Week 1. Profitability Case #3. Inspired by McKinsey. 2021.

Five Ladies

Q3. Drivers of high smallware costs

Based on benchmarking analysis, the client’s smallware costs (e.g. utensils, paper plates)
03 exceed similar expenses of other players. What might be the reasons behind it?

Higher unit price Larger volume

• Lack of consolidation in purchasing [volume discounts and
predictable order volume are the key drivers of lower purchase
prices]
– The stores purchase supplies individually
– The stores purchase supplies ad hoc, not in bulk
– There is no strategic long-term agreement with suppliers of
smallware
• More expensive types of smallware [might affect customer
experience and brand perception, so sensitivity analysis might
be required]
– The stores purchase more high-end items (e.g. silver
plastic utensils instead of regular plastic)
– The stores purchase more compostable or biodegradable
items
• Sub-optimal cost structure (e.g. high shipping costs for
smallware)
• Low quality supplier management [ad hoc supply vs mature
purchasing department with established supplier databases,
transparent tenders, group decisions and other best practices]
– The client doesn’t consider all the relevant suppliers
– The client doesn’t consider supply chains from low-cost
countries
Note: This is just one of many potential ways to brainstorm. Please treat this example only as a reference point and develop your own style. [The candi-
date is usually expected to generate at least 4 ideas. The best practice is 7-8 ideas, structured approach, and on-the-fly delivery without taking notes]
• Not ideal operational processes [streamlining processes
might usually offer cost savings]
– Higher waste of smallware during regular operations
– Lack of process standardization of providing smallware
to customers (e.g. smallware is included with the meal
even if customers don’t need it)
– Low compliance with the processes mentioned above
– Smallware is available at self-service in-store stations
which leads to excessive usage of smallware
• Other volume drivers [business model itself might be
smallware heavy]
– Menu consists of more meals that require smallware
(e.g. salads require containers and utensils vs burgers
don’t)
– Different customer preferences (e.g. sit-down vs to-go)

© 2021 Peter K. More at Peter-K.org | 44

Week 1. Profitability Case #3. Inspired by McKinsey. 2021. Five Ladies

Q3. Make sure the candidate follows these steps

• 80% of interviewers feel comfortable when candidates take 30-40
Step 1. Take seconds to think and write down their ideas before walking the
time or do interviewer through them
on-the-go • The best practice is to ideate on-the-fly

• The best practice is to structure brainstorming and offer a 10-second

Step 2. Do top-down overview, e.g. “I’d love to explore that. High total costs for
horizontal smallware is the function of volume and average unit price. So, let
presentation me think about the reasons for each of these two dimensions…”
(optional)

• Regular feedback from consulting firms is that candidates offer only

Step 3.
three ideas which is a bit on the lower end
Provide at • Push the candidate to provide at least 4 ideas
least 4 ideas • Top-5% of candidates can usually suggest 7-8 ideas

• To impress the interviewer, the candidates can contextualize some of

Step 4. Add their ideas
colors • Example are given in [] brackets on the previous slide
(optionally)

© 2021 Peter K. More at Peter-K.org | 45

Week 1. Profitability Case #3. Inspired by McKinsey. 2021. Five Ladies

Q4. Math exercise – prompt

The client is considering two options to reduce costs for utensils – renegotiate purchasing
04 prices or build own utensil production. What annual savings does each option offer?

Please share with the candidate Please provide this additional

the following information information only upon request

• A package of 500 items costs $10 for • Overall

spoons and $6 for forks – The client consumes 160M utensils
annually
• The client doesn’t offer other types of – Half of the utensils is spoons, and the
utensils – just spoons and forks other half is forks
• Option 1. Price renegotiation
• The potential investment in the own utensil – The client plans to reduce costs for
production is expected to by $10M utensils by 5% through renegotiation of
prices
• Option 2. Own production
– The cost reduction is forecasted at 50%

© 2021 Peter K. More at Peter-K.org | 46