Stock machine spares locally in Raipur?
Before the decision
Plant maintenance teams buy urgent spares from whoever can reach the gate first. Last month a maintenance contractor placed an overnight request for a bearing that was already in the company’s national catalogue. The regional team learned about the order only after a local shop had filled it.
The problem
Should the team choose Local warehouse or Remote fulfilment for the next 12 months?
Decision owner: The business unit lead.
The remote warehouse meets scheduled orders but loses emergency demand.
Option economics
Scroll the table to see all figures.
| Option | Volume (orders) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Local warehouse | 13,000 | 620 | ₹42 lakh | ₹38.6 lakh |
| Remote fulfilment | 10,400 | 530 | ₹9 lakh | ₹46.12 lakh |
Make the call
- Calculate net contribution for Local warehouse and Remote fulfilment. Which assumption makes the comparison most fragile?
- If the leading option delivers 10% fewer orders, does your recommendation change?
- What evidence would you ask for before the team makes an irreversible commitment?
Reveal the worked solution
Start by validating Remote fulfilment. It contributes ₹46.12 lakh after fixed costs and leads by ₹7.52 lakh. Treat that gap as the amount of unmodelled cost or lost contribution the option can absorb before the ranking reverses.
- Frame the decision
Separate demand you can reach from demand you can serve reliably. Test reorder behaviour before using the full-year forecast.
- Calculate both options
Local warehouse: 13,000 orders × ₹620 less ₹42 lakh in fixed costs gives ₹38.6 lakh. Remote fulfilment: 10,400 orders × ₹530 less ₹9 lakh in fixed costs gives ₹46.12 lakh.
- Stress-test the forecast
Remote fulfilment leads by ₹7.52 lakh in the base case. If Remote fulfilment delivers 10% fewer orders (9,360) at the same margin and fixed cost, it contributes ₹40.61 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, Remote fulfilment needs at least 8,982 orders to match or beat it under the model. Separate urgent from scheduled tickets and measure the gross margin on recovered orders.
The remote warehouse meets scheduled orders but loses emergency demand. 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 | Local warehouse | Remote fulfilment | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹30.54 lakh | ₹40.61 lakh | Remote fulfilment |
| Base assumptions | ₹38.6 lakh | ₹46.12 lakh | Remote fulfilment |
| Both gain 10% of volume | ₹46.66 lakh | ₹51.63 lakh | Remote fulfilment |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.