Practice cases: Latin America
Three full cases: doctor's offices in Mexican pharmacies, grain storage in Brazil, and water for a copper mine in Chile.
Key takeaways
- Worked case: Farmacias Xelumi: do the doctor's offices pay?
- Worked case: Cooperativa Solvereda: size the storage gap, then build a silo?
- Worked case: Minera Pircahue: where should a copper mine get its water?
Three full cases: doctor's offices in Mexican pharmacies, grain storage in Brazil, and water for a copper mine in Chile.
Cover the solution and run each case out loud, ideally with a partner playing the interviewer. Ask your own clarifying questions, state a hypothesis, build a structure, and do the math on paper before you look. Then compare your synthesis with the one given, and read the strong and weak candidate notes. Each case is labeled Starter, Standard, or Stretch.
Case 1: Farmacias Xelumi: do the doctor's offices pay?
Worked case
Starter: Farmacias Xelumi: do the doctor's offices pay?
The prompt
Farmacias Xelumi, a Mexican pharmacy chain, added a doctor's office next to 300 of its stores a year ago. Profit per store has not improved. The exhibit shows an average store before and after. Is the model working, and what should the chain do?
Difficulty: Starter. Format: interviewer-led, with an exhibit. Industry: Pharmacy retail and health. Region: Mexico. Interview length: about 25 minutes. The company is fictional and all figures are illustrative.
Clarifying questions, with the interviewer's answers
- What does the doctor's office offer?Answer: A general doctor sees patients next to the pharmacy for a low fee of MXN 50 per consultation.
- Who pays for the doctor and the room?Answer: The chain does, about MXN 90,000 a month per store, including the doctor's pay.
- Did anything else change?Answer: No. Ticket size and margins are the same as before.
A hypothesis to say out loud: The office brings consultation fees and extra prescriptions. My hypothesis is that too few patients fill their prescriptions in the store to cover the doctor's cost.
The structure
- Change in store profit = consultation fees + extra pharmacy margin - office cost
- Consultations and fees
- Key: Extra pharmacy tickets from prescriptions
- Cost of the doctor and the office
The exhibit
| Measure | Before | After |
|---|---|---|
| Consultations a month | 0 | 1,200 |
| Consultation fee (MXN) | 0 | 50 |
| Pharmacy tickets a month | 6,000 | 6,400 |
| Average ticket (MXN) | 250 | 250 |
| Gross margin on pharmacy sales (%) | 30 | 30 |
| Doctor and office cost (MXN a month) | 0 | 90,000 |
Working it through
1. Consultation revenue
1,200 consultations at MXN 50.
Consultation revenue (MXN a month):1,200 × 50 = 60,0002. Extra pharmacy margin
400 more tickets at MXN 250 and a 30 percent margin.
Extra pharmacy margin (MXN a month):(6,400 - 6,000) × 250 × 0.3 = 30,0003. Net effect
Fees plus extra margin, minus the MXN 90,000 cost.
Net effect (MXN a month):1,200 × 50 + (6,400 - 6,000) × 250 × 0.3 - 90,000 = 04. Share of consultations that bring a ticket
400 extra tickets from 1,200 consultations.
Share bringing a ticket (%):(6,400 - 6,000) ÷ 1,200 × 100 = 33.335. Margin per extra ticket
MXN 250 at a 30 percent margin.
Margin per ticket (MXN):250 × 0.3 = 756. Curveball: sending prescriptions to the counter
Interviewer: "A pilot sent prescriptions from the doctor straight to the pharmacy counter. In the pilot, half of all consultations led to an extra ticket."
Net effect with 50 percent capture (MXN a month):1,200 × 50 + 1,200 × 0.5 × 250 × 0.3 - 90,000 = 15,0007. Across 300 stores
For a year, in MXN million.
Gain across 300 stores (MXN million a year):300 × 15,000 × 12 ÷ 1,000,000 = 548. Consultations needed at 50 percent capture
Each consultation is then worth MXN 50 of fee plus half of MXN 75 of margin.
Break-even consultations a month:90,000 ÷ (50 + 0.5 × 75) = 1,029
What the exhibit shows
The office brings many consultations but only 400 extra tickets, so fees and extra margin just cover its cost.
The recommendation
The model breaks even today and can be made profitable. First, each store earns MXN 60,000 a month from fees and MXN 30,000 of extra pharmacy margin, which exactly matches the MXN 90,000 cost. Second, only one in three consultations leads to an extra ticket, so most prescriptions are filled somewhere else. Third, if half of consultations lead to a ticket, as in the pilot, each store gains about MXN 15,000 a month, or about MXN 54 million a year across 300 stores. Roll out direct sending of prescriptions to the counter, check that stock matches what the doctors prescribe, and close offices in stores that stay below about 1,030 consultations a month even with the higher capture.
Risks: Patients may feel pushed to buy in the store, which could hurt trust; Doctors may leave for better-paid jobs.
Next steps: Compare prescriptions written with tickets sold, by store; Roll out prescription sending in 30 stores and track capture for three months.
