Kellogg

J.L. Kellogg Graduate School of Management Northwestern University 2001 Sheridan Road Evanston, Illinois 60208-2001 Facsimile: 847-467-4077

Consulting Club

Andersen Consulting - Strategic Services

Dry Cleaners Case
Question: How many of dry cleaners are located in Philadelphia? Possible Solution: Assume there are two million people in Philadelphia. Estimate the size of market by segmenting the population: Assume the population consists of 25% adult men, 25% adult women, and 50% children Assume children have no dry cleaning and only 25% of adults use dry cleaning Estimate the average number of units of clothing each man and woman brings weekly to the cleaners. For this case, assume that 3 shirts/blouses and 1 suit are brought to the cleaners each week Thus the total size of the market (per week) is one million units of clothing (2 million people x 50% x 25% x 4 units per person) Estimate the average number of units a dry cleaner can handle per week. Assume that the average dry cleaner has two workers who typically handle 20 30 customers (or 80 - 120 units of clothing) per hour If the average dry cleaner is open eight hours a day, 5 days/week, they typically handle 3,200 4,800 units per week (80 - 120 units x 8 hours x 5 days) Divide the total market size by the average units handled per dry cleaner to estimate the total number of dry cleaners (1 million / 3,200 4,800). There are between 208 and 313 dry cleaners in Philadelphia.

Kellogg Consulting Club Co-Chairs, 1998 - 1999

Deven Billimoria Pepe Cafferata Allyson Hodgins Janet Morrison

d-billimoria@nwu.edu j-cafferata@nwu.edu hodgins@nwu.edu bretkim@nwu.edu j-morrison@nwu.edu a-

Bret Kim

Andersen Consulting - Strategic Services

Office Supplies Distributor Case

Situation: Supplies Mate (SM), a distributor of office supplies in Central London, has experienced declining profitability over the past five years.

Question: How can the distributor address this profitability trend?

Suggested Frameworks: Profitability model with emphasis on understanding fixed vs. variable operating costs. Key Facts (to be shared as the case progresses): Company Profitability has slipped from 12% to 8% over the past five years Revenues have grown by 15% over the past five years SM distributes from one central warehouse in downtown London that it has owned for 20 years SM has built a reputation for customer service, Personal on-time delivery and support every time.

Customers Large businesses (60%), medium-sized business (20%), small businesses (20%) Many of the medium-sized and most of the small business accounts were acquired recently and are located on the perimeter of the city (not to be given unless asked for specifically).

Competitors Fragmented industry Client is one of the largest and most successful distributors

Kellogg
J.L. Kellogg Graduate School of Management Northwestern University 2001 Sheridan Road Evanston, Illinois 60208-2001 Facsimile: 847-467-4077

Consulting Club

Category killer OfficeMax has just entered the market, but the clients revenues have grown due to its focus on customer service

Products Sells a full-line of office supplies (e.g., paper, pens, toner), All your office supply needs.

Order Fulfillment Most orders take over the phone and processed by data entry specialists, some large customers transmit order electronically Orders appear on terminals as individual line items, several line items may comprise an order Stock pickers take an order, pick all the items and send the completed order to packaging, staging and distribution Trucks are stocked each morning with deliveries for that day Company-employed drivers deliver to clients

Costs Industry standard costs as office supplies are commodities Typical fix costs are property, plant and equipment, technology infrastructure and some portion of labor are utilities Typical variable costs are supplies, labor, fuel, etc. Cost are comparable to competitors using the same data entry and order picking methods Sixty percent of order fulfillment costs are fixed

Good Conclusions: Conclusions will address cost problems. The order picking system and delivery systems can be rationalized to lower costs. Orders can be grouped and picked simultaneously by one picker or some kind of assembly line picking system can be proposed. Alternative delivery systems (i.e., Federal Express or the like) can be proposed, but likely at the expense of personal customer service. All these options
Kellogg Consulting Club Co-Chairs, 1998 - 1999

Deven Billimoria Pepe Cafferata Allyson Hodgins Janet Morrison

d-billimoria@nwu.edu j-cafferata@nwu.edu hodgins@nwu.edu bretkim@nwu.edu j-morrison@nwu.edu a-

Bret Kim

are possible, but would likely lead to minimal cost reductions.

