Allure Magazine to Close Printing Facility in Idaho

Case Type: operations strategy; reduce costs
Consulting Firm: ZS Associates first round summer internship job interview.
Industry Coverage: mass media, communications, publishing.

Case Interview Question #00633: Our client Allure is a U.S. women’s beauty and lifestyle magazine, published monthly by magazine publisher Conde Nast (a division of American media company Advance Publications) in New York City. As a national monthly magazine, Allure focuses on beauty, fashion, and women’s health. The magazine’s circulation, initially 250,000 in 1991, is over 1 million as of 2011.

Recently, Conde Nast, the publisher of Allure Magazine, wants to restructure its printing division. They currently have 2 facilities where they print their magazines and want to move to only one facility. Conde Nast has hired us to tell them if this is a good idea or not. How would you go about analyzing this case?

Additional Information: (to be given to candidate upon request)

• Total number of magazines they sell per month: 1 million
• Locations of the two printing facilities: one in Idaho and one in New Jersey
• Both facilities can accommodate the total number of magazines they need. They each currently print 50% of the total magazines.

Cost structure:

• Total Costs = $1.50/unit
• Fixed costs = $0.70/unit
• Moving to one facility would save 20% of the fixed costs
• The move would increase the distribution costs:
  • moving to New Jersey : by $0.04/unit
  • moving to Idaho: by $0.16/unit

Possible Answer:

Candidate: I have a question before going further with the case. What is the reason behind the magazine publisher’s decision to restructure the printing division?

Interviewer: the main reason is reduction of costs.

Candidate: OK. In order to assess the validity of their idea, I would start by looking into the cost structure of the company, specifically for the printing division. I would assess both the fixed and variable costs involved.

Then I would like to identify the cost savings that a consolidation of printing facilities would give to the company, and whether the company has the capability to do the consolidation both in terms of capacity or infrastructure involved by such a transition (distribution, operations, and feasibility of the move).

Finally, I would like to assess the risks involved (regulations, market situation, etc).

The interviewer should now direct the candidate to answer the following question: What will be the total cost per unit after the consolidation? What facility should they keep if at all?

Possible Solution:

Savings in the fixed costs: 20% * $0.70/unit = $0.14/unit
Increases in costs from distribution:

• New Jersey: -$0.04c/unit
• Idaho: -$0.16/unit

Total savings:

• New Jersey: $0.14 – $0.04 = $0.10/unit
• Idaho: $0.14 – $0.16 = -$0.02/unit

Therefore, they should choose the New Jersey facility.

The interviewer should then ask the following question: What are the risks involved in moving to only one printing facility?

Possible Solution:

• unemployment rate in New Jersey
• local regulations by state government
• operational cost: gas price
• delivery time
• cost of closing the other facility in Idaho
• cost of materials
• future increases in sales

A good candidate will make a final recommendation in the end, like

I suggest they close the Idaho printing facility because the New Jersey one offers them the best cost per unit. However, they need to understand that there are other things to consider when taking this decision as the ones I mentioned in the risks involved.