A strong candidate
Built the store's change in profit from three parts, found the weak link (prescription capture), and sized the fix across the chain.
A weak candidate
Said the offices do not work and should close, without seeing that they break even and could earn more.
Case 2: Cooperativa Solvereda: size the storage gap, then build a silo?
Worked case
Standard: Cooperativa Solvereda: size the storage gap, then build a silo?
The prompt
First, estimate how much grain storage is missing in the area around Cooperativa Solvereda, a farmers' cooperative in Brazil. Then: should the cooperative build a 100,000-tonne silo?
Difficulty: Standard. Format: market-sizing opener, then a business question. Industry: Agribusiness. Region: Brazil. Interview length: about 30 minutes. The company is fictional and all figures are illustrative.
Clarifying questions, with the interviewer's answers
- Which area and which crops?Answer: The area around the cooperative in the state of Mato Grosso. Farms there grow soybeans and then a second crop of corn in the same year, about 3 million tonnes of grain in total a year (illustrative).
- How much storage is there, and how much is needed?Answer: About 1.8 million tonnes. For this case, use a planning rule of storage equal to about 1.2 times the yearly harvest.
- What would a silo cost and earn?Answer: A 100,000-tonne silo costs about BRL 600 per tonne of capacity. Grain stored for about three months sells for about BRL 80 per tonne more than at harvest on average, storage costs BRL 20 per tonne, and members avoid about BRL 20 per tonne of extra freight cost at harvest time. The silo can be filled twice a year, once for each crop.
- How should I value it?Answer: The cooperative borrows at 14 percent a year. At 14 percent, BRL 1 a year for 20 years is worth about BRL 6.623 today.
A hypothesis to say out loud: Harvests have grown faster than storage, so my hypothesis is that the area is short of storage, and that a silo pays back well because it can be used for two crops a year.
The structure
- Size the gap, then value the silo
- Storage needed = harvest x 1.2; gap = needed - existing
- Benefit per tonne: later sale, avoided freight, storage cost
- Key: Two crops a year: payback and NPV
- How low the benefit can go
Working it through
1. Storage needed
1.2 times a 3 million tonne harvest, in million tonnes.
Storage needed (million tonnes):3 × 1.2 = 3.62. Storage gap
Needed minus the 1.8 million tonnes that exist.
Storage gap (million tonnes):3 × 1.2 - 1.8 = 1.83. Cost of the silo
100,000 tonnes at BRL 600, in BRL million.
Silo cost (BRL million):100,000 × 600 ÷ 1,000,000 = 604. Benefit per tonne stored
BRL 80 of higher price plus BRL 20 of avoided freight, minus BRL 20 of storage cost.
Benefit (BRL per tonne):80 + 20 - 20 = 805. Yearly benefit
Filled twice a year, in BRL million.
Yearly benefit (BRL million):2 × 100,000 × (80 + 20 - 20) ÷ 1,000,000 = 166. Payback
Silo cost divided by the yearly benefit.
Payback (years):100,000 × 600 ÷ (2 × 100,000 × (80 + 20 - 20)) = 3.757. NPV over 20 years
Yearly benefit times 6.623, minus the silo cost.
NPV (BRL million):2 × 100,000 × (80 + 20 - 20) ÷ 1,000,000 × 6.623 - 100,000 × 600 ÷ 1,000,000 = 45.978. Curveball: weak years
Interviewer: "The price gain after harvest varies a lot. In some years it is only BRL 20 per tonne. How low can the average benefit per tonne go before the silo stops paying?"
Break-even benefit (BRL per tonne):100,000 × 600 ÷ 6.623 ÷ (2 × 100,000) = 45.3
The recommendation
The area needs about 3.6 million tonnes of storage and has 1.8 million, a gap of about 1.8 million tonnes. The cooperative should build the silo. First, it costs BRL 60 million and brings about BRL 16 million a year, paying back in under 4 years, because it serves two crops a year. Second, even when borrowing at 14 percent, its value over 20 years is about BRL 46 million more than its cost. Third, it keeps paying as long as the average benefit stays above about BRL 45 per tonne, against BRL 80 expected; because storage and freight costs cancel each other out here, that means an average price gain after harvest of about BRL 45 per tonne. In a weak year the benefit is only about BRL 20 per tonne, so the cooperative should agree clear rules with members on when to store and sell, so the silo is well used every year.
Risks: Several weak years in a row would push the average benefit below break-even; Higher interest rates would lower the value of the silo.
Next steps: Survey members on how much grain they would store and when; Get quotes from two silo builders and check the site's road access.
A strong candidate
Sized the gap in clear steps, noticed that two crops a year double the silo's use, and found the break-even benefit to test the weak-year risk.
A weak candidate
Assumed one crop a year, found a payback of 7.5 years, and rejected the silo.
Case 3: Minera Pircahue: where should a copper mine get its water?
Worked case
Stretch: Minera Pircahue: where should a copper mine get its water?
