Rcg Engineering Company
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12-01122017 Rev.1 01 Dec 2017KETAN GANDHIRCG 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. ©2017 KgGuruji Academy (A division of KgGuruji consulting & Services). This case is prepared by Sr. Principal Consultant & Corporate Trainer Ketan Gandhi ([email protected]). The author may have disguised certain names & their identifying information to protect confidentiality. Some facts within the case have been altered. Cases are developed solely as the basis for class discussion / corporate training and are not intended to serve as endorsements, sources of primary or secondary data, or illustrations of effective or ineffective handling of management situation. To order copies or request permission to reproduce materials, contact Whatsapp +917972692474 or visit
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: Evaluate benefits and drawback of own v/s using third party transporters facilities. Should she go ahead with a decision to buy a truck? Or continue using third party transporter?Will new transport business unit be profitable? What will be break-even point? 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[pic 2][pic 3][pic 4]Annexure – 2 Proposed Truck Specifications[pic 5]LPT 407 EX 2/ 38WB, 4SP CR BS-IV SINGLE TYRE WITH AIR BRAKE CAB & HIGH DECK LOAD BODY 3800Engine4SP CR TURBO INTERCOOLED BS-IVFuel Injection SystemElectronic DelphiFuel Capacity60 lMaximum Power Output (in kW)62.5 kW (85 PS) @ 2800 r/minMaximum Torque (in Nm)250 Nm@ 1400 -2400 r/minClutchSingle plate dry friction type – 280 mm diaTransmissionGBS-27 Synchromesh 5Forward & 1 ReverseSteering SystemIntegral hydraulic assisted power steeringService BrakeDual circuit full Air S-Cam brakesParking BrakeCable operated MechanicalGradeability25%Max speed in Top gear (in Kmph)94 km/hGVW (kg)7300 kgMaximum Payload Capacity3850 kgWheel Base (in mm)3800No of TyresFront 2, Rear 2, Spare 1Battery12 V, 75 Ah capacityAlternator75 AFrameLadder type frame with riveted/ bolted cross membersMinimum Ground Clearance (in mm)230Warranty3 years/ 300000 km, whichever os earlier**Condition applyCargo Box dimensionLength4093 mmWidth2074 mmHeight1773 mmMillage9 km / liter when fully loadedAnnexure – 3 Details of pellet[pic 6]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 & costDescriptionRupee (Rs.)RemarksRent of office & warehouse60,000 per monthSeparate premises (Enough for next few years of annual requirement as per forecast)Salary of driver, cleaner & clerk28,000 per monthTeam of 3 people for one truck Truck maintenance cost2,400 per month5,000 per monthMaintenance cost of 5 years amortize per month (Tata 407)Maintenance cost of 5 years amortize per month (Tata 1613)Interest on bank loan 75,000 per year per truck (Tata 407)2,25,000 per year per truck (Tata 1613)@15% interest rate, Rs. 5 lakh loan, Rs. 8 lakh own investment in buying truck Tata 407Rs. 15 lakh loan in case of Tata 1613 truckDiesel price per liter61 per literToll TaxRs.3500 Rs. 3400Rs. 4900 single trip to PUN-AHDsingle trip from AHD-DELsingle trip to PUN-DEL***