Scenario Based Case Study

Brief for the 2007 KPMG Strategy Scenario
The scenario is that you have been appointed as consultants to a small family owned bus company to advise them on their strategy. The data available to you includes the case study scenario plus 2007 Route Data, Market shares and a Route map. These equip you with data to help you analyse the situation, identify the issues, develop options and make a recommendation. See guidelines provided in Lecture 8. The problem you are presented with is a real one – over the last few years we have undertaken numerous studies of this nature for clients operating in the deregulated environment of public transport. Clearly the exercise here has been developed for you, but the micro-situations represented within it have all been encountered by us during recent assignments for real clients. Read the documents carefully and start to think through how you will address the exercise and what supplementary research you may need to undertake. As is always the case with such assignments, some data is missing – we have to make our own assumptions and justify them. You may wish to acquaint yourself with the sector by conducting some research within the UK business press. You will be asked to make a presentation of your analysis to the family and the company’s Directors. They have asked a number of consultancies to do this and will select a team to take on the implementation of their proposal. Your objective is to win that contract. We will schedule an evening slot in the near future when teams can ask Ian and I questions and perhaps kick around any ideas you have had.

UEL Case Study Better Buses & Coaches Background • Better Buses & Coaches is a long established family business operating a mix of buses and coaches on regular local service work (buses) and schools, day trips and private hire (coaches). The family are well known in the home town, and the business is affectionately regarded and has attracted a high level of customer loyalty over the years. The business has operated at a small profit for many years, with a loyal local customer base for its bus and coach operations. It has pursued conservative policies – unchanged timetables, cheap fares, and settled for a relatively low level of profitability, sustainable for a family business. However, the family see problems looming ahead. They have noted that neighbouring bus companies have invested more regularly and have more modern fleets. They need to modernise the bus fleet to provide an equivalent service to other businesses in the area. Increases in staff and fuel costs have eroded profitability, and although there are reserves of £1 million that could be invested in the fleet and business, this number has not increased for three years. A further specific threat has been the rumour that the Head of one of the three schools they serve is thinking of taking his private hire business, about 80 trips a year, away and handing it to another operator who has offered better vehicles.

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The Task • Better Buses and Coaches is not used to employing Consultants but the family has decided it needs help turn round its fortunes and decide its future strategy. The family does not want to close or sell the business, as there are future generations growing up who want to carry on the tradition of providing the service to the local community. However, it realises that it may have to make some radical changes. Your consultancy has been employed to analyse the situation of the business in detail and to present recommendations to the Board on future strategy. You have been provided with a certain amount of data, which is set out on the attached pages. This is incomplete, and you will need to independently research or ask for additional information you need. You will have the opportunity to meet with one of the Directors part way through the exercise to ask questions, and at the end of the work you are required to deliver a presentation of your proposals to the Directors of the company. This must be no more than 15 minutes long, supported by Power Point slides and a written Executive Summary of no more than one side of A4 in length.

Business Profile Bus Operations • Three local bus services are operated, from the base at A to B, C and D respectively. Sample timetables have been provided – the standard times past each hour are repeated throughout each day for the length of the traffic day specified. The business has a fleet of 12 buses, all of which are owned. They are not of the latest low floor design. They were purchase in three batches of four in three consecutive years – the three batches are 4, 5 and 6 years old. All buses cost £80,000 each and are depreciated over 8 years. The latest new generation low floor buses cost £120,000 each, or can be leased for £2,000 per month. Two year old second hand low floor buses of good quality are currently available on the market at £98,000 each. A sheet has been attached which provides some base data on the bus operations. Direct costs are shown for each route, as are the indirect costs (overheads), which have been allocated proportionately to the vehicles working each route. The fleet includes two spares – their costs have been allocated to route 1. The main trunk route is profitable but in need of investment. The two local services are not paying their way but they provide an essential link for the communities concerned. They are the only services available to residents of C and D, and the family earns considerable goodwill by continuing to operate them. This also feeds through to the coach business when local groups want to hire vehicles.