The prompt
Minera Pircahue runs a copper mine in the Atacama Desert in northern Chile. It must cut its use of local groundwater by half within three years. Should it cut production, build its own desalination plant, or buy desalinated water?
Difficulty: Stretch. Format: candidate-led, with interviewer dialogue. Industry: Mining. Region: Chile. Interview length: about 40 minutes. The company is fictional and all figures are illustrative. Chilean mining companies usually report in US dollars, so all figures here are in USD.
Clarifying questions, with the interviewer's answers
- How much water does the mine use, and what must change?Answer: It processes 40 million tonnes of ore a year and uses about 0.5 cubic meters of water per tonne. A new permit condition requires it to replace half of that with water that does not come from the local aquifer within three years (illustrative).
- What does the mine earn?Answer: About 200,000 tonnes of copper a year. Use a copper price of USD 9,000 per tonne and a cash cost of USD 5,000 per tonne (illustrative).
- What are the water options?Answer: Build its own desalination plant and pipeline for USD 600 million, with running costs of about USD 2 per cubic meter; or buy desalinated water at USD 4.50 per cubic meter, with no upfront cost, from a supplier whose larger plant and pipeline serve several mines. Engineers also say that USD 150 million of water recycling equipment would cut use to 0.4 cubic meters per tonne.
- How should I compare costs over time?Answer: Use 15 years and 8 percent. At 8 percent, USD 1 a year for 15 years is worth about USD 8.56 today.
A hypothesis to say out loud: Cutting production would be very expensive, so the mine should replace the water. My hypothesis is that buying water is cheaper than building a plant, and that recycling can reduce how much it must buy.
The structure
- Compare the cost of each way to meet the water rule over 15 years
- Water to replace
- Option 1: cut production (lost margin)
- Key: Option 2: own plant; option 3: buy water
- Reduce the need first: recycling
- Price risk on bought water
Working it through
1. Water to replace
Candidate: "40 million tonnes at 0.5 cubic meters is 20 million cubic meters a year, and half must be replaced, in million cubic meters:"
Water to replace (million m3 a year):40 × 0.5 × 0.5 = 102. Cost of cutting production
Candidate: "If water limits output, half the copper goes, at USD 4,000 of margin per tonne, in USD million a year:"
Margin lost (USD million a year):200,000 × 0.5 × (9,000 - 5,000) ÷ 1,000,000 = 4003. Own plant over 15 years
Candidate: "USD 600 million, plus 10 million cubic meters a year at USD 2, times 8.56."
Cost of own plant (USD million, today's value):600 + 40 × 0.5 × 0.5 × 2 × 8.56 = 7714. Buying water over 15 years
Candidate: "10 million cubic meters a year at USD 4.50, times 8.56."
Cost of buying (USD million, today's value):40 × 0.5 × 0.5 × 4.5 × 8.56 = 3855. Water still needed after recycling
Candidate: "Recycling saves 0.1 cubic meters on each of 40 million tonnes, so the mine needs less new water."
New water needed (million m3 a year):40 × 0.5 × 0.5 - 40 × (0.5 - 0.4) = 66. Recycling plus buying over 15 years
Candidate: "USD 150 million, plus 6 million cubic meters a year at USD 4.50, times 8.56."
Cost of recycling and buying (USD million, today's value):150 + (40 × 0.5 × 0.5 - 40 × (0.5 - 0.4)) × 4.5 × 8.56 = 3817. Curveball: the water price rises 30 percent
Interviewer: "The supplier's price is linked to power prices. What if it rises 30 percent?" Candidate: "An own plant's running cost is also mostly power, so it would rise too. Buying all the water would cost:"
Cost of buying at the higher price (USD million):40 × 0.5 × 0.5 × 4.5 × 1.3 × 8.56 = 5018. Recycling plus buying at the higher price
Candidate: "With recycling, the mine buys less, so the rise hurts less."
Cost of recycling and buying at the higher price (USD million):150 + (40 × 0.5 × 0.5 - 40 × (0.5 - 0.4)) × 4.5 × 1.3 × 8.56 = 450
The recommendation
Do not cut production and do not build a plant; invest in recycling and buy the rest of the water on a long-term contract. First, cutting production by half would cost about USD 400 million of margin every year, far more than any water option. Second, over 15 years buying water costs about USD 385 million in today's money against about USD 771 million for an own plant, about half the cost. Third, recycling plus buying costs about USD 381 million, about the same as buying alone today, but it protects the mine if water prices rise: after a 30 percent rise it costs about USD 450 million, against about USD 501 million for buying only. Negotiate a contract of at least 15 years with a cap on price rises, and start the recycling project now, because it also lowers water use if production grows.
Risks: The supplier may not be able to deliver on time or at full volume; Recycling equipment may not reach 0.4 cubic meters per tonne.
Next steps: Ask two suppliers for 15-year offers with price caps; Run a recycling test on one processing line.
A strong candidate
Showed early that cutting production is far too costly, compared the water options over the same period, and used recycling to reduce price risk.
A weak candidate
Chose to build its own plant because "owning the water is safer," without comparing costs over time.
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and frameworks
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