Case - Grocery Gateway

1. How much money can Grocery Gateway save by increasing the number of stops per hour from 2.7 to
four at the current volumes?

 Based on the details provided in Exhibit 2,

The total orders in a week are 7,818 i.e. approx. 1,117 order per day.

Considering an average cost of order as $135, Grocery Gateway receives $150,795 per day for its deliveries
(Daily Delivers of 1,117 * Avg. Cost per order $135).

At the current SPHOA of 2.7, the company receives $364.50 (i.e. $135 per order * 2.7). With increase in
SPHOA from 2.7 to 4, the company will receive $540 (i.e. $135 * 4)

The overhead costs for a driver & vehicle are $30 per hour. A driver has only 6.5 hours in his shift to deliver
orders. Hence, a driver can deliver 17 order in a shift (i.e. 6.5 * 2.7). So, for delivering 1,117 orders per
day, the company needs 1117 / 17 = 65.71 approx. 66 shifts. Hence, the variable cost for delivering 1117
orders at 2.7 SPHOA comes to 66*30*8 = $15,840 per day.

If the target SPHOA of 4 is reached, then the number of orders that can be delivered in a shift would be
26 orders (i.e. 6.5 * 4). So, for delivering 1,117 orders per day, the company needs 1117 / 17 = 42.96 (i.e.
approx. 43 shifts). Hence, the variable cost for delivering 1117 orders at 4 SPHOA comes to 43*30*8 =
$10,320 per day.

Hence, the amount saved by increasing the number of SPHOA from 2.7 to 4.0 at current volumes of 1,117
orders per day will be $5,520 per day. If extrapolated, this amount would be $38,640 per week.

2. What are the pros and cons of the three options identified by Dominique? What other options you
would consider?

 Dominique had proposed following 3 options; the pros & cons of each option are listed below.

Option 1: Keep the trucks on road longer

Pros Cons

• This will allow the company to reach more • Increase in overhead cost for vehicle and
customers in the allotted time and areas driver (@ $30/hr).
served. • Increase in operating cost of delivery truck i.e.
• By keeping trucks on road for longer duration, fuel, maintenance, etc.
there will more time for delivery (i.e. > 6.5
hours). This will also compensate for the time
required for delivery preparation.
• Works hand in hand with route optimization
through RIMMS system.
Option 2: Purchase of RIMMS Route optimization software

Pros Cons

• Improvement in efficiency & productivity. • Investment of $250,00 is significantly high and

• The software will provide most efficient routes
to the drivers, thus leading to lower operating
cost and increased profitability.
• Enhancement of business processes, which
will result in smoother operations and
customer satisfaction.
will impact the bottom-line.
• The Return on Investment (ROI) cannot be
ascertained for sure. Moreover, the risk
involved is very high.
• Potential glitches in the software (if any) can
impact daily operations.

Option 3: Increase in delivery charge

Pros Cons

• Potential increase in revenues as customers
may be willing to pay extra premium for faster
& hassle-free delivery.
• With additional revenues, the company can
focus on upgrading its existing systems,
processes, etc. This will also help the company
to invest for the future.
• The company will loose its USP i.e. ‘value for
money’.
• Loss of business to competition. Customers
who are cost conscious may look for other
alternatives.
• Loss of customers may lead to potential loss
of overall revenues.

Apart from the alternatives proposed by Dominique, I would recommend the following options.

1) Advance Payment option for Orders: Currently, the customers need to pay for the order on delivery.
There is some time lost because of this, as the driver need to collect the money from the customer.
With advance payment option, this time loss can be saved.
2) Setting-up of additional customer fulfillment center: Currently Grocery Gateway have a fulfillment
center at Downsview that caters to the entire city of Toronto. Considering the future business plans
of achieving 5000 orders per day, they should look at setting-up another facility. This will help in
catering to more customers & also help in increasing the SPHOA from 2.7 to 4.

3. What action would you take and why? How would you sell your plan to Al Sellery and Claude
Germain?

 I would go ahead with Dominque’s recommendation of purchasing the RIMMS route optimization
software. Though this is an expensive alternative, which demands an investment of $250,000; the long-
term benefits outweigh the initial investment (if the system is implemented correctly).

In order to sell this plan to Al Sellery and Claude Germain, I would recommend the following steps.

• Set-up a core team for evaluation, customization and implementation of the software.
 • The core team will first evaluate the software w.r.t. the functionalities offered, bugs (if any) and
the benefits of implementation.
• Based on the recommendation of core team, Grocery store should go into an agreement (prior to
purchasing the software) with Descartes to provide necessary support during & post
implementation. This agreement would be an assurance from Descartes w.r.t. the reliability,
accuracy and error free working of the software.
• The agreement will also have a clause for customization of the software to needs of Grocery
Gateway. This will help company get an added advantage, customize the software to their systems
& needs.
• As far as implementation is concerned, the core team will run a pilot for a part Greater Toronto
Area to access the accuracy & efficiency of the system. This pilot can be run for a period of 1 week
& the results can be extrapolated to estimate the ROI.
• Based on the finding from the polit, the necessary modifications can be made & the system can
go live for the entire Greater Toronto Area.
• With this software, the drive time for the drivers will be significantly reduced. This will help them
deliver the order in lesser time, thus enhancing the customer experience. This delightful customer
experience will further spread positive word of mouth for Grocery Gateway, thus help them
generate more business and revenue.

Though it is a big investment, there is potential for high ROI and that is why we would choose the licensing
expansion option.