Rcg Engineering Company

                                                                12-01122017 Rev.1

                                                                                   01 Dec 2017

KETAN GANDHI

RCG Engineering Company has manufacturing facility in Pune and has two distribution centres, one at Sarkhej, Ahmedabad and second at Vishwas Nagar, New Delhi.  During last few years, it was shipping products in small packing 100 kg/box and multiple of number of boxes at a time depending on orders received from DC using third party transport service provider from factory to DC depending on orders. The details of distance, transport charges, lead time is as follows;

The distance between a factory in Pune to Sarkhej DC is 678 km and a factory to Vishwas Nagar, Delhi DC is 1458 km.  Transporter used to take 7 days delivery time between Pune-Delhi and 3 days for Pune-Ahmedabad.  Transport charges were Rs. 1050 for a box of 200 kg for delivery to Ahmedabad DC and Rs. 1750 for a box of 200 kg for delivery to Delhi DC from factory. Last year Ahmedabad DC’s demand was weekly 25 boxes and Delhi DC’s demand was weekly 40 boxes.  Size of the box is standardized as 330 mm x 750 mm x 500 mm with a maximum weight of 350 kg. Refer Annexure –  1 for Geographical distance maps.  

Sales & marketing department handling north India & west India submitted a next year forecast. As per new forecast the weekly demand for Ahmedabad forecast would be 60 boxes, each box of 200 kg per week and Delhi DC’s demand would be 80 boxes each box of 200 kg per week. Assume that future demand will be equally distributed throughout year. Due to huge shipment load anticipated in next year, company’s Director, Ms. Archana Sharma wanted to check feasibility of purchasing a Tata 407 truck. Refer Annexure - 2 for Specification of truck and other details. Looking at upcoming demand in transportation sector, she thought to check feasibility of setting up a small transport division as independent profit center. She called her bank for checking about loan to buy a truck and also collected specifications of truck and other relevant details. For Tata 407 truck she need to take load of Rs. 5 lakh and for Tata 1613 higher capacity truck she need to take load of Rs. 15 lakh.

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She received quotation of Tata 1613 truck, 10000 kg pay load capacity; quoted price was Rs. 25 lakh. Refer Annexure – 4 for details of investment & cost.  

She decided to standardize transportation in pellets for safe transport of material. Refer Annexure – 3 for Pallet specifications. If material is transported in own truck, there are several advantages, i.e. transportation time reduces from 7 days to 5 days for Pune-Delhi route and Pune-Ahmedabad route from 3 to 2 days when fully loaded. Return travel time will be 3 days between Pune-Delhi and 1.5 days between Pune-Ahmedabad. Truck will take 3 days between Ahmedabad – Delhi route.

Key questions:

1. Evaluate benefits and drawback of own v/s using third party transporters facilities.
2. Should she go ahead with a decision to buy a truck? Or continue using third party transporter?
3. Will new transport business unit be profitable? What will be break-even point?
4. Prepare project P & L statement of new transport division & any key financial ratio you can calculate from P & L statement.

Annexure  -  1 Geographical Map & Distance

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Annexure – 2 Proposed Truck Specifications

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Annexure – 3 Details of pellet

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160 mm is height of the pallet.

Up to 800 kg weight on pallet as working load and up to 3000 kg as staking load for maximum 1 month period (Tare weight is 28 kg)

Annexure – 4 Details of finance & cost

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