Actual Case I received during one of my interviews. This is how I approached the problem, it is by no means the “correct” way. You may have your own ideas and methodologies, and there are a lot of different ways to solve the same case. And my charts weren’t as pretty.
Interviewer: Your client is a large departmental store in Manhattan which competes with Macy’s. The objective is to cut costs across the company due to lower profit margins during the recessionary economy. Your engagement manager assigns you the task of cutting down costs by 50% in the Cleaning/Janitorial Services Division.
Interviewee: So, let me reiterate the problem at hand to make sure I got down all the important points.
Client – Large department store competing with Macy’s
Objective – cut cleaning costs by 50%
Is there something that I have missed out or are there any other objectives that I should be aware of?
Interviewer: No, that seems about it.
Interviewee: Sounds interesting. Could I have a moment to collect my thoughts?
Interviewer: Sure, go ahead.
Interviewee: (Draw the following Chart)
I would first like to see what are the different Drivers of Cleaning Costs in a department store.
Is there anything else I am missing out?
Interviewer: What about flagship stores vs. other stores?
Interviewee: (Though I think that’s a redundant question but anyway)
That’s a good point, let me add that to my chart.
Interviewer: That looks like a good way to start.
Interviewee: I would like to know if the cleaning/janitorial services is in-house or outsourced.
Interviewer: They are currently outsourced.
Interviewee: Do we know if we are getting a good price compared to our competitors?
Interviewer: We have no idea as to what our competitors are doing with respect to cleaning.
Interviewee: Okay then, does our client just have one store?
Interviewer: The client runs 4 stores in Manhattan.
Interviewee: And we want to cut down cleaning costs across these 4 stores by 50%, right?
Interviewer: That is correct.
Interviewee: Do we use the same supplier for all the 4 stores?
Interviewer: (Smiles) No we use a different supplier for each store. Well, the client also gave us this chart.
Interviewee: (This doesn’t really tell me anything, quiet for a couple of minutes due to confusion)
Well, I suppose I will get a better idea if I knew the spend/store.
Interviewer: That’s a good point. Take a look at this chart.
Interviewee: Wow, stores 1 & 4 seem to be the reason for most of the spend.
Interviewer: Good Point. Why do you think that is the case?
Interviewee: Maybe because stores 1 & 4 are larger than the other stores. Would you happen to have the size for each store?
Interviewer: Yes, the sizes of the stores are as follows:
Store 1- 20,000 sq ft
Store 2 – 5000 sq ft
Store 3 – 2500 sq ft
Store 4 – 8500 sq ft
Interviewee: That’s really helpful. Now let me figure out the cost/sq ft for each store.
Store 1- $2.5 k/sq ft
Store 2 – $1.5 k/sq ft
Store 3 – $3.4 k/sq ft
Store 4 – $4 k/sq ft
So it seems that Store 2 is getting the lowest price per sq ft for cleaning services. What if I decide to contract the cleaning/janitorial services to supplier of Store 2? Can I achieve even lower prices due to economies of scale?
Interviewer: There will be no volume based discounts. What kind of savings are you looking at if we contract the cleaning services to Supplier #2?
Interviewee: I would like to have a minute to do the math. (Furiously crunch out some numbers)
Total Current Spend: $100 million
Possible Future Spend if contract cleaning of all stores to Supplier #2:
Store 1- 20,000 sq ft * $1.5 k/sq ft = $30M
Store 2 – 5000 sq ft * $1.5 k/sq ft = $7.5M
Store 3 – 2500 sq ft * $1.5 k/sq ft = $3.75M
Store 4 – 8500 sq ft * $1.5 k/sq ft = $12.75M
Total = $54 million
Possible Future Savings if contract cleaning of all stores to Supplier #2: $46 million (which is 46%)
Need another 4% in savings.
Interviewer: Very Good, now how do you plan to get the rest of the 4% in savings?
Interviewee: Perhaps we can now look at the Suppliers cost and help him get some savings which he can pass on to out client.
Interviewee: We are in no position to negotiate with the Suppliers.
Interviewee: Going back to Chart one, I see that although Supplier #2 has the lowest supplies cost. Supplier # 4 has really low percentage of labor costs.
Interviewer: I see, but how does this help us?
Interviewee: Maybe, we can lower Supplier # 2’s costs by using the low labor costs, like those of Supplier # 4.
Interviewer: Hmm… Well, out suppliers do not want to collaborate, so that is out of the question. But why don’t you try it and see if we get significant savings?
Interviewee: (Doing some quick math and getting the hint that it might not be worth it)
On second thoughts, it looks like that idea will not really help us much.
Interviewer: Are you sure?
Interviewee: (Thanks for totally confusing me now) Yes, I think I am sure.
Interviewer: Okay then, moving on, how will you get another 4% of savings?
Interviewee: (Umm… I don’t know… Pondering over Charts)
Interviewer: How about some strategic ideas to lower costs?
Interviewee: (Oh of course!! Hit head with hand… Some Qualitative Ideas!!)
Yea, there are a couple of ways we could achieve another 4% savings.
We could cut down the frequency of store cleaning. For example, we could have the stores cleaned every other day instead of everyday.
Interviewer: Well, we are sort of a high end store and we do not want to compromise on our quality.
Interviewee: Of course, we would need to empirically figure out how much we can cut down on the cleaning frequency to ensure that the look and feel of the store is not compromised.
- Maybe we can extend this idea to the stores themselves. Cleaning frequency can be cut down in Stores other than the Flagship Store.
- Maybe certain areas of the stores which receive less foot traffic can be cleaned out a lot less frequently. We will have to monitor which areas get maximum traffic and focus on those areas.
- Perhaps we can find cheaper cleaning supplies or substitutes without compromising on quality.
- We could negotiate with our current supplier for volume discounts.
- We could try to find a further cheaper supplier of janitorial services altogether.
- We could try to build an in house cleaning services team. That way, we may be able to save on some of the premium we probably have to pay our suppliers.
Interviewer: Yes, these all seem like pretty good ideas. Now suppose you have a meeting with our client. What are you going to tell him about your findings?
(This means sum up your case in a minute)
Interviewee: Well, initial studies show that we would be able to achieve a 50% cost reduction in cleaning/janitorial services. Currently, we use 4 different suppliers, each offering a different pricing schemes, for our 4 Manhattan stores. We can achieve 46% of our targeted savings by contracting the cleaning services of all 4 stores to supplier #2. Furthermore, we can achieve an additional 4% of savings if we cut down the frequency of store cleaning, use cheaper cleaning material substitutes or focus on certain areas of the store getting more foot traffic, as long as it does not compromise our quality standards. A combination of both will give us our 50% savings target.
Interviewer: Thank you, those seem like excellent ideas.
I believe the answer is – Insufficient Data
m not sure about this one. I think the figure would look something like this, with each of the smaller triangles having a length of l/3. I wasn’t sure if we would recount the common sides as well. If we count every side of the triangles only once, I believe that we should get 6l as the total perimeter.
Life is a sine wave 