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This is an exercise in full-value procurement (FVP). FVP is a rationalization across business units of common purchases and services. The measure of an FVP is the amount of "spend" reduced, defined as the cost savings realized by reducing the number of sources from which common products/services are purchased. (This question, and questions like it that require advanced frameworks, are much more likely to be received by business school candidates and case interviewees with significant business experience than by undergraduates with no business experience.)
In this case interview, your interviewer will impersonate the client. Case interviews often take this kind of role-playing form (which can be fun!).
You: What is your revenue level on an annual basis like?
Interviewer: In 2003 our revenues were $1.2 billion. (These seem to be the revenues of a prosperous regional bank, not a bulge bracket.)
You: What are the common items and services that all business units use? Do you have common office suppliers or housekeeping services?
Interviewer: Well, obviously we have most common office products shared across all our functions. We also have cleaning services for our corporate headquarters, our printing center, and our retail locations.
You: How many vendors provide similar products and services to the bank?
Interviewer: We buy office products from OfficeMax's corporate services in Indiana, Avery Dennison corporate services in California, and someone else, the name of which escapes me right now, for the retail banks. Also, I believe we contract regionally for housekeeping services.
You: Is consolidating branch offices or reducing ATM counts a possibility?
Interviewer: Not at this time. In fact, we're planning to expand in three different states.
You: Are your cost concerns the result of an impending merger? (Perhaps the interviewer has deliberately left out an important piece of information - the bank has undergone, or is planning, a merger or acquisition of another bank that might drive up costs.)
Interviewer: No, our growth is organic, not through acquisition. (Looks like this is a dead end. Time to move on to other considerations.)
You: Have you considered outsourcing non-critical business tasks?
Interviewer: What kind do you suggest? (Your interviewer is probing to see if you can name the kind of services a bank might successfully outsource.)
You: Well, what about information systems, call centers and customers service, bill collection, document handling, those kind of things?
Interviewer: Oh, no. That's not possible. (Remember that this is a role play. This seems a bit uncommunicative for a reasonable suggestion; you should probe a bit further. Businesses aren't always entirely reasonable in their actions!)
You: Can you explain your objections?
Interviewer: Don't you think outsourcing those processes is extreme? We're a bank, and we have a lot of confidential information on both paper and electronic media. Our integrity would be put at risk if we let others manage our internal functions.
You: Well, sir, I understand your objections. However, many major corporations use organizations that centralize activities like copy centers and conference planning, all of which also have trade secrets and confidential information.
Interviewer: That sounds interesting, and I'd like more information. (Your interviewer graciously acknowledges the wisdom of your suggestions.) But can you give me a concrete suggestion my supervisor will like?
You: (Time to return to a less controversial aspect.) What would you estimate your spending to be for things like office products?
Interviewer: I estimate about $100 million on office products, corporation wide, in 2003, though you'd have to talk to our operations people, of course.
You: I think, based on your information, that there are ample opportunities for cost savings that I can identify right now. Reducing your vendors down to one or two will allow you to use economies of scale to extract cost savings. Outsourcing promises even greater savings.
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