Grocery Gateway (Ivey 902D03): Questions to consider for analysis.

1. What is the supply chain strategy of the firm? What capabilities must the firm develop?
2. How much money, on average, can Grocery Gateway save by increasing the number of stops per
hour from 2.7 to 4 at the current demand volumes? Assume the shift times are as described in the
case.
3. What are the pros and cons of the 3 options suggested by Dominique?
4. Is the business model sustainable?
a. How should Grocery Gateway think about its fleet-size? Make any suitable assumptions
about demand distributions.
b. How should Grocery Gateway decide on which geographic areas to serve? How much
demand to serve in each area?
c. What happens if profit margins fall/increase?
d. What happens as demand scales up? Does Grocery Gateway have enough number of
trucks? How should it decide on an appropriate fleet size?
e. What are potential issues of meeting delivery time windows?

For analyzing the sustainability of the business model (questions 4.a – 4.c), you may want to set up an
optimization model if it helps. For your analysis, consider the following data:

a) Suppose the new plant depreciates over 20 years with a salvage value of $1 Million.
b) Suppose a truck costs $50,000 and has a useful life of 5 years with no salvage at the end of 5
years.
c) When the trucks are being used, let the variable cost/hour/truck be $30.
d) Assume trucks operate for 2 shifts (7 hrs delivering orders + 1.5 hours of stem time and set-up
time) in the day.
e) Assume demand in each geography is equally split across the two shifts on each day.
f) Assume variable cost/order (COGS as percentage of the average revenue – not including
distribution costs) be 85%.
g) Assume there are 360 working days in the year.
h) To keep the analysis simple, assume in any given shift orders across different geographies are
not delivered on the same trip, e.g., a truck delivering orders in North York region will NOT
deliver orders in Vaughan or Richmond Hill or Brampton regions.
i) For the analysis on fleet size determination (question 4.d), assume daily demand for each
geography follows a Normal distribution, and the daily demand data given in Exhibit 2 is
representative of a typical week.
j) Assume, demand across geographies is independent on any given day. Within each day, assume
demand across days are independent and identically distributed.

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