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Case - Grocery Gateway by Vineet Agrawal Vineetpgdme115

1) Increasing stops per hour from 2.7 to 4 could save Grocery Gateway $38,160 per week in variable delivery costs based on current order volumes. 2) Dominique identified three options: increasing driver shifts, upgrading the route optimization software, or increasing delivery fees. Upgrading software for $250,000 could increase stops/hour and revenue/stop, and pay for itself within 6.5 weeks at current volumes or 1.5 months at target volumes. 3) In addition to Dominique's options, the author proposes increasing effective shift time, offering variable delivery fees, loyal customer incentives, and later delivery windows to further increase volumes and revenue. The author would present upgrading software

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91 views4 pages

Case - Grocery Gateway by Vineet Agrawal Vineetpgdme115

1) Increasing stops per hour from 2.7 to 4 could save Grocery Gateway $38,160 per week in variable delivery costs based on current order volumes. 2) Dominique identified three options: increasing driver shifts, upgrading the route optimization software, or increasing delivery fees. Upgrading software for $250,000 could increase stops/hour and revenue/stop, and pay for itself within 6.5 weeks at current volumes or 1.5 months at target volumes. 3) In addition to Dominique's options, the author proposes increasing effective shift time, offering variable delivery fees, loyal customer incentives, and later delivery windows to further increase volumes and revenue. The author would present upgrading software

Uploaded by

khushi kumari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Case - Grocery Gateway

By

Vineet Agrawal

VineetPGDME115

1. How much money can Grocery Gateway save by increasing the number of
stops per hour from 2.7 to four at the current volumes?
2. What are the pros and cons of the three options identified by Dominique?
What other options you would consider?
3. What action would you take and why? How would you sell your plan to Al
Sellery and Claude Germain?

Ans-1

The total amount of orders per week is 7,818

Avg Value of Order: $135

Hence Revenue earned: $1055430

Case 1: Present stops per hour: 2.7

Hence revenue earned per hour: 135x2.7= $364.5

The variable cost of drivers and trucks is $30 per hour. Since a driver only has 6.5 hrs
for delivery in its shift, the number of orders delivered taking 6.5 hrs into consideration
comes as 6.5 * 2.7 = 17 .55 orders or effective 17 orders per shift of 8 hours.

So, for delivering 7818 orders for the current week,

No of shifts required: 7818/17= 459.8 or 460 Shifts

So the variable cost of delivering 7818 orders @ 2.7 SPH=460x30x8= $110400

Case 2: Present stops per hour: 4.0

Hence revenue earned per hour: 135x4.0= $540


The variable cost of drivers and trucks is $30 per hour. Since a driver only has 6.5 hrs
for delivery in its shift, the number of orders delivered taking 6.5 hrs into consideration
comes as 6.5 * 4 = 26 orders per shift of 8 hours.

So, keeping present volume same as 7818 for the current week,

No of shifts required: 7818/26= 300.69 or 301 Shifts

So the variable cost of delivering 7818 orders @ 2.7 SPH=301x30x8= $72240

Net saving= Variable cost of case1-variable cost of case2

=110400-72240

=$38160

Ans 2: The key objective of Grocery Gateway was to achieve 4 stops/hr and to reduce
delivery time from 90 min to 30 min. In order to achieve these objectives, Dominique
identified three options-

i) Increase per shift period of driver from 8 hrs to say 9 or 10 hrs.

Pros: No of Orders shall increase thereby revenue shall also increase.

Cons: To execute this plan, Dominique would need a plan to replenish the
trucks as well as ensure the high level of service the GG’s customer base had
been accustomed to. Efficiency of drivers may go down. No change in Stops
per hour

ii) To upgrade RIMMS route optimization software from M/s Descartes to


include a new feature that will analyse route profitability and desirability of
delivery in particular time slots.

Pros: Route profitability and desirability of delivery in particular time slots.


Stops per hour as well as revenue per stop shall increase.

Cons: This would cost heavily to the tune of $250000.

iii) To increase delivery charge from present value $ 8 per order.


Pros: As GG’s customers were attracted to the convenience, hence charging a
slightly higher delivery charge might be a good trade off compared to
decreasing customer service levels. Attractive for customers placing orders for
more than $100.

Cons: According to the Gateway's policy, the minimum order should be no


less than $60 and the delivery fee is $8. It is high enough price for delivery so
I think that the increase in the delivery fee could lead to loss of customers.
Especially if customers take small orders, less than $100, they will pay more
fees for each delivery. Hence small customers ordering less than $100 might
be switched over to other companies.

I would go for option 2 as it will lead to increase in stops per hour as well as
increase in total no of orders. Hence it will lead to increase in contribution.
Also, if no of stops increases to 4 keeping total volume same, the extra
revenue generated shall be $38160. Hence cost of extra investment $250000
shall be recovered in 6.5 weeks i.e. close to one and half months.

And if volume reaches @ 5000 orders per day or 35000 orders per week as
per target, the revenue generated shall be $4725000.

No of shifts required: 35000/26= 1346 Shifts

So the variable cost of delivering 35000 orders @ 4.0 SPH=1346x30x8=


$323040

Net saving= revenue-Var cost

=4725000-323040

=$4401960 which is multitimes the capital cost of software.

Other Options to be considered by me:

1. Increase the effective shift period from 6.5 hrs to 7.0 hrs by
decreasing set up time, stem time and return time of driver. This will
increase no of stops per hour.

2. By offering variable delivery charges eg zero charges to the near by


customers to max $10 residing at boundary of GTA., hence increasing
customer base. That will resultantly increase no of orders , hence
revenue.

3. Offering loyal customer incentive for repeat orders within a month or


week basis.

4. Delivery window may be extended upto 1200 AM keeping the


requirements of late night home comers and late city life enjoyers.

5. Some double decker Trucks or high capacity trucks may be employed


to take care peak demand as well as to avoid replenishment of totes.

Ans 3: I will basically focus on option 2 given by Dominique with all my 5


recommendations and present them to CEO as well as COO as per the
explanations given above to meet GG’s target to achieve 4 stops/hr and to
reduce delivery time from 90 min to 30 min.

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