ISEE $582682$ Define Phase

We will be using the following case study throughout the semester. The case study is taken from The

Big Book of Six Sigma Training Games, Chris Chen and Hadley Roth, McGraw$-$Hill, $2004.$

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, $$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 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\mathrm{.}50/$hour for bicycles and

$$15\mathrm{.}00/$hour for trucks. All other costs are fixed at $$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.

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$