Prompt
-
HeavyDuty is a construction vehicle manufacturing company based in
the US
Due to limited capacity, it outsources demand in excess of internal
capacity
It is 2018, and there is an emergence of strong labor unions which
means that costs of outsourcing are expected to rise significantly in two
years time.
The CEO has approached Bain & Co to devise an appropriate
strategy for the situation.
Additional Information (if asked)
- 3 product lines: Cranes, Bulldozers and Excavators
Relevant Parts of Candidate Framework
Cost of Outsourcing
Operations in US
Cost of Offshoring
Qualitative Considerations
Preface to next exhibit:
Cost of Outsourcing
Operations in US
DIRECTIONS: Show when candidate asks
for volumes and costs of current outsourcing
operations in US
When asked:
(If candidate does not ask for these, guide them towards asking )
1. These values are for 2018. By 2020, US outsourcing cost/hour will rise by 20%,
25% and 10% per crane, bulldozer and excavator (respectively)
2. Client only has appetite for a offshoring a single product line as this is the first time
they would be doing this. Furthermore, client does not want to outsource to more
than one outsourcing partner at a given point in time
☑ Share Slide with Candidate
Current Production Operations
Outsourcing
N-8 Fixed
Cranes
D-9
Bulldozer
GX Buckethead
Excavators
In-house
60
70
40
75
60
20
vs.iir.vn
Lose
Product
Line
Production
hours/ unit
In-house
cost/
production
hour
Outsource
(US) cost/
production
hour
N-8 Fixed
Cranes
150
$ 50
$ 70
D-9
Bulldozer
150
$ 60
$ 80
GX
Buckethead
Excavators
300
$ 75
$ 91
Outsourced (US)
Exhibit A: Annual Production Requirement (Units)
Exhibit B: Cost Specifications for Production (2018)
Analytics Solutions 1
The goal is to figure out which of one of the three product lines to
outsource, assuming that the entire excess volume requirement can be
offshored for a lower total cost.
Candidate should calculate total cost of US outsourcing for each of the
product lines:
Cranes: (70 * 150 * 70 * 1.2) = 882k
Bulldozers: (40 * 150 * 80 * 1.25) = 600k
Excavators: (20 * 300 * 91 * 1.1) = 600k
7-
CONCLUSION: Offshore the Fixed Cranes
NEXT STEP: evaluate offshore options
Offshoring Production Costs
Cost of Offshoring
When asked for production costs in target
countries:
- India at 690000 total for 70 cranes/year
- China at 665000 total for 70 cranes/year
- Germany at 720000 total for 70 cranes/year
Cost of Offshoring
Preface to next exhibit:
DIRECTIONS: This exhibit should follow an inquiry into transport costs
When asked:
- 1 crane requires a 15m x 5m block
- As many shipments per year as needed
- Shipments are planned such that utilization is
maximized
☑ Share Slide with Candidate
Proposed Shipping Contracts – Summary
Country
Shipment Cost/ Trip
India
$ 36,000
China
$ 45,000
Germany
$ 18,000
95m x 30m
Rental Space allocated
by CargoAm Liners for HeavyDuty cranes
Top Deck Space on CargoAm Liners’ Ships
Analytics Solutions 2
The goal is to calculate the total cost of offshoring for each country
as production + shipping, with production already given
Shipping:
1. Simple geometry leading to 38 cranes per ship
2. This means we need two trips per year
Production
Shipping (annual)
Total
India
690k
(36k*2) = 72k
762k
China
665k
(45k*2) = 90k
755k
Germany
720k
(18k*2) = 36k
756k
Parity shifts focus to qualitative factors
Qualitative Considerations
Brainstorming (Ideally candidate’s
own initiative, otherwise prompt)
Q- What other factors to take into account
when evaluating a target?
Qualitative Considerations
Preface to next exhibit:
DIRECTIONS: This exhibit should follow a brainstorming session where at least 3
of the 4 factors in the bubble chart have been hypothesized by the candidate
When asked:
- required: 60% production quality rating
- required: 7 months lead time (negotiable)
- risk is defined as offshoring price risk, NOT lead time/ supply chain
risks (If curious, China: Trade war tariffs, India conflict risks)
- Implicit: We don’t want to compromise on target volume
☑ Share Slide with Candidate
Summary of Nonfinancial Considerations
Price Risk
Lead
time/
months
12
11
10
9
8
7
6
5
4
3
2
1
High
Moderate
Low
China
India
Production
Quality
Rating (out
of 5)
Germany
10
20
30
40
50
60
70
80
85
90
100+
Excess Capacity/ cranes per year
Recommendation should highlight
India/China as key target. + Rationale, Risks &
Next Steps