chairco case
DESCRIPTION
Case InterviewTRANSCRIPT
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ChairCo – BCG Round 1
Our C
lient, ChairC
o manufactures m
etal parts* that are used to m
anufacture chairs. ChairC
o primarily
sells these parts to US
based chair manufacturers.
They are facing declining revenues and the CE
O has
asked us to evaluate the problem and suggest
corrective measures.
*Metal bases that are used in the revolving office
chairs.
�If the candidate asks, tell them
that there are no specific financial targets.
�G
ive the exhibits in the subsequent slides only w
hen the candidate asks for the relevant data.
Problem
statement narrative
Guidance for interview
er and inform
ation provided upon request
Difficulty: Easy
Industry: Manufacturing
Type: Profitability, O
perations, Chart Based
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Questions for the candidate
Additional Questions to Steer Discussion
After seeing E
xhibit 1, the candidate should make an observation that prices and volum
e are decreasing and both these issues need to be addressed. � W
hy did ChairC
o have to decrease prices? Because competition has decreased prices.
� Why did com
petition decrease prices? Because metal parts are a com
modity and they m
ight have a lower cost structure than us. � W
hy do you think our competitor has a low
er cost structure? Material and labor could be the tw
o m
ajor reasons. � W
hy is our client loosing unit sales despite decreasing price? Because their customers are
moving to low
cost countries.
� Can the client reduce costs? C
lient is already very efficient and cannot decrease their costs w
ithout shifting operations to China, Indonesia etc.
ChairCo – BCG Round 1
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�E
xhibit 1 – Volumes have decreased and so have prices ($10 to $9.5). A
sk candidate why he/she
thinks the price must have gone dow
n. The most logical answ
er should be that since this is a close to com
modity product, prices for the entire industry have fallen dow
n and ChairC
o had to respond. C
ompetitors m
ight have become m
ore cost competitive because their operations are
located outside US
.
�E
xhibit 2 - Com
petition has significant cost savings in material and labor. The m
ost logical reasons are that they are based in low
wage counties such as C
hina, Indonesia and that they are using an inferior/cheaper m
etal.
�E
xhibit 3 – ChairC
o customers are m
oving geographically away w
hich explains the drop in volum
e despite the drop in price.
Solution G
uide
Suggested Solution and Structure
ChairCo – BCG Round 1
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To become cost com
petitive and gain proximity to
customers (chair m
anufacturers), ChairC
o has to shift m
anufacturing to Asia.
Risk – dow
nsizing in US
will lead to a P
R
backlash.
Recom
mendation
�A
nalyze which country has low
cost base, high proxim
ity to customers and
low barriers (regulations, etc.) to set up
manufacturing.
Next S
teps
Conclusion
ChairCo – BCG Round 1
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Exhibit 1 – C
hairCo S
ales
$500 M
50M U
nits $380 M
40M
Units
20102011
ChairCo – BCG Round 1
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Exhibit 2 – C
hairCo V
s. Com
petitor cost
Cost S
tructure
ChairC
o C
ompetitor
Materials
4.9 2.5
Labor 2
1.5
Transportation 0.5
1.5
Tax 0
1
IT 0.5
0.6
Overhead
1.1 1
$1.5 $1.6
$7.5 $7.4
20102011
ChairC
o Costs
SG
AC
OG
S
ChairCo – BCG Round 1
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Exhibit 3 - M
anufacturers of Finished Chairs selling in U
S
5.0%
5.0%
5.0%
5.0%
5.0%
5.0%
80.0%
60.0%
40.0%
10.0%
30.0%
50.0%
20092010
2011
Europe
Canada
US
Asia
ChairCo – BCG Round 1