Excellent Conclusions: Conclusion will recognize this as a revenue problem. The company has been growing revenue by adding unprofitable accounts. Many of the newly acquired small and medium-sized accounts have the same order fulfillment and customer service costs as larger accounts, but do not generate an adequate volume and are therefore, unprofitable to service under the existing business model. Additionally, smaller businesses often make a large number of smaller orders. Rationalizing the client list or offering a reduced level of service to small and medium-sized clients can yield immediate gains in profitability. Candidates should offer creative solutions to servicing smaller clients profitably.

Kellogg
J.L. Kellogg Graduate School of Management Northwestern University 2001 Sheridan Road Evanston, Illinois 60208-2001 Facsimile: 847-467-4077

Consulting Club

Andersen Consulting - Strategic Services

Cosmetics Case
Situation: BeautyAsia (BA) is a health and beauty consumer products company headquartered in Malaysia. It manufactures and sells a line of cosmetic products ideally suited for the Malaysian marketplace. Although it has been a successful company for over twenty years, it has been losing money for the past two years and its market share has declined. The CEO has asked you to assist in diagnosing the problem and generating a few possible solutions.

Question: What should BeautyAsia do to restore its profitability?

Suggested Frameworks: Given the clients decline in market share, the 3Cs model (i.e., Competition, Competencies, Customers) is an effective framework. Key Facts (to be shared as the case progresses): Company Market share declined from 90% to 60% in the past two years. Manufacturing is excellent Inventory management systems are unsophisticated and ineffective, resulting in excess inventory and order fulfillment problems Brands are widely recognized throughout Malaysia No new products have been launched in the past eight years BA sells its health and beauty products primarily through local mom and pop shops (i.e., convenience stores)

Kellogg Consulting Club Co-Chairs, 1998 - 1999

Deven Billimoria Pepe Cafferata Allyson Hodgins Janet Morrison

d-billimoria@nwu.edu j-cafferata@nwu.edu hodgins@nwu.edu bretkim@nwu.edu j-morrison@nwu.edu a-

Bret Kim

Management considered selling its current products outside Malaysia, but has been distracted by problems in its home country

Competitors Several large multinational manufacturers have entered the market Competitors have flooded the market with new products Multinational competitors sell their products through supermarkets

Consumers As a result of multinational competitors entering the market, consumers have been exposed to new types of products and their health and beauty product tastes have become broadened and become more sophisticated

Products BA has multiple product lines ranging from lipstick to skin creams BAs products appeal to price-conscious consumers The health and beauty products industry is growing approximately 15% per year

Channels BA products are currently sold through small proprietary shops Supermarkets are becoming increasingly popular in Malaysia Supermarkets have high order fulfillment and stocking requirements

Good Conclusions: Multinational competitors are creating a new distribution channel for health and beauty products. The channel shift is causing BA to lose market share. BA needs to update its inventory systems to compete in the new channel and reduce its costs. Competitors are driving changes in consumer tastes toward greater product variety and quality. BA has not kept pace with new product introductions. BA needs to improve its marketing/market research.

Excellent Conclusions: BAs manufacturing expertise gives it an opportunity to sell high quality private

Kellogg
J.L. Kellogg Graduate School of Management Northwestern University 2001 Sheridan Road Evanston, Illinois 60208-2001 Facsimile: 847-467-4077

Consulting Club

label products at a discount to current prices in the supermarkets. There is danger in challenging multinational competitors by offering a wider assortment of products in the supermarket channel. Alternatives for BA include: strengthening its position in the local shop channel; focusing on profitable customer niches (premium, low price, etc.); targeting only certain product categories like lipstick and blush for distribution through supermarkets. The cost to BA of regaining its lost market share is extremely high. BA may be better off preventing further loss in market share and focusing on improving its current profitability instead

Kellogg Consulting Club Co-Chairs, 1998 - 1999

Deven Billimoria Pepe Cafferata Allyson Hodgins Janet Morrison

d-billimoria@nwu.edu j-cafferata@nwu.edu hodgins@nwu.edu bretkim@nwu.edu j-morrison@nwu.edu a-

Bret Kim