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 $$Pickup and

delivery at your convenience, not ours.$$

PDI has facilities at $2$ locations, Downtown and Suburbia, each servicing customers withing 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 deliver request 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, one way travel time less than $30$ minutes will result 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 deliver, pickup, and idle time at $$7\mathrm{.}50/$hour for bicycles and $$15/$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 withing the

promised $15-$minutes 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$

Profit Before Tax $ $6,600$

How would I calculate just reducing the only the Idel time by $50\%?$