throughout your interview process.
- Changes to the clients’ raw material suppliers: These questions ask the interviewee to optimize the client’s acquisition of their input materials. The change may involve an alteration to an existing input, for instance assessing the financial implications of outsourcing a value-add function to a supplier instead of performing that action in-house.
Alternatively, the candidate may be asked to consider substituting one type of raw material for another – though these questions may contain a revenue element. For example, how will our sales decrease if we make our product with a lower quality metal than the one currently used?
- Evaluating the client’s operations: A candidate may be asked to examine the feasibility of moving the client’s factories from one region to another by assessing the impact of lower labor costs against higher transportation costs. In some instances, the candidate will be given the initial cost of relocating operations and asked to calculate the NPV or ROI from altering the operations.
- Understanding indirect costs of supply chain: In risk assessment cases, the candidate is asked to quantify the risk associated with their current supply chains by assuming the probability of a disruption like an earthquake or global pandemic.
Other cases, particularly for firms with growing ESG practices, may focus on environmental impacts. The candidate may be asked to quantify the amount of carbon produced by the input materials the client uses in their operations or the cost of transporting goods throughout the client’s supply chain.
Supply chain cases are a strong option for consulting interviews not only due to the diversity of problem types, but they provide an opportunity for interviewees to tackle complexity while balancing trade-offs. Candidates can quantify the problem and the solution while demonstrating a broad knowledge of business concepts by brainstorming supply chain risks and alternative paths to success than those presented by the case.
Example supply chain cases (Top)
Read through the following examples so you can identify supply chain courses in all their forms.
#1: Car Works has approached your firm to help them assess the efficiency of their raw material providers as they implement a company-wide mandate to cut costs. Presently, Car Works utilizes a large range of individual suppliers, each providing Car Works with 1-2 key inputs, but has considered consolidating their purchasing into fewer, larger accounts. Car Works wants us to quantify the potential savings and provide a recommendation.
This case asks candidates to calculate the cost savings from reducing supply chain complexity and the increases in purchasing power. However, there may be risk from consolidating their suppliers if those suppliers face disruptions of their own.
#2: SunRays is a global producer of solar panels with the bulk of their manufacturing footprint presently located in China. They have retained your firm to assess the strategic risk of maintaining their current operations versus diversifying to other regions given the potential for geopolitical conflict. What would you advise?
This case tests a change in operational configuration and the logistics of relocating manufacturing from across regions.
#3: Your client, SodaSwirl, has set an ambitious goal of cutting their carbon footprint by 50% in 10 years. Your firm has been hired to identify opportunities in their operation to reduce carbon production and determine the most effective route to reaching the goal with the minimal disruption to profits.
This case tests a candidate’s knowledge of the environmental impact for different business operations and provides an opportunity for the candidate to brainstorm solutions to the high stakeholder priority of environmental sustainability.
Supply chain framework (Top)
As always, there is no universal structure that will unlock each supply chain case, however, leaning on the three areas of inquiry below will allow a candidate to lay the foundation for a successful analysis.
- Change in cost structure. This element is likely the key to any supply chain analysis – candidates will have an opportunity to calculate cost differences and recommend the most profitable scenario.
Often candidates will be given a present state and a potential alteration to one of the following criteria (cost of input costs, cost of operations, and the management cost of overseeing the supply chains, etc.) from which the candidate can calculate the potential savings (or incremental expense if the proposal is not value-add).
- Risk of disruption. A key secondary consideration in many supply chain considerations, and, the primary priority in some, is the risk presented by unforeseen disruptions to the client’s supply chain.
Candidates may be asked to brainstorm the incremental risk from altering an existing configuration as an opportunity to demonstrate their business savvy and creativity. In other cases, candidates may be given a probability of disruption and asked to calculate the risk to the client’s profit.
- Impact on client’s image. A tertiary consideration in most cases, a good candidate will assess the impact to the client’s public perception from making changes to their supply chains.
One example a candidate may face: a domestic product that has staked their reputation on using high quality goods and employing American workers – what is the risk to their image from outsourcing and how many customers will turn elsewhere? The risk is dependent on where supply chains go – for instance, outsourcing to an area with a history of serious human rights abuses may be particularly precarious.
Full case example (Top)
Let’s work through a sample supply chain case.
Your Couch World client is a manufacturer of furniture currently designing and manufacturing all of their products in Canada. One of their top investors has continually pushed Couch World to shift their production overseas to a lower cost facility in China, but management has reservations about losing the Made in Canada claim with which customers have grown familiar. How would you advise them?
After jotting down the prompt, we can rely on some of the concepts listed above to formulate a framework for the case.
Step 1: Cost Shifting – What’s the cost impact of Chinese production?
Our client is going to save on the cost of labor and potentially gain access to cheaper raw materials given their closer proximity to industrial centers. The trade-off? It will cost more to transport our goods to their end destination if they are no longer made in Canada.
Let’s say that our goods cost $725 to produce and retail for $1,000 with the present supply chain configuration. It costs an additional $25 to transport them to their final destination for a total of $750, with a gross profit margin of 25% or $250. As discussed above, the cost of production will decrease, let’s say to $500, but the cost of transportation increases, let’s say to $100. Net-net the new cost of production is $600. The new gross margin is $400, so the cost analysis presents favorably towards outsourcing, but make sure to consider all potential impacts before forming a recommendation.
Step 2: Operational Stability – What’s the operational impact of producing in China?
We may want to consider the risks of outsourcing to China. Recently tensions have increased between the U.S. and China with the potential for escalation. We will want to consider the possibility of additional tariffs and the impact of conflict in the region.
These aspects may be difficult to quantify, but they are important for the client to consider as they evaluate the total impact of this decision.
Step 3: Brand Erosion – What’s the brand impact of producing in China?
Finally, our client needs to consider how this change can impact their public image and thereby their sales. Competitors may even capitalize on our shift to highlight their competitive differentiation if they are still domestically produced.
In our case, let’s say our client was selling 100,000 units prior to outsourcing the goods. When they were making $250 per unit, they made $25M per year. Now, our client is making $400 per unit, but, let’s imagine our client expects to lose a significant portion of their sales, ~35%, because their value proposition centers heavily on being a domestic producer of high-quality furniture. Calculating their new gross profit, 65,000 * $400 we find that profit from out-sourcing totals $26M.
Step 4: Recommendation
Synthesizing these analysis we recommend that our client should not go through with outsourcing their production. While the proposition yields significant cost savings, after accounting for lost sales we find that profit will only increase by 4% for quite a bit of incremental risk and complexity. Next steps might involve finding alternatives to outsourcing, maybe considering a plant in Mexico or focusing on optimizing existing operations.
(You can also recommend that the client proceed with the outsourcing – the profit does increase by 4% after all. Most cases are less about yes vs. no and more concerned with the evidence and logic the candidate uses to support their choice).
Consultants find themselves tackling increasingly thorny supply chain questions, and look to evaluate their candidates on their ability to crack these cases. The preceding discussion is a good introduction to the complex work of supply chains, but a strong candidate will supplement it by getting a good mix of supply chain cases under their belt before entering the interview process.