Your client is an automobile supplier of motorcycles and chassis parts for major car manufacturers. Along with its headquarters in Baden-Württemberg, the company has two other plants in Germany and one in France, Romania and Mexico. The company employees approx. 5,000 employees worldwide, 3000 of which active in Germany. Having survived the global financial crisis, the company is working at full capacity once again in a five-shift operation. However, sales revenues and profit are below the pre-crisis level. The Board of Directors has asked us to investigate the cause of the problem and to come up with a solution.
In the first step, briefly summarize the situation described and evaluate the relevance of the existing information. Ask questions to further understand the client’s situation – the problem definition usually doesn’t contain all the relevant information. These questions could include, for example:
The reasons for the reduced profit can be traced back to the cost side on the one hand and back to the sales revenue side on the other. To structure and analyze the problem in individual components, the following formula should be observed:
Profit= Sales revenues (Quantity x Price) - Costs (Costs fixed + Costs variable)
Adhere to this structure when drafting the solution. Ask the interviewee targeted questions to help you come up with the main lever for sales revenues and costs
Costs are made up of fixed and variable costs. The same fixed costs are incurred regardless of the production quantity or the activity level (e.g. taxes, insurance, maintenance, depreciation, interest, salaries). Variable costs depend on the production quantity and level of activity, e.g. raw materials, auxiliary materials, energy, wages. To better structure the basic fixed and variable costs, the value-added chain from Porter can be used:
Sales revenues = price x quantity. The information that the customer is working at full capacity means that you can focus on the analysis of the price. First ask how the client’s price structure has developed over the last 3 years.
Conclude the case with a short summary and an overview of the most effective recommendations on how to proceed.