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BCG Medium Operations Make vs Buy Business Model Optimization

Snack food company

#Comparison #Consumer Goods #Retail Distribution

Practice this intermediate operations case interview question from BCG in the Comparison sector. Includes detailed problem prompt, clarifying questions, structured framework, and expert recommendation. Part of ProHub's 835+ consulting case library.

ProHub Comment

This is a classic make-vs-buy case requiring structured analysis of financial economics, operational capabilities, and strategic positioning. The candidate must compare outsourced distribution (20% commission) against in-house operations, using provided competitive benchmarking data to surface the cost disadvantage and build a financial model showing improvement potential despite short-term revenue decline.

Estimated Time 26 minutes
Difficulty Medium
Source PeterK
38 / 100
A snack food company hires a contractor to distribute their products (e.g. cookies, crackers). They would like to bring distribution in-house and hire full-time workers to distribute their products (i.e. put the products on the shelves in the stores). Should they switch to the other model?

Clarifying Information

  1. The contractor takes 20% commission
  2. The client has ambition to triple their sales in the near future
  3. Other players own the value chain and do distribution in-house
  4. The client is a large player, but not among top-5 companies
  5. The client has a national footprint
Mock Interview
Interviewer

A snack food company hires a contractor to distribute their products (e.g. cookies, crackers). They would like to bring distribution in-house and hire full-time workers to distribute their products (i.e. put the products on the shelves in the stores). Should they switch to the other model?

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
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Practice this case with AI Mock Interview

A snack food company must decide whether to transition from outsourced distribution (paying 20% commission to a contractor) to an in-house distribution model. Analysis reveals the client’s distribution costs (25% of revenue) significantly exceed competitors’ costs (15-16%), driven by both the high commission rate and lack of scale economies. Despite a projected 10% revenue decline during transition due to lack of expertise, the profit would increase due to cost savings, supporting a recommendation to transition while managing operational and financial risks.

Key Insights:

  1. Competitive benchmarking reveals the client pays materially more for distribution (25% vs 15-16% for competitors), indicating both a commission structure disadvantage and scale disadvantage
  2. Financial trade-off analysis: short-term revenue decline (10%) is offset by substantial cost reduction (from 25% to ~20% of sales), resulting in profit increase from $192k to $240k despite lower revenue
  3. Strategic value extends beyond economics—in-house distribution enables geographic expansion flexibility, operational innovation, and direct distributor relationships to support the growth ambition to triple sales
  4. Critical implementation risks include talent constraints, capability gaps, and operational complexity that require phased roadmap planning and potential renegotiation of contractor terms during transition