Coach Operations • • • The business has six coaches, all of which are owned. The company has three school contracts, which employ four mid life coaches (one is the spare) and three drivers. The school contracts each earn £225 per day for a 10 mile run in the morning and the return in the afternoon. The Council has not increased the price for 2 years. The coaches also undertake about 250 short private hire trips per year in total, typically 100 miles per trip earning about £350 per trip. The school coaches are currently 12 years old, cost £60,000 each and are depreciated over 5 years. Their current value is £36,000 each. Maintenance and fuel costs are equivalent to the buses. The drivers are paid £8.50 per hour for a guaranteed 40 hour week The other two coaches are luxury vehicles which cost £200,000 each new. They are both 2 years old and are depreciated over 10 years. Altogether, they work for 500 days a year on upmarket private hire, tours and trips, earning on average £500 per worked day per coach.

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Two drivers are allocated to each coach, working separately or together depending on hours requirements. The drivers are paid £10 per hour for a guaranteed 50 hour week. Maintenance and fuel costs are again equivalent to the buses. A well known holiday business has offered the company a contract for two year’s tour work for one of the coaches which it needs to decide whether to accept. You are required to advise as part of your remit. The offer is £475 per day for 300 days guaranteed work in the first year, rising to £525 per day in year 2. Two drivers will have to be allocated, and the mileage averages 250 per day. Overheads are spread evenly across the bus and coach businesses. School coach drivers can cover for some local tour work, although they would not be allowed to work for the holiday company. Overtime and associated costs are included in the overhead.

Better Buses & Coaches Sample from Bus Timetables Route 1 Bus No A, depart B, arrive B, depart A, arrive Route 2 Bus No A, depart C, arrive C, depart A, arrive Route 3 Bus No A, depart D, arrive D, depart A, arrive (operates 0600-2300 ex A Mon-Sat, 0800-2300 ex A Sunday) 1 1000 1040 1100 1140 2 1015 1055 1115 1155 3 1030 1110 1130 1210 4 1045 1125 1145 1225 5 1100 1140 1200 1240 6 1115 1155 1215 1255 7 1130 1210 1230 1310 1 1145 1225 1245 1325 2 1200 1240 1300 1340 3 1215 1255 1315 1355

(operates 0610 -2210 ex A Mon-Sat, 0810-2210 ex A Sunday) 8 1010 1024 1030 1044 8 1110 1124 1130 1144 8 1210 1224 1230 1244 8 1310 1324 1330 1344 8 1410 1424 1430 1444

(operates 0620-2250 ex A Mon-Sat, 0820-2250 ex A Sunday) 9 1020 1032 1048 1100 10 1050 1102 1118 1130 9 1120 1132 1148 1200 10 1150 1202 1218 1230 9 1220 1232 1248 1300 10 1250 1302 1318 1330

Services operate throughout the day and week to these standard times

Better Buses & Coaches Bus Route Data Route Number of Buses Number of Drivers Trip Length (miles) Total Annual Miles Total Annual Trips Average Passengers per trip Average Fare Bus Costs Fuel & Tyre Costs Maintenance Costs Cost of Drivers Overheads, Admin, Supervision, Property, etc Total Costs Total Revenue Profit (Loss) Notes * = includes 2 spares 1 9* 25 10 462,620 46,262 25 £1.10 £90,000 £138,800 £36,000 £600,000 £180,000 £1,044,80 0 £1,272,20 5 £227,405 2 1 4 3.5 42,385 12,110 12 £0.90 £10,000 £12,717 £4,000 £96,000 £20,000 £142,717 £130,788 (£11,929) 3 2 8 3 72,660 24,220 10 £1.00 £20,000 £21,800 £8,000 £192,000 £40,000 £241,800 £242,200 £400

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