A dedicated route for Nagpur?
Before the decision
A grocer expanded doorstep deliveries from one neighbourhood into several Nagpur wards. During the initial rollout, per-order delivery kept the grocer flexible. Now the same carrier is offering a dedicated route and wants a minimum commitment before the next contract cycle.
The problem
Reserve a dedicated delivery route or pay a carrier per order?
Decision owner: A regional grocer’s fulfilment lead.
Decide before a six-month contract renewal. Compare contribution over the next six months, excluding shared store overhead. Use the same order volume for both options.
Option economics
Scroll the table to see all figures.
| Option | Volume (orders) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Dedicated route | 30,000 | 24 | ₹2.7 lakh | ₹4.5 lakh |
| Per-order carrier | 30,000 | 12 | ₹0 lakh | ₹3.6 lakh |
Make the call
- How much order volume can the grocer lose before the cheaper option changes?
- Which delivery costs are likely to vary with distance?
Reveal the worked solution
At 30,000 orders, the dedicated route contributes ₹4.5 lakh and the carrier contributes ₹3.6 lakh. The dedicated route earns ₹12 more per order. Dividing its ₹2.7 lakh fixed charge by ₹12 gives a crossover of 22,500 orders over six months.
- Frame the decision
Check the bottleneck at the busiest point in the operating cycle. An annual forecast can fit on paper while a peak week still breaks the service promise.
- Calculate both options
Dedicated route: 30,000 orders × ₹24 less ₹2.7 lakh in fixed costs gives ₹4.5 lakh. Per-order carrier: 30,000 orders × ₹12 less ₹0 lakh in fixed costs gives ₹3.6 lakh.
- Stress-test the forecast
Dedicated route leads by ₹0.9 lakh in the base case. If Dedicated route delivers 10% fewer orders (27,000) at the same margin and fixed cost, it contributes ₹3.78 lakh. Holding the other option constant, the stressed result still leads. 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, Dedicated route needs at least 26,250 orders to match or beat it under the model. Use the carrier if the updated forecast drops below 22,500 orders over six months or the route’s observed net contribution falls below ₹21 per order at the base volume.
Keep the carrier for outlying postcodes and test a dedicated route in dense wards. Measure actual drops per shift before extending the contract.
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 | Dedicated route | Per-order carrier | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹3.78 lakh | ₹3.24 lakh | Dedicated route |
| Base assumptions | ₹4.5 lakh | ₹3.6 lakh | Dedicated route |
| Both gain 10% of volume | ₹5.22 lakh | ₹3.96 lakh | Dedicated route |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.
Practise this case as an interview