‘You have been approached by the CEO of a steel manufacturer, He feels that the costs last year ‘wore of transportation of steal in lst year was too high. He needs your help to figure out whether Inypothesisiscorract. to understand the business better. Where ‘There are two units, one in Jamshedpur and one in Orisa, although we are worried ebout the logistics cost for Jamshedpur pant. ‘What all products are transported by the Jamshedpur plat? The plant produces and transports two varieties of steel rade and one varity of nail. For transportation, packs of rods af a particular type are bound together. The nals with cumulative \Woight of Kg are kept inbox and transported, The sizeof the box relatively mal, ‘hat are the destinations? The client prety serves wholesales in four major matkets: Pune, Cheon, Deli and Kolkata, lsthe dient worried about the costs for any particular market? ‘No. The client fel that transportation costs are high forall the four markets, ‘Oh ok. So the problem i with transportation. the cost problem only with transportation or should |deWve int the entire value chain? ‘The problems only in transportation. 0k. Ihe transportation ovtsoureed? Good onel Yes, the transportation is outsourced to 2 local contractor who takes care of transportation to all the four destinations. He uses trucks for transportation and charges in par Km basis taking to and fro distance. Are diferent varieties of trucks used? Let's assumeall the trucks are simi, Gott, We can cvide the total cost for transportation of steel na year nto two parts: cost ger ruck, muttpled wrth numberof trucks plying in ayes Where should I delve nto fst? Let’ start with numberof truck plying ina year. spying ina year canbe broken down into: total volume inthe year divided by nd the resutant multiplied with capacity utilization, ‘The problem s wth cept utlzation. Current they are using only single vant in truck, wich can be rectied by comning the products in a single tru when necessary. Ok. Good. The cient aso baleves thatthe costper truck's high. How can you prove his hypothesis? the contractors inthe same local are or understand “The client fal that al the contractors ae cluding, (k. wil then understand the costing and margins. The various costing head are: deprecation of truck, depreciation o tres, diese, maintenance and toll cost. Maintenance can further bebroken into daly washing and regula servi Let’ tate the example of Let’ dee into the cacul The cstance between the two, forthe sake of calculation, is 1,000 km. now. Ina year, one truc makes 2Dtrps to Delhi. per years Re 3 Lag, and per In round trip2K Km are covered. Therefore, the dapracition ic Re Sper Km. 1g L0tyres ane each tyre costs Re 10K, wth atime of 20K km. Therefor, tyre dep in total, the cost ould be Rs 26 per Kn. ond, Butte problen i, the contractor is charging 8s 25/km, What could be the reason? Wow. The contractor night be serving another customer in Del Nice! Thank you, that wil ealYou have been approached by the CEO of a steel manufacturer. He feels that the costs last year were too high. Diagnose. Interviewee Case Facts | Approach/ Framework Notes | Observations/Tips/Suggestions + Tranzportation cor element shouldbe mathematically broken down into components to arrive atthe problem of low tization + Caleltion ofcoss through numerous assum ptons and then hypothesis for mismatch