Professional Documents
Culture Documents
Horizons Practice Cases
Horizons Practice Cases
QUESTION: Your client is a fast food chain that recently bought a meat-processing outlet to supply it with
fresh hamburgers. Cows enter from one end of the shop, meat gets processed in the middle, and
meat gets packaged and delivered at the other end. The manager of the butcher shop needs to
decide whether to have the cows walk or run into the meat processing room.
ANSWER: Cows should walk into the meat processing room for a profit of $4,000 per week (versus a loss of
$2,500 per week if cows run into the meat processing room).
Vietnamese Tire Manufacturer
QUESTION: Your client is a tire manufacturer in Vietnam that has dominated the industry due to high tariffs
on imports. The tariff currently accounts for 50% of the total cost to produce and ship a tire to
Vietnam. The Vietnamese government recently decided to lower the tariff by 5% per year for the
next ten years. You have been hired to assess the situation and advise the clients on next steps.
ANSWER: Essentially, the client has 6 years before the US manufacturers become a threat (assuming
constant cost structures). In order to remain competitive, Vietnamese cost per tire must be
lowered below US cost per tire in 10 years of $34. The client should benchmark all costs against
industry best practices and explore cost-cutting measures, especially investing in technology to
replace manual labor intensive production methods.
Infant Formula Producer
QUESTION: Your client is a manufacturer and nationwide distributor of infant formula. The client is bidding
for a contract with a government welfare program that allows individuals living below the
poverty level to receive vouchers for infant formula. Infant formula producers bid on a state-by-
state basis for the right to be the sole supplier of infant formula to welfare recipients in that
state. The contract requires the client to provide rebates to retailers. You have been hired to
determine how much the client should bid on the contract.
FRAMEWORK: Cost of fulfilling contract terms < contract bid < expected profitability of contract
Total cost of contract = $2 rebate x 1.2 million welfare recipients x 40 containers x 5 years
Total cost of contract = $480 million
Total program profit = profit per container x quantity of containers sold x 5 years
Total program profit = $3 x 1.2 million welfare recipients x 40 containers x 5 years
Total program profit = $720 million
Total post-program profit = profit per container x quantity of containers sold x 5 years
Total post-program profit = $5 x 600,000 new mothers x 48 containers x 5 years + $5 x 20% share
x 600,000 experienced mothers x 48 containers x 5 years
Total post-program profit = $864 million
ANSWER: The client should bid no less than $480 million and up to $1.584 billion for the deal to be
profitable. Additional factors to take into consideration when placing the bid include increased
market share from increase in shelf space and boost to reputation, as well as competing bids.
Beer in the UK
QUESTION: Your client is a major US beer company that recently entered the UK market. Two years after
entry, the company is still losing money. Despite a high per capita consumption of beer in the UK
market, sales have been very disappointing. You have been hired to find out why.
FACTS: The company sells two beer products in the UK – a strong tasting beer and a light beer.
The strong tasting beer has been selling slightly below average in the UK.
The light beer has not been selling in the UK.
Market tests show that both brands of beer taste better than competitors.
The company has priced its beers below the competitors to try to capture customers.
The beers are sold everywhere other brands are sold.
There have been no problems with distribution channels.
The company has spent more on marketing than the industry average in the UK.
The beer industry in the UK is fairly fragmented with no dominant players.
There are very few light beers marketed in the UK.
The bestselling beers in the UK are Guinness and Toby.
The bestselling beers in the UK are all moderate in alcohol level, dark, and strong tasting.
The company’s strong tasting brand is higher in alcohol than the bestselling beers.
Both brands are lighter in color than the bestselling beers.
ANALYSIS: Current market size = large with high per capita consumption of beer in UK
Current market life cycle = mature for strong tasting beer, emerging for light beer
Market saturation = saturated for strong tasting beer, unsaturated for light beer
Environmental factors = no sociocultural low calorie movement for light beer
Product = light color may be preferred less than dark colored beers
Price = low price may translate to cheap image
Promotion = advertising focus may be on wrong message
Place = no issues
ANSWER: There is not currently a market for light beer in the UK, although it may be an attractive
opportunity in the future due to few competitors. The strong tasting beer should be changed to
be a darker colored beer priced similarly to the bestselling beers and advertised as a better
tasting beer based on the market tests.
