Cost Reduction Framework for Case Interviews

Cost reduction cases ask where a company can cut costs without breaking what makes it work. The common mistake is going straight for the biggest expense line without asking whether cutting it is actually safe.

The four branches

• Cost of goods sold — direct materials (procurement, waste) and direct labor (productivity, rate): the costs tied directly to producing what the company sells.
• Operating expenses — overhead and admin (headcount, facilities) and sales & marketing (acquisition cost, channel efficiency): the costs of running the business around production.
• Process efficiency — automation and process simplification, plus supply chain (supplier consolidation, logistics): reducing cost through how the work gets done, not just what's purchased.
• Strategic trade-offs — make-vs-buy decisions (outsourcing, vertical integration) and the risk of cuts (impact on quality, service, or growth): the check on whether a proposed cut is worth its side effects.

These four are MECE: COGS and opex account for essentially all direct spending, process efficiency is a distinct lever on how that spending is executed, and strategic trade-offs is the cross-cutting check that keeps the other three from recommending a cut that costs more than it saves.

Why the trade-offs branch is the one people skip

It's easy to build a long list of costs and stop, treating "identify the cost" and "cut the cost" as the same thing. A strong cost reduction answer always closes the loop: for every cut proposed, what does it risk on quality, customer experience, or the company's ability to grow later?

A worked example

Case: A mid-sized retailer's margins have been shrinking for two years. Where can it cut costs?

• COGS: Direct materials are sourced from several small suppliers at above-market rates -- consolidating suppliers could meaningfully cut procurement costs.
• Opex: Store-level overhead has grown faster than revenue as the company opened new locations.
• Process efficiency: Manual inventory tracking is causing both waste and stockouts -- automation could address both.
• Trade-offs: Cutting store staff to reduce labor cost risks hurting the in-store experience the retailer competes on, so that lever needs to be weighed carefully against the others.

Conclusion: Prioritize supplier consolidation and inventory automation first -- both cut real cost with limited downside -- and treat staff reductions as a last resort given the risk to the customer experience.

Practice weighing cuts against their trade-offs, not just listing them

The skill is stress-testing each cut against what it risks, not producing a list of the largest expense lines. Practice case structuring on Meceify →