Problem 1

ABC retail is one of the largest retailers in India growing at a rate of over 40% CAGR during 2000 to 2008. It has
rolled out several formats and sells a wide variety of merchandise through its stores located across the country.
The company has warehouses at different locations across the country and the total number of warehouses is 39. Its
vendors supply the merchandise to the warehouses from which it is sent to stores. The company feels it’s
transportation costs are quite high and there is an opportunity to reduce costs. It has collected data related to
warehouse in Mumbai and wants to estimate the potential opportunity for reduction.
Following are the data related to the current transportation for Mumbai Warehouse:
• Every month 950 tons of merchandise is received at the warehouse.
• Of the 950 tons, 50% are from the suppliers who are located in and around Mumbai who are also called as
local vendors.
• It has got a rate contract with a transporter who provides both conventional and express transportation services.
He also offers dedicated trucks on a monthly rental basis.

450 T are brought through “Conventional” (slow transport) mode for which the cost is Rs. 1.35 per kg.

25 T are brought through “Express” for which the cost is Rs 4.5 per kg.
• Daily receipts at the warehouse ranges between 10 - 20 tonnes
• Number of shipments is 15 - 35 per day.
• There are about 200 local suppliers and:

8% of the suppliers ship more than 5 consignments per month

20% of the suppliers ship 3-5 consignments per month

72% of the suppliers ship 1-2 consignments per month.
One of the option, the company is looking is hiring a dedicated trucks on a monthly basis. Following are the data
for the same:

Monthly rent for 1 dedicated truck (LPT 709, 4.5 tonne payload) – Rs. 50,000. (Fuel cost up-to 4000 km
per month and the driver’s salary is included in the rent. Assume a truck can pick-up about 5 consignments
per day and there are 25 working days in a month).

Is the dedicated truck is a viable option. What do you think would be the potential savings through this method
and how do you implement it?

Problem 2

ABC Retail is looking at the opportunity of reducing the packaging costs. Following are the information related to
the current packaging process and costs:
• Packaging Costs for July to November 2007 was Rs. 1.1 crores. (Annual estimate for 2007-08 was Rs. 5
crores)
• Corrugated boxes (cartons) and BOPP tapes constitute 70% of the total packaging costs.
• Average number of cartons sent to the stores from all the warehouses every month was 80,000 to 1,20,000
units.
• The company try it’s best to use Vendor’s cartons (cartons in which the vendor’s merchandise has arrived) to
ship to stores. But even then, it purchases 30,000 to 40,000 units of new cartons every month and the cost of
each carton is Rs. 55. These cartons are not recyclable and can be used only once.
• The company is exploring the viability of buying recyclable plastic crates each of which costs Rs. 500. It can
be recycled 400 times over it’s life time.
• The company estimates it can use the plastic crates 10 times in a month.
• The company is using dedicated trucks between it’s warehouses and stores. So there will be no separate costs
for bringing back the plastic crates from the stores back to the warehouses.
The company is seriously looking at the reduction of the packaging costs as it estimates that based on it’s current
practices it has to spend about Rs. 14 crores in the next 3 years on just new cartons.
What is the best option before the company. How much the company should target to save?