Specialty Paper
QUESTION: Your client is a leading manufacturer of specialty papers sold to commercial printers. Your
client’s operations are profitable, but the business has failed to grow over the past few years.
You have been asked to identify opportunities for growth.
FRAMEWORK: Increased revenues via new customers; profitability of investment for medium vs. large printers
ANALYSIS: Market of medium printers = 3,000 printers x 20% share = 600 printers
Revenue of medium printers = 600 printers x 500 cartons x $18 per carton = $5.4 million per year
Cost of medium printers = $675,000 + $9 x 600 printers x 500 cartons = $3.375 million per year
Profit of medium printers = $5.4 million – $3.375 million = $2.025 million per year
ANSWER: It is more profitable to invest in a carton packing line than a pallet packing line. Additionally, the
smaller investment required for the carton packing line is less risky.
Supermarket Deli
QUESTION: Your client is a national supermarket chain with a deli department offering two product lines:
deli meats and prepared foods. The $700 million deli business has reported no profit growth
over the last few years. You have been hired to find out why.
FACTS: Deli meat revenues were $260M, $255M, and $260M in 2002, 2003, and 2004 respectively.
Deli meat COGS were $160M, $155M, and $160M in 2002, 2003, and 2004 respectively.
Prepared food revenues were $360M, $400M, and $440M in 2002, 2003, and 2004 respectively.
Prepared food COGS were $190M, $230M, and $270M in 2002, 2003, and 2004 respectively.
Overall industry growth shows deli meat category has been flat to slightly declining recently.
Overall industry growth shows prepared foods category has been growing at 10% per year.
Two new prepared food products were introduced – BBQ chicken wings and sandwiches.
Each of the new products generates $40M annually in revenue.
Price for new products is $5 for 20 pieces of BBQ wings or $4 per sandwich.
Total material cost for new products is $0.10 per piece of BBQ wings and $2 per sandwich.
Total employee cost for new products is $20 per hour with prep time of 15 minutes per batch of
200 BBQ wings and 2 hours of dedicated made to order sandwich time for both lunch and dinner.
Average sandwich sales per store is 20 sandwiches per day.
FRAMEWORK: Revenue and cost analysis; profitability of BBQ wings vs. sandwiches
ANALYSIS: Revenue analysis shows both product lines growing at category averages with deli meat revenues
flat and prepared food revenues growing at 10%. Cost analysis shows deli meat COGS flat and
prepared food COGS growing at approximately 15%. Prepared food line shows declining
margins.
ANSWER: Declining margins in prepared food line due to sandwich product being sold at a loss. Client
should eliminate the product or increase sandwich sales either through price increase or demand
increase.
No-Fat Ice Cream
QUESTION: Your client is a manufacturer of no-fat ice cream products and wants to increase its revenues
next year.
ANALYSIS: Demand is elastic due to closeness of substitutes and categorization as discretionary purchase.
Elastic demand means consumers are more price-sensitive and more likely to switch if price is
increased; thus, focus on quantity effect.
Increase quantity of existing consumers by increasing dollar amount per purchase or increasing
number of purchases. Increase dollar amount per purchase by offering discount. Increase
number of purchases by offering frequent buyer program. Increase quantity of new consumers
by increasing awareness, availability, and trial usage. Increase awareness by running new
marketing campaign on benefits of no-fat ice cream products. Increase availability by selling in
new retailers, such as additional grocery store chains or specialty ice cream shops. Increase trial
usage by providing free samples in store or coupons.
Current Revenue = $3.50 per half-gallon * 200,000 consumers * 12 half-gallons per consumer per
year = $8,400,000 per year
Additional Revenue from Discount = 50% * 200,000 * ($3.50 - $1) + 20% * 200,000 * ($3.50 - $1)
* 5 = $500,000
Additional Revenue from Advertising = 1,000,000 viewers per month * 2 months * 1/12 trial rate
* $3.50 per half-gallon + 1,000,000 viewers in June * 1/12 trial rate * 1/8 conversion rate * $3.50
* 6 months + 1,000,000 viewers in July * 1/12 trial rate * 1/8 conversion rate * $3.50 * 5 months
= $583,333 + $218,750 + $182,292 = $984,375
ANSWER: Implement advertising campaign to add additional $980,000 in revenue and add an additional
20,000 customers to the current consumer base, nearly double the revenue created by the
discount.
