Prior month idle time = $3,600 85% reduction $11,050 per month Executive Project Approval Board Use Only Approval: Yes? No? Verified Benefits Amount: $11,050 per month in gross margin Data Collection Planning Sheet Be Answered Required (1) Question to (2) Name of Data (3) Operational Definition (4) Related Measures (5) Collection (Stratification) Plan Where: When: Who: How: Where: When: Who: How: Where: When: Who: How: Where: When: Who: How: PDI Project Proposal Worksheet Team Name: Margin Makers Project Title: Improve the PDI field operations process for package pickup and delivery. Problem Statement: PDI's gross margin is insufficient to sustain business operations and create growth. The current field operation process for package pickup and delivery results in sales rebates and idle time that degrades gross margin. Goal Statement: Reduce sales rebates and idle time by 85%. Business Case and Estimated Benefits: An 85% reduction in sales rebates and idle time will increase gross margin by roughly $11,000 per month and increase ROS to roughly 30%. Benefit Calculations or Basis: Prior month sales rebates = $9,400
Precision Delivery Inc. Case Study
Precision Delivery Inc. (PDI) is a package pickup and delivery service for homes and small businesses.
PDI specializes in packages of 50 pounds or less and has a full-price rebate policy for any pickup or
delivery made outside the customer-designated 15-minute window. PDI advertising proudly states,
“Pickup and delivery at your convenience, not ours.”
PDI has facilities at 2 locations, Downtown and Suburbia, each servicing customers within a 15-mile
radius with pickup and deliveries made by truck or bicycle. Customers designate a 15-minute window
for their packages to be picked up or delivered. PDI charges customers $5 per package plus $1 per
pound (50-pound maximum).
PDI Sales Operators receive pickup and delivery requests by phone from customers. Dispatchers issue
instructions to Field Operators for pickups and deliveries. To ensure prompt service, Dispatchers plan
for 30 minutes of travel time, one way, for each pickup or delivery and target arrival time for the
start of the 15-minute window. Under current procedures, travel time over 45 minutes will result in a rebate, and travel time less than 30 minutes results in idle time for the Field Operator. Field
Operators return directly to the dispatch facility after each pickup or delivery.
A subcontractor who offers bike and truck time on demand supplies Field Operations. PDI pays only
for round-trip road time and idle time at the customer’s destination. PDI accountants have calculated
the Field Operations variable cost for delivery, pickup, and idle time at $7.5/hour for bicycles and
$15.00/hour for trucks. All other costs are fixed at $5,000 per week. Pickups and deliveries are made
Monday through Friday, 8:00 a.m. to 4:00 p.m.
Recently, Sales Operators have reported a noticeable increase in customer concern regarding the
timeliness of deliveries and pickup. In response, Sales Operators were instructed to remind
customers of the PDI price rebate policy.
Additionally, a short survey was sent out to a small group of established customers. The survey
results disclosed an appreciation of price rebates, but a preference for deliveries within the promised
15-minute window.
PDI’s CEO and sole shareholder, Pat Hunter, is concerned about customer satisfaction and
profitability. Although financial results have been consistent over the last year, Pat believes the
current return on sales (ROS) of 11% must increase to more than 20% to avoid shutting down the
business and more than 30% to grow the business. Pat wants to know how PDI can increase ROS
while maintaining or increasing customer satisfaction.
Last month, PDI had the following results:
Sales $58,500
Sales after Rebates $49,100
Field Operations Trip Cost (Variable) $18,900
Field Operations Idle Time Cost (Variable) $ 3,600
Gross Margin $26,600
General and Administrative (Fixed) $20,000
Profit Before Tax $ 6,600
Process:
1. Review the PDI Case and Project Proposal.
2. Complete the Data Collection Planning Sheet for their project.
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