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 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, Pick up 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 in excess of 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 destination. PDI accountants have calculated the Field
Operations variable cost for delivery, pickup, and idle time at $7.50/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 for 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. Survey results
disclosed an appreciation of price rebates, but a preference for deliveries within the promised 15-minute
window.
PDIs 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 & Administrative (Fixed)

$20,000

Profit Before Tax

$6,600

PDI Project Proposal Worksheet

Team Name:_____________________________________________________________________________
Project Title:_____________________________________________________________________________
Problem Statement:________________________________________________________________________
_________________________________________________________________________________________
Goal Statement:___________________________________________________________________________
Business Case and Estimated Benefits:_________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
Benefit Calculations or Basis:________________________________________________________________
_________________________________________________________________________________________
Executive Project Approval Board Use Only
Approval:

Yes No

Verified Benefits Amount:________________________

Directions for Completing the Project Proposal Worksheet

1. Team Name: To be chosen by the Project Development Team. Enter the team name on all project proposals.
2. Project Title: Identifier for the project. Should reflect the goal of the project (Decrease Widget Rework,
Reduce Billing Cycle Time, Improve Product Line Cash Flow, etc.)
3. Problem Statement: Observed conditions and impact on business (e.g., 20% of widgets reworked resulting in
added cost of $6.50 per unit)
4. Goal Statement: Quantitative goal for improvement project (e.g., Reduce widget rework to less than 5%)
5. Business Case and Estimated Benefits: Describe the business benefit and the estimated impact (e.g.,
Decreasing widget product cost increases product margin resulting in $1.2M additional profit before tax per
year)
6. Benefit Calculations or Basis: Provide justification or rationale for the business case and estimated benefits
(e.g., 100,000 widgets per month produced 15% reworked units eliminated $6.50/widget for rework 12
months = $1.2M Annual Profit Before Tax)
7. EPAB Approval: See published guidelines
8. EPAB Verified Benefits Amount: EPAB adjusted estimate of benefits