Gift-Wrapping Paper
QUESTION: Your client is a gift wrapping paper manufacturer in the United States who is considering
outsourcing to China to reduce costs.
FACTS: 5 manufacturing factories exist in the United States with rent of $100,000 per month each.
Each manufacturing factory supports 10 machines.
Each machine can produce 100 reams of paper per day.
Annual repair and maintenance fees amount to $200 per machine.
Each factory requires 3 supervisors paid an annual salary of $50,000 per year each in the US.
Each machine requires two employees to operate it.
Employees work one of two 8 hour shifts in the United States.
Employees are paid $10 per hour in the United States and $2 per hour in China.
Raw paper material is $20 per ream.
Ink is $100 per ream in the United States and $50 per ream in China.
Your client is considering outsourcing to China to reduce costs.
Rent is $60,000 per month per factory in China.
Each factory requires 3 supervisors paid an annual salary of $20,000 per year each in China.
Employees work one of two 10 hour shifts in China.
Shipping costs from China to the United States is $150 per ream.
ANALYSIS: US Facilities Costs = (5 factories * $100,000 rent per month * 12 months) + (5 factories * 10
machines * $200 fees per year) = $6,000,000 + $210,000 = $6,210,000 per year
US Indirect Labor Costs = 5 factories * 3 supervisors * $50,000 salary = $750,000 per year
US Direct Materials Costs = 5 factories * 10 machines * 100 reams per day * $120 per ream per
day * 360 days per year = $216,000,000 per year
US Direct Labor Costs = 5 factories * 10 machines * 2 employees per machine * 2 shifts * 8 hours
* $10 per hour * 360 days = $5,760,000 per year
Total US Costs = $6,210,000 + $750,000 + $216,000,000 + $5,760,000 = $228,720,000 per year
Machines produce 100 reams of paper per 16-hour day in the United States.
Machines produce 6.25 reams of paper per hour in the United States.
Machines produce 6.25*20 = 125 reams of paper per 20-hour day in China.
Demanded Production = 5 factories * 10 machines * 100 reams per day = 5,000 reams per day
5,000 reams per day / 125 reams per day = 40 machines / 10 machines per factory = 4 factories
China Facilities Costs = (4 factories * $60,000 rent per month * 12 months) + (4 factories * 10
machines * $200 fees per year) = $2,880,000 + $8000 = $2,888,000 per year
China Indirect Labor Costs = 4 factories * 3 supervisors * $20,000 salary = $240,000 per year
China Direct Material Costs = 4 factories * 10 machines * 125 reams per day *$220 per ream per
day * 360 days per year = $396,000,000
China Direct Labor Costs = 4 factories * 10 machines * 2 employees per machine * 2 shifts * 10
hours * $2 per hour * 360 days = $1,152,000 per year
Total China Costs = $2,888,000 + $240,000 + $396,000,000 + $1,152,000 = $400,280,000 per year
ANSWER: Outsourcing to China is not an option for reducing costs due to the high shipping costs per ream
leading to a cost increase of over $170 million per year.
Tissue Paper
QUESTION: Your client is a manufacturer of tissue paper. The client is considering increasing the average
price on commercial products by 10% to improve profitability. You have been hired to determine
whether or not the client should implement the price increase.
ANALYSIS: Revenue if no price increase = $100 per ton x 1,000 tons = $100,000 per year
Cost if no price increase = $20,000 + $70 per ton x 1,000 tons = $90,000 per year
Profit if no price increase = $10,000 per year
Revenue if price increase = $110 per ton x 800 tons = $88,000 per year
Cost if price increase = $20,000 + $70 per ton x 800 tons = $76,000 per year
Profits if price increase = $12,000 profit
ANSWER: The client should increase the price by 10% to gain an additional $2,000 of profit per year.
Argentine Bank
QUESTION: Your client is a bank in Argentina who has historically served individuals or large corporations.
There are only three other large banks in the market. Last year, your client was the first bank to
enter the small to medium business market. You have been hired to understand how they can
become more profitable.
What are examples of new products we could offer to small and medium sized businesses?
How can we segment our small and medium sized business customers?
ANALYSIS: Examples of new products = payroll management, funds management services, tax services,
business insurance, etc.
Potential segments = risk susceptibility, size by revenues, size by employees, industry, lender
services, borrower services, etc.
ANSWER: The client should increase quantity of sales to current clients and new clients in the small to
medium business market to increase revenue by $400 million.