Kirana Connect operates in retail tech across India. It buys a critical input worth ₹167 Cr a year from 4 suppliers, who earn an estimated 19% margin on it.
The strategy team argues the company should build its own plant: ₹438 Cr of capital and ₹22 Cr a year of fixed cost, running economically only above about 67% utilisation.
The CEO's case is that the supplier margin is "our money". The COO points out the company has never run a plant of this kind, and that demand for the end product has swung by more than 20% in each of the last three years.
Advise the board. Your answer should provide:
State any assumptions you make.
80 points, 60% to pass.
Size the margin pool, subtract the fixed cost of owning it, then test against demand volatility and the utilisation threshold.