Our client is a local shipping firm in Spain where they handle local shipping of packages delivered by international shipping firms like FedEx, UPS & DHL. These firms deliver packages to the key city hubs and then our client takes it from there.
They want to know how many trucks they should lease to support their operations. From a cost-savings perspective they can only lease one model-type and we need to find out how many trucks the start-up needs.
The candidate needs to find out how many trucks are required to support shipping operations whilst keeping costs at a minimum.
Candidate needs to provide an approach and explain this to interviewer before additional information/data is shared.
This is a case that requires optimization and candidate needs to only use data that is provided.
Short Solution (Expand) (Collapse)
Suggested case structure:
Candidate should explain her structure on how to approach the case which should include:
- Required packages delivered per day.
- Working hours & days of operations.
- Average delivery time per package.
- Size & dimensions of each package.
Moreover, candidate should ask for data on available truck models, their associated costs & load-capacity.
- Each day a 1,000 packages needs delivery.
- Packages are envelope-format and go through the mailbox with dimensions of 1x1x1.
- Delivery service runs 5 days a week from 09.00 AM to 06.00 PM for 9 hours.
- It takes on average 10 minutes to deliver each package.
- Packages are dropped off by DHL, FedEx and UPS at 05.00 PM, then stored overnight and delivered the next day.
II. Required volume
The first step is to calculate the amount of trucks we need on a daily basis to deliver all 1,000 packages.
We work 9 hours a day and take 10 minutes to deliver each package, so we can deliver 54 packages each day.
In order to calculate amount of trucks required we divide total packages by daily capacity:
So we need an estimated 19 trucks to deliver 1,000 packages per day.
III. Optimized solution
Calculating optimized option:
We need to calculate total daily costs for each model with 19 trucks.
- Model A: (1,000*(1x1x1))/(3x4x6)=14 rounded trucks or a minimum of 19 trucks costing us 19*$160=$3,040 per day.
- Model B: (1,000*(1x1x1))/(9x2x2)=28 rounded trucks or a minimum of 28 trucks costing us 28*$50=$1,400 per day.
- Model C: (1,000*(1x1x1))/(6x8x11)=2 rounded trucks or a minimum of 19 trucks costing us 19*$140=$2,660 per day.
The cost-effective & optimized solution is to take 28 trucks of Model B which helps us meet our daily load & minimizes daily lease costs.
The reason why we multiply the daily cost with a minimum of 19 trucks is because we need 19 trucks every day to deliver 1,000 packages. One driver can only deliver 54 packages a day.
So we either take the minimum of 19 trucks unless a model gives us a higher number of trucks such as Model B. In that case, we need the full amount of trucks to cover 1,000 packages per day.
This is a clear example of how using a high number of smaller trucks to benefit from lower costs and a de-centralized approach.
What price should we charge per delivery given our daily lease costs? Keep in mind that you might have to assume other cost components such as labor & overhead.