CraftsCo

Case interview

DRAFT

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Interviewer Guide: Case Overview INTERVIEWER USE
ONLY
CraftsCo
Background Other
• Industry: Key Concepts Tested
- Arts & Crafts, Retail distribution 1. Fixed/variable cost reduction
• Overview: 2. Scenario analysis
- What is the ideal warehouse footprint for the three newly 3. One-time costs and payback
merged companies?

High-Level Model Answer Level of Quantitative

1. Acknowledging that merging warehouses will yield savings is key. Content
Candidate should be able to discuss affect of lower fixed costs and more
efficient variable costs (BDPs) as key rationale to support merging.
2. Based on capacity and expansion, there are up to 5 end-state options (two
worth examining, three other to make MECE set). Two most attractive options
should be Ace Cakes expansion and H-Books expansion.
3. Identifying that critical savings levers are facilities and labor cost will show
nose for value. Facilities and labor savings can be calculated at $1.3M and
$2.0M for Ace Cakes versus $1.8M and $0.6M for H-Books. Can conclude Ace
Cakes as best option from this data.
4. Driving further than savings, candidate can compare onetime costs and
determine payback period of each option. More compelling argument for
Ace Cakes, as payback is 2.7 vs. 6.0 years for H-Books.
5. Discussion of qualitative advantages to merging warehouses would be
done by best candidates. Factors include: future scalability, lowered
complexity, increased customer service, likely timing of each migration (lower
at Ace Cakes).

CHI
2
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Case Interview
Case overview
HANDOUT

Situation • 3 arts & crafts companies, all in different states,

have recently been acquired by a private equity
fund to form CraftsCo.

Complication • The companies source products from the same

parts of the world and sell a very strong majority of
their products through the same retailers.
• Each company currently has its own independent
warehouses and distribution system.

Key questions • What is the ideal warehouse footprint for the newly
created company?
• What is the financial impact of the new system?
CHI 080923-INT-Case
Interview - 3
CraftsCo
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior- written
FINAL consent.
CraftsCo current warehouse footprint –
Size and utilization
HANDOUT

Capacity / utilization (SF)

1,250K

1,050
1,000 Open

750

500
Utilized
350 350

250 200
150

0
Ace Cakes Ace Cakes - EZ Stickers H-Books H-Books -
(3 WHs) Potential Potential
expansion expansion
Total SF
Current
1,050K 200K 350K 1,600K
Footprint (SF)

% utilized 86% 95% 60%

CHI 080923-INT-Case
Interview - 4
CraftsCo
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior- written
FINAL consent.
CraftsCo distribution cost
by company
HANDOUT

Distribution Center Cost

as a % of revenue

10%

8.0 7.8
8

6.3
6 Supplies

Transportation

4
Labor
2

Facilities cost
0
Ace Cakes EZ Stickers H-Books

Revenue $400M $120M $60M

CHI 080923-INT-Case
Interview - 5
CraftsCo
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior- written
FINAL consent.
Facilities cost and labor cost detail
by company HANDOUT

Facilities cost detail – CURRENT STATE Labor cost detail – CURRENT STATE

Facilities cost per SF Average annual wage

40
$13 12 $40K

10 30
30

8
6 20
20
5
4

10
3

0 0
Ace EZ H-Books Ace EZ H-Books
Cakes Stickers (MO) Cakes Stickers
(I L) ( NJ )

Employees per
Size (SF) 1,050K 200K 350K 0.8 1.5 2.0
$M revenue

Facilities cost $6.3M $2.4M $1.4M Labor cost $12.8M $5.4M $2.4M
CHI 080923-INT-Case
Interview - 6
CraftsCo
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior- written
FINAL consent.
Expansion onetime costs
HANDOUT

Onetime buildout costs

$15M 14.3
Moving, training, etc.

