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Bain Medium Profitability Operations Make vs Buy Decision

Instant coffee pod producer

#Comparison #Consumer Goods #Energy
ProHub Comment

This is a structured comparison case requiring candidates to evaluate whether Brew Co should accept a large hotel chain contract contingent on producing biodegradable pods. The case tests financial analysis (profitability calculations), strategic evaluation (market opportunity vs. operational complexity), risk assessment, and a critical make-versus-buy decision. Candidates must work through contract economics, volume assumptions, and implementation trade-offs.

Estimated Time 26 minutes
Difficulty Medium
Source PeterK
36 / 100
Brew Co produces instant coffee makers and coffee pods. A large hotel chain wants to have their machines in the rooms but would like to have biodegradable pods as a condition to the contract. Currently coffee pods of Brew Co aren’t biodegradable. Should Brew Co change their production process and accept the deal?

Clarifying Information

  1. Brew Co would want to have $1M in weekly profit from the deal
  2. A hotel chain is one of the top chains in the U.S. with 1,200 hotels in its network
  3. No information on other coffee pod makers bidding for this deal
  4. Brew Co is exploring both options: in-house and outsourced production for biodegradable pods
Mock Interview
Interviewer

Brew Co produces instant coffee makers and coffee pods. A large hotel chain wants to have their machines in the rooms but would like to have biodegradable pods as a condition to the contract. Currently coffee pods of Brew Co aren't biodegradable. Should Brew Co change their production process and accept the deal?

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
Practicing...
Score coming soon
Practice this case with AI Mock Interview

Brew Co faces a decision to enter a major hotel contract requiring biodegradable coffee pods. The case involves calculating expected weekly profits ($1.05M against a $1M target), evaluating strategic value, assessing operational and market risks, and choosing between in-house production ($40M capex, 6-month timeline, $1 variable cost per pod) versus outsourcing ($10M capex, 1-month timeline, $2.5 variable cost per pod). The analysis reveals the deal is financially viable but requires careful evaluation of operational complexity and supply chain efficiency.

Key Insights:

  1. Financial viability: Expected weekly profits of $1.05M meet the $1M target, driven by 168,000 occupied rooms, 135,000 coffee drinkers daily, and blended margins of $0.55 per pod
  2. Make-versus-buy analysis: In-house production offers better economics ($1 vs $2.5 variable cost) but requires 6-month implementation versus 1-month for outsourcing, creating a trade-off between cost efficiency and time-to-market
  3. Risk considerations: Key risks include revenue assumptions, quality control for biodegradable pods, potential hotel withdrawal, and operational complexity; the 5% margin to target ($1.05M vs $1M) leaves limited buffer for assumption changes
  4. Strategic value: Beyond direct pod sales, the contract provides brand awareness, customer acquisition opportunities, and potential for adjacency products, representing a significant market entry into the premium hotel segment