How to Crush Your Operations Case Interview
You should expect to see at least one operations case interview in your upcoming consulting interviews. This is especially true if you are interviewing at firms that have a strong operations practice, such as McKinsey, BCG, Bain, Deloitte, Accenture, or Kearney.
Operations cases, also known as operations case study interviews, tend be much more quantitative and numerical than strategy cases. Expect to be working with a lot of numbers and performing a lot of math calculations.
There are four types of operations cases you may encounter in your consulting interviews:
- Production optimization cases
- Process improvement cases
- Cost cutting cases
- Forecasting and capacity planning cases
In this article, we’ll cover exactly how to solve each of these types of operations case interviews.
Production Optimization Cases
Production optimization cases will have you determine how to increase the output or production of a factory or powerplant.
Example: ExxonMobil is looking to expand its oil and natural gas production by 50% over the next five years. What is the best way to achieve this production increase?
To solve these cases, there are two formulas you should know:
- Output = Rate * Time
- Utilization = Output / Maximum Output
Output = Rate * Time
The output of production can be calculated by taking the rate of production and multiplying it by time.
Example: The machine that your company uses to produce shirts can produce 5 shirts per hour. If the machine runs for 12 hours, then it will produce 60 shirts.
Utilization = Output / Maximum Output
Utilization represents how much a factory or machine is being used relative to its maximum possible output.
Example: The machine that your company uses to produce shirts can produce 5 shirts per hour. Therefore, its maximum capacity in a day is 5 shirts per hour * 24 hours = 120 shirts. If your machine is being used to only produce 60 shirts per day, then it is at 60 / 120 = 50% utilization.
There are five major steps to solve a production optimization case.
1. Identify and quantify the client’s goals
The first step is to determine the specific goals that the client has. Are they trying to increase production? Are they trying to improve efficiency?
Try to quantify an exact number or metric that the client is aiming for. This will help you determine if the recommendations that you develop later are sufficient to meet your client’s needs.
2. Consider ways to increase the rate of production
One way to increase production is to increase the rate of production. There are a few different ways to do this:
- Upgrade or improve existing equipment or machinery
- Remove factors that slow down existing equipment or machinery
- Use new technologies
- Use new production processes
Systematically consider each of these ideas before moving onto the next step.
3. Consider ways to increase utilization
The second way to increase production is to increase utilization. Check if the machines or equipment are being used to their maximum potential.
Are they being managed and operated every working hour? Are there bottlenecks that are preventing equipment or machines from being run on time?
4. Consider ways to add capacity
The third way to increase production is to add capacity. Consider scaling your operations by purchasing more equipment or machinery.
In general, you should only add capacity if you have already optimized the rate of production and utilization. You might not need to add more capacity to meet your production goals if you can improve the processes and equipment you already have.
5. Quantify the change in production
Once you have gone through the three different ways to increase production, you should have a list of actions you would suggest. Quantify the impact of these suggestions.
By how much will production increase? By how much will efficiency improve?
The final step is to check whether your recommendations meet the goals or needs of the client. If they do, you are ready to deliver your case recommendation.
State your recommendation and provide two to three reasons that support it. Afterwards, propose a few areas that you would want to look into next if you had more time to work on the case.
Process Improvement Cases
Process improvement cases ask you to identify opportunities to improve a particular process. They assess your ability to break down a complex process to identify and prioritize opportunities for improvement.
Example: Amazon is looking to improve the process in which it receives, handles, and ships customer online orders. How can they improve this process?
There are four main steps to solving these cases.
1. Identify the most important performance metrics
For the first step, decide or clarify with the interviewer what the performance metric of success is. Improving a process can mean many things, such as increasing throughput, quality, or efficiency.
2. Decompose the process into separate, distinct components
The second step is to break down the overall process into separate, distinct components. You will have to use your judgment and discretion to decide the best way to decompose the process.
A helpful way to think about components is to think about inputs and outputs. Each component has something that it is given, which is the input. From this, an action is performed to convert this to something else, which is the output.
3. Assess the people, process, and technology for each component
The third step is to assess the people, process, and technology for each component. This is known as the PPT framework.
- People: Do you have enough people in place? Do people have the right backgrounds and experiences? Are people properly trained and prepared? Are people being managed and motivated properly?
- Process: Are the right series of steps being performed? Should certain steps be added? Should others be removed?
- Technology: Is technology being used? Are the right technologies being used effectively?
4. Prioritize and recommend the most important improvements
For the fourth and final step, you will prioritize the most important improvements. Which improvements best improve the performance metric of success?
You may need to score and rank each of the opportunities you have identified to prioritize your ideas in a quantitative and defensible way. You can assess each improvement opportunity on the impact, ease of implementation, and cost.
Once you have selected your top ideas, deliver a clear and concise recommendation. State your recommendation and provide two to three reasons that support it. Propose a few next steps that you would look into if you had more time.
Cost Cutting Cases
Cost cutting cases ask you to help a client meet its budget goals by identifying opportunities to reduce costs or save money.
Example: Airbnb is looking to cut costs in order to increase profitability. In which areas should they cut costs and by how much?
There are five steps to solving any cost cutting case.
1. Quantify the client’s goals
The first step to solving any cost cutting case is to identify how much the client is looking to cut costs. Are they looking to reduce costs by $1M? $10M? $100M?
This will help you keep track of your progress throughout the case and help you prioritize which ideas to pursue.
2. Break down costs into its components
The next step is to break down costs into its respective components. Exactly how these costs are broken down will vary by case. For example, costs could be broken down into fixed costs and variable costs. They could also be broken down by geography, process, product, or function.
Ask the interviewer for the breakdown of costs that makes the most sense given the nature of the client’s business and operating model.
3. Identify the business-critical expenses
Next, identify the business-critical expenses. These are expenses that need to be paid or else the company cannot exist or operate.
You should not cut costs from business-critical expenses, so this step will help you narrow down where to focus your attention on.
4. Start looking at discretionary spending from largest to smallest
After removing the business-critical expenses from consideration, the remaining costs are discretionary spending. This type of spending is not necessary to keep the company afloat but helps to improve or grow the company.
These are the costs that you will focus on cutting because the company can still function and operate afterwards.
Start with the largest amount of discretionary spending and move downwards to the smaller amounts. For each cost element, consider what benefits they provide to the company and how these benefits compare to other benefits that other discretionary spending provides.
5. Prioritize cost cutting opportunities and provide a recommendation
Once you have systematically assessed all of the different discretionary spending elements that you could potentially reduce spending on, it is time to prioritize what to keep and what to cut.
Once you have narrowed down a few recommendations, check whether these changes will help the client meet their goals. If they do, provide your final recommendation for the case. Provide two to three reasons that support your recommendation and propose next steps you would look into if you had more time.
Forecasting and Capacity Planning Cases
Forecasting or capacity planning cases will have you help a company determine how much product to produce or how much inventory they should hold.
Example: Apple is planning to launch its new and latest version of its iPhone. How many iPhones should they produce this year?
There are four steps to solving any forecasting or capacity planning case.
1. Identify the client’s goals
The first step is to identify the client’s goals. Are they trying to maximize profit, revenues, market share, customer satisfaction, or something else?
The specific goal that the client has will heavily influence how you should think about determining the optimal level of production or inventory.
2. Estimate customer demand
The next step is to estimate customer demand for the product. There are many ways that you can do this:
- Use company historical data to predict upcoming demand
- Look at the demand curves of similar products
- Assess market and competitor trends
- Look at customer survey data on purchasing habits and spending
Your interviewer will likely have information in one of these areas. Use this data to predict what the expected customer demand will be.
3. Understand underage and overage costs
Next, you need to know the underage and overage costs that relate to carrying or producing too little or too much product.
Companies make trade-offs between carrying too much inventory and carrying too little.
The primary advantage of carrying too much inventory is that the company can meet customer demand if it is higher than expected.
However, there are several disadvantages to this. If customer demand is lower than expected, the company will be holding onto inventory that it cannot sell. This is costly because unsold products take up space in warehouses. These costs are known as storage costs.
Additionally, as time goes on, the company’s inventory may begin becoming obsolete. New products and technologies may make the company’s leftover products no longer desirable. As a result, companies may need to sell leftover products at a steep discount to clear their inventory.
The primary advantage of carrying too little inventory is that the company will not have leftover products. The company can ensure that none of the products they sell will need to be discounted and sold at a loss.
There are several disadvantages to this. If demand is higher than expected, not all customers will be able to purchase the company’s product. These are lost sales for the company.
Additionally, this can lead to a poor customer experience and unhappy customers. Some customers may even decide to purchase a similar product from a competitor. By having insufficient inventory, companies allow competitors to take customers and market share away from them.
Knowing how much overage and underage costs are will inform you whether to produce or carry more or less product than the expected customer demand.
4. Determine the optimal production or inventory level
Now that you understand customer demand, overage costs, and underage costs, you can make a well-informed decision on how much product to produce or carry in inventory.
You may need to set up an equation to calculate the optimal production or inventory level that maximizes profit, revenue, or whatever goal the client has.
Once you have determined the optimal number or range, deliver your final recommendation for the case. Provide two to three reasons that support your answer and propose potential next steps you would look into if you had more time.
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