IT
10.0
10

I nfrastructure &
equipment
5

Facilities
0
Ace Cakes H-Books
expansion expansion

SF 350K 150K

CHI 080923-INT-Case
Interview - 7
CraftsCo
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FINAL consent.
Bottom line
ANSWER SLIDE

Scenario 1 Scenario 2
Ace Cakes Expansion H-Books Expansion

One-time costs $10.0M $14.3M

Run-rate savings

Space $1.7M $1.8M

Labor $2.0M $0.6M

Total $3.7M $2.4M

Payback period 2.7 years 6.0 years

CHI 080923-INT-Case
Interview - 8
CraftsCo
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior- written
FINAL consent.
Interviewer Answer Key: INTERVIEWER USE
ONLY
Part 1
Set-up Key questions Model answer
• Show Handout 1: “Case • What is a good way to approach • Identify that we should investigate
Overview” this question? warehouse migrations, driven by cost
• To go on: What is our current elimination to increase profit.
warehouse footprint? • When probed, the candidate must be
able to lay out the key components of
profits and further identify a WH cost
reduction as having an impact on profit

• Show Handout 2: “Current • What are options for an end-state • Identify options (best would be MECE first
warehouse footprint” warehouse footprint? and then narrow to options to
• Walk the candidate through the investigate).
- MECE list of end-state options:
slide
 Continue “As-is” currently
- Types of space
 Utilized
 Combine one into Ace Cakes,
leave other as is
 Free
 Combine EZ Stickers into H-
 3PL Books expansion, leave Ace
 Potential Expansion Cakes as is
 Combine all into Ace Cakes
expansion
- To narrow down, would want to focus on last
two expansion options

• To go on: • what does the cost structure of each

warehouse look like?
- This will help us determine which option will
have largest savings impact

CHI
9
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Interviewer Answer Key: INTERVIEWER USE
ONLY
Part 2
Set-up Key questions Model answer
• Show Handout 3: “CraftsCo • Recalling what we have already • Facilities cost and labor are the key areas
distribution cost by seen, what could be driving cost to focus
company” differences? - Facilities cost could be driven by cost of land
in each location and also utilization (when
• Walk the candidate through the looking as a % of revenue)
slide - Labor cost could be driven by cost of labor by
- Major costs categories are: location and labor efficiency
Facilities
• We should definitely get out of EZ
Labor
Stickers warehouse, as cost structure is
- Other data given:
highest and we are at capacity
Revenue
Square Footage
• Which end-state option should we • Consolidating to Ace Cakes should have
Location
pursue? the largest cost savings, as its cost
structure is most efficient.
• What is likely driving the cost • Scale is the main factor driving this. Their
advantage of Ace Cakes? fixed costs are spread over more revenue
and their mgmt, etc can be leveraged.

• Show Handout 4: “Facilities • Quantify the savings implications • Labor:

and labor cost detail” of merging to Ace Cakes. - You would need 144 employees at Ace Cakes
expansion instead of 300 current state or 360
• Walk the candidate through the CHI at H-Books expansion. Versus the current
slide 10
state you could save $2.0M. You could only
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be reliedsave
on by $0.6M
any 3rd party without Bain's prior written
with H-Books expansion option. consent.
Interviewer Answer Key: INTERVIEWER USE
ONLY
Part 3
Set-up Key questions Model answer
• Rare level: Handout 5: • How do the onetime costs of • It makes a more compelling case
“Onetime costs” each expansion affect the for Ace Cakes Expansion, as cost is
answer? almost one-third lower.
• Discussion: What could be • It seems as though Ace Cakes is
driving the onetime cost more advanced and has likely
difference? already invested in its
infrastructure. H-Books lower
efficiency, as seen before, would
probably require implementing a
new system that would require
higher investment.

• What are the payback periods • The payback for Ace Cakes is 2.7
of each scenario? What does yrs. The payback for H-Books is 6.0
this imply? years. These figures imply that you
can recoup your investment on the
Ace Cakes move quicker, freeing up
cash to handle future growth
issues.
• Twists: No Handout • Which option would have a • Ace Cakes seems more tech-
quicker timeline? Why? advanced. It would likely be an
addition to their current system as
opposed to an overhaul.

CHI
11
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.