Case Prompt:

A cardboard manufacturer with two plants, Plant A and Plant B, has provided data on their sales, costs, and profits. The interviewer asks what the data tells and how to improve the performance of Plant A to similar levels as Plant B.


Exhibit:

Plant A
Sales: $45,000 (ë000)
Cost of Paper: 65%
Other Goods: 6%
Labour: 18%
Other Manufacturing: 6%
Depreciation: 3%
Profit: 2%

Plant B
Sales: $75,000 (ë000)
Cost of Paper: 63%
Other Goods: 5%
Labour: 13%
Other Manufacturing: 5%
Depreciation: 3%
Profit: 11%


Background: 
The cardboard manufacturer produces cardboard boxes for packaging, and both plants are in Benelux, owned and operated by a central HQ division. Each plant manages its own sales and customers and has completely delegated authority, making each plant its own profit centre. The two plants have similar processes and equipment, and the average salary in each plant is $45,000. Plant A has 15% of the workforce in sales, 35% in full-time employees, and 50% in operators, with low morale. Plant B has 35 salespeople and different customer mixes. Plant A's customers have poor demand forecasting, resulting in lower production runs and a need for more labour-intensive steps.

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Analysis: 
The data shows that Plant B has better sales, lower costs, and higher profits than Plant A. To improve the performance of Plant A, we need to reduce labour from 18% to 13%, which is a 6% reduction of around $2.3M.
To achieve this reduction, we can lay off 10 sales staff in Plant A, given that each salesperson in Plant B sells approximately $2M of product, and if Plant A's salespeople did the same, we would only need 20 people. This would save around $450,000. Additionally, we could reduce the number of product changes in Plant A in line with Plant B, which would reduce labour costs by around $1M, as we could cut 10 shift operators and 14 full-time staff.


Moreover, improving morale could also save 10% of shift costs, which would save another $450,000. In total, these measures could save around $2M, which is the majority of the cost reduction needed to improve Plant A's performance to that of Plant B.