Choose a dairy capacity investment in Mathura
Before the decision
The collection network expanded before the firm chose its next product line. The dairy now needs an outlet for milk beyond its established customers. The plant can invest in cold distribution or in a longer-life product with different packaging requirements.
The problem
Should the team choose Chilled products or Shelf-stable range for the next 12 months?
Decision owner: The business unit lead.
Cold distribution exposes the plant to spoilage and seasonal temperature swings.
Option economics
Scroll the table to see all figures.
| Option | Volume (litres) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Chilled products | 13,00,000 | 9 | ₹85 lakh | ₹32 lakh |
| Shelf-stable range | 9,60,000 | 13 | ₹88 lakh | ₹36.8 lakh |
Make the call
- Calculate net contribution for Chilled products and Shelf-stable range. Which assumption makes the comparison most fragile?
- If the leading option delivers 10% fewer litres, does your recommendation change?
- What evidence would you ask for before the team makes an irreversible commitment?
Reveal the worked solution
Start by validating Shelf-stable range. It contributes ₹36.8 lakh after fixed costs and leads by ₹4.8 lakh. Treat that gap as the amount of unmodelled cost or lost contribution the option can absorb before the ranking reverses.
- Frame the decision
Compare the alternatives using the same period and test the cost of committing scarce resources. Check working capital and cash timing separately before funding either option.
- Calculate both options
Chilled products: 13,00,000 litres × ₹9 less ₹85 lakh in fixed costs gives ₹32 lakh. Shelf-stable range: 9,60,000 litres × ₹13 less ₹88 lakh in fixed costs gives ₹36.8 lakh.
- Stress-test the forecast
Shelf-stable range leads by ₹4.8 lakh in the base case. If Shelf-stable range delivers 10% fewer litres (8,64,000) at the same margin and fixed cost, it contributes ₹24.32 lakh. Holding the other option constant, the stressed result falls behind. This isolates volume risk. Check whether both options would respond to the same change in demand.
- Set a decision threshold
Holding the other option’s result fixed, Shelf-stable range needs at least 9,23,077 litres to match or beat it under the model. Track quality and rejected volumes at distributors through a peak-temperature week.
Cold distribution exposes the plant to spoilage and seasonal temperature swings. Compare the cost of a limited test with the loss the business would face if the full commitment failed. Ask the team to agree the decision criterion before collecting more evidence.
What if the whole market moves?
The worked solution tests a change to one option at a time. Here, both options gain or lose the same percentage of volume. Unit contribution and fixed costs stay constant.
| Volume scenario | Chilled products | Shelf-stable range | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹20.3 lakh | ₹24.32 lakh | Shelf-stable range |
| Base assumptions | ₹32 lakh | ₹36.8 lakh | Shelf-stable range |
| Both gain 10% of volume | ₹43.7 lakh | ₹49.28 lakh | Shelf-stable range |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.