Busn 3380 Operations Management For Assessment Answers

You are asked to advise Joe on evaluating the above options and addressing his concerns. To do this you will need to verify if the average fleet mileage had an impact on the overall repair costs, whether the mileage travelled have similar impact on brakes repair cost vs. