Which framework should one use for the following case:
Case question: “Due to quality issues, a cereal manufacturer had to recall $20 million worth of products. Management does not want the 20 million loss to show on their Profit and Loss statement. They have to save the money somehow. How would you approach this? what questions would you ask?”
I have read through your slides but I dont quite get it . Please correct me if I am wrong ? should I use your profit model ? where I break down profit and cost etc..so the solution would be to find out where cost was the highest and cut cost down from there , so that the 20 million lost would not show up ?
I would probably start with the Profit framework and say there are two options for compensating for the unexpected expense. They could increase sales or reduce costs.
Then I’d ask, is attempting to increase sales an option in this scenario? Or is the client only want to focus on cost savings opportunities?
It’s good to be thorough here and not assume too much.
The interviewer will probably steer you to costs, and I think I would either use the standard cost break down – fixed vs. variable, or I might do a little twist to the cost portion of the framework and split the costs into:
1) Recall costs
2) Other operating costs
And further break down other operating costs most likely into fixed vs. variable.
So this is just a little adjustment to the framework that I made up on the fly. And its possible the interviewer deliberates wants to focus on recall costs or deliberately wants you to assume you can’t change it.
Again, it’s good to be thorough and not assume one way or the other.