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A major dairy was making 23,000 deliveries
a day to commercial premises. The size and complexity of the business
had grown significantly. The product range had been extended, there was
an increased need for timely deliveries and there was new regulatory
control. Discounting had extended, with national account managers and
depot managers each setting discounts for different customers.
New specialist depots were established and temperature controlled
vehicles introduced to provide the service to customers and comply with
the new regulations. However, senior management were concerned at the
lack of strategy and because the finance systems did not give a clear
view of customer profitability. The project had to establish the cost of
the delivery service, the profitability of the business and an
appropriate service proposition.
The programme began with a pilot study on a sample week and was then
extended to the other depots. Gross margin on sales was calculated for
both brought in products and internally produced goods. Handling costs
and order processing costs were then subtracted to show the contribution
available to fund the delivery round.
Paragon was used to ensure that delivery rounds were efficiently
constructed and later to conduct a study of changes in serving areas and
the customer base. A costing model was used to allocate delivery costs
to individual call that allowed for drop size, distance from the depot
and distance between calls in the delivery area. This enabled a view to
be formed on the contribution to profitability of individual drops,
which could then be totalled by customer to indicate account
profitability. Serving area maps were also produced with profitable and
unprofitable calls highlighted.
Our analysis revealed that almost half the national account customers
failed to contribute to the business. Extreme variations existed in
profitability, with some accounts cross subsidising highly discounted
loss makers. The serving area maps indicated depot managers had been
competing with each another for trade and violating serving areas. This
resulted in extensive rationalisations of serving areas, resulting in
the closure of one central London depot, which had been operating 40
vehicles.Back to case
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