Perfect Written Answer, Felix Session 7, Helping the Department of Defence Reduce Costs Full Case, BCG, Profit Case

FULL CASE: DEPARTMENT OF DEFENCE COST REDUCTION FELIX, SESSION 7 Who is the client? What is a prime contractor?  Are there any other  objectives? When you say cost, I am assuming we should ignore the margin? How can the department of  defence cut costs from $9B to $8.1B ($900MM) in as short a time as possible?

Land and Buildings Labor  Fixed Costs 30% $2.7B

Equipment

Utilities 8.5% Labor 15% 0.95B Variable costs 70% $6.3B

Material 8.5% Components 38% $2.4B Subassemblies 30% 1.8B

Primary suppliers – 4 80% capacity Secondary suppliers – 28 20 % capacity

FULL CASE: DEPARTMENT OF DEFENCE COST REDUCTION  – BRAINSTORM HOW TO SOLVE THE AUDITING AND LICENSING PROBLEM TO RAISE OVERALL CAPACITY UTILIZATION FELIX, SESSION 7 The suppliers must produce “the”

product to spec

Let’s assume the

audit leads to a licence if the government is confident of the product quality. We therefore have to brainstorm ways to verify product quality. quality.

Continue audits

The suppliers must produce a proxy product to spec The suppliers must demonstrate ability to produce to spec

Discontinue audits

The auditors could review a comparable product

FULL CASE: DEPARTMENT OF DEFENCE COST REDUCTION  – BRAINSTORM THE BENEFITS OF CONSOLIDATING COMPONENT MANFACTURING FELIX, SESSION 7 Labor 

Redundant capacity Lets assume

Revenue

“consolidation”

implies bringing production to fewer  legal entities and reducing geographic distance as well, since we are talking about Europe

Cost

Fixed costs

Transportation costs

Variable costs

Efficiencies and learning curve costs

Procurement bulk purchases

FULL CASE: DEPARTMENT OF DEFENCE COST REDUCTION FELIX, SESSION 7

Labor 15% 0.95B

Core – all staff, technical and admin

Cut salaries immediately by 50% = $0.190B

Backup - all technical staff, 50% of 80% of all costs

Primary suppliers – 4, 80% capacity, capacity, 70% $1.7B

Primary suppliers – 4, 90% capacity, capacity, 100% $2.4B

Sec. suppliers – 28, 20 % capacity c apacity,, 30% $0.7B

Sec. suppliers – 28, 0 capacity

Save 10% on $2.4B due to better pricing for bulk purchasing and 5% on final volume production due to scale = $0.36B saving

Reassign 40% of  technical staff to admin and cut salaries Tech = 80%*$0.95B Tech = $0.76B 40% Tech = $0.3B Cut salaries by 40% = 40% * $0.3B = $0.121B Cutting Salaries: $0.19B Reassign Staff: $0.12B Reassign Prod: $0.36B Total = $0.67B