CS Long

Precision Delivery Inc. Case Study Precision Delivery Inc. (PDI) is a package pickup and delivery service for homes and small businesses. PDI specializes in packages 50 pounds or less and has a full-price rebate policy for any pickup or delivery made outside the customer-designated 15 -minute window. PDI advertising proudly states, "Pick up and delivery at your convenience, not ours." PDI has facilities at 2 locations, Downtown and Suburbia, each servicing customers within a 15 -mile radius with pickup and deliveries made by truck or bicycle. Customers designate a 15 -minute window for their packages to be picked up or delivered. PDI charges customers $5 per package plus $1 per pound (50-pound maximum). PDI Sales Operators receive pickup and delivery requests by phone from customers. Dispatchers issue instructions to Field Operators for pickups and deliveries. To ensure prompt service, Dispatchers plan for 30 minutes of travel time, one way, for each pickup or delivery and target arrival time for the start of the 15-minute window. Under current procedures, travel time in excess of 45 minutes will result in a rebate and travel time less than 30 minutes results in idle time for the Field Operator. Field Operators return directly to the dispatch facility after each pickup or delivery. A subcontractor who offers bike and truck time on demand supplies Field Operations. PDI pays only for round-trip road time and idle time at the customer destination. PDI accountants have calculated the Field Operations variable cost for delivery, pickup, and idle time at $7.50 /hour for bicycles and $15.00 /hour for trucks. All other costs are fixed at $5,000 per week. Pickups and deliveries are made Monday through Friday, 8:00 a.m. to 4:00 p.m. Recently, Sales Operators have reported a noticeable increase in customer concern for the timeliness of deliveries and pickup. In response, Sales Operators were instructed to remind customers of the PDI price rebate policy. Additionally, a short survey was sent out to a small group of established customers. Survey results disclosed an appreciation of price rebates, but a preference for deliveries within the promised 15 -minute window. PDI's CEO and sole shareholder, Pat Hunter, is concerned about customer satisfaction and profitability. Although financial results have been consistent over the last year, Pat believes the current return on sales (ROS) of 11% must increase to more than 20% to avoid shutting down the business and more than 30% to grow the