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Medium Operations Profitability

Erween Mills

#Manufacturing
ProHub Comment

This case tests the candidate's ability to diagnose profitability issues using cost analysis and supplier evaluation frameworks. The core challenge involves identifying root causes of declining profitability despite steady revenue, then recommending specific operational improvements with quantified financial returns.

Estimated Time 26 minutes
Difficulty Medium
Source Duke
10 / 100
Your client, Erween Mills, is a palm oil mill based out of Guatemala. The mill is facing profitability problems for the past couple of years. Erween Mills needs your help in identifying the root cause(s) and improving the mill’s profitability.

Clarifying Information

  1. What is a palm oil mill? A palm oil mill extracts crude oil from fresh palm fruit and then sells it in the commodity market.
  2. Industry/Competition information: the client competes with a nearby mill for palm fruit. The producer sells the fruit to the highest bidder.
  3. The mill has steady revenue, but capacity utilization has been decreasing YoY
  4. Product information: Palm Oil is edible vegetable oil. It trades as a commodity. Palm oil is the only product currently sold by the mill
  5. Value Chain/Revenue information: The mill buys fresh palm fruit from producers around the area, extracts the oil, and sells it in the commodity market.
  6. The mill is struggling financially and needs a solution ASAP.
Mock Interview
Interviewer

Your client, Erween Mills, is a palm oil mill based out of Guatemala. The mill is facing profitability problems for the past couple of years. Erween Mills needs your help in identifying the root cause(s) and improving the mill's profitability.

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

Erween Mills, a Guatemalan palm oil mill, faces declining profitability despite steady revenue. Analysis of operating expenses reveals raw material costs have tripled and machinery operations costs have doubled since 2018. The solution involves switching to a lower-cost supplier (Supplier D) and overhauling existing machinery rather than purchasing new equipment, both of which can be justified through ROI analysis.

Key Insights:

  1. Profitability pressure despite steady revenue indicates cost structure problems, not demand issues
  2. Raw material costs increased 3x and machinery costs 2x YoY, requiring investigation into supplier selection and operational efficiency
  3. Total cost analysis (including transportation, duties, VAT) reveals Supplier D optimal despite higher base price than alternatives
  4. Equipment overhaul (169% ROI over 3 years) outperforms new equipment purchase (119% ROI), demonstrating value of targeted capital efficiency
  5. Phased implementation (10-15% sourcing shift first) mitigates execution risks while testing supplier reliability