One Pickup, Twenty-Two Drops, and a Bakery Beyond the Route
Harpreet owns one 1,000-kg pickup and delivers for shops in Amritsar. Monthly fixed cost is Rs 68,000 (EMI Rs 34,000, driver Rs 22,000, insurance and permit Rs 7,000, maintenance reserve Rs 5,000) over 26 working days. Variable cost is Rs 9.40 per km; the average route is 64 km and 22 drops. The driver starts at 8:30 am and duty is 9 hours. Three customers insist on 9-11 am delivery, one school wants its 40 kg before 8:45 am, and a temple street closes from 9 to 11 am. A new bakery 11 km beyond the last stop wants 12 drops a day at Rs 55 per drop, which would add 22 km and about 2 hours. The driver is already at 8 hours 40 minutes when the request arrives, and overtime is Rs 120 per hour. A hired three-wheeler for that suburb would cost Rs 1,600 per trip.
1. Calculate the current fully allocated cost per drop and the marginal cost of the bakery order. Should Harpreet accept Rs 55?
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Current daily cost: fixed 68,000 / 26 = Rs 2,615; variable 64 x 9.40 = Rs 602; total Rs 3,217 per day. Per drop: 3,217 / 22 = Rs 146.20. This is the fully allocated figure Harpreet must recover across the existing customer base.
Bakery order, own vehicle: revenue 12 x 55 = Rs 660. Marginal cost = 22 km x 9.40 = Rs 207, plus overtime 2 x 120 = Rs 240, total Rs 447. Contribution = Rs 213 per day, about Rs 5,500 a month.
Interpretation: Rs 55 is far below the Rs 146 fully allocated cost, but above the marginal cost. Marginal costing says accept if spare capacity exists and no existing customer is harmed. Here capacity does not exist inside the 9-hour duty: the driver is at 8 h 40 min, so the run pushes duty past 10 hours, which is a fatigue and compliance risk, and the 9-11 am customers may slip.
Using a hired three-wheeler: cost Rs 1,600 against Rs 660 revenue, a loss of Rs 940 per day. Reject that option.
Recommendation: decline Rs 55 in its present form; counter at Rs 110-120 per drop, or serve the bakery every second day so the trip is shared.
2. What options would you put to the bakery, and what internal changes would make the suburb viable?
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The problem is not the bakery alone; it is that one customer is being asked to pay for a route extension that only it uses.
Options to offer:
- Alternate-day delivery of 24 drops per trip at Rs 70 each, which halves the trip frequency and keeps the driver inside duty hours.
- Consolidate the suburb: find two or three more shops within 3 km so the 22 km extension is shared and priced per drop falls.
- Time-window shift: deliver to the bakery after 4 pm, outside its morning rush, so the run fits into the existing afternoon loop.
- Minimum billing: a fixed trip charge of Rs 800 plus Rs 40 per drop, which protects Harpreet if volumes fall.
Internal changes:
- Re-plan the 22 existing drops so the school and the temple-street shops are served first, shortening the current route and freeing 30-40 minutes.
- Track cost per drop per customer monthly; the current average hides unprofitable drops.
- Set a written rule: any new drop beyond 8 km from the last stop needs a route-extension charge.
- Schedule the driver's start 15 minutes earlier for the school window instead of paying overtime later in the day.
The principle: price new work on the cost it actually causes, then negotiate on service frequency rather than giving a discount that destroys margin.
3. How should Harpreet sequence the route given the time windows?
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Sequence by constraint, not by distance first:
- School, 8:20-8:40 - the only before-9 fixed window; unload 40 kg first while the streets are clear.
- Temple-street shops before 9:00 - the street closes 9-11, so these must be cleared or deferred to after 11; clearing them is cheaper than a second trip.
- 9-11 am customers next, ordered by nearest-neighbour within that band so the three windows are met without criss-crossing the city.
- Remaining shops after 11, grouped by locality and served in a loop that returns toward the depot.
- Bakery only if step 4 finishes inside the 9-hour duty; otherwise it moves to the alternate-day plan.
Rules to apply: never let a fixed window sit late in the route; build in 20 minutes of buffer for traffic and a loading delay; confirm the last drop before 5 pm so the driver is not finishing in the evening rush; check the return leg is included in the 64 km.
A simple test after planning: if any fixed-window customer is served more than 15 minutes outside the window, re-sequence before the vehicle leaves the yard, not after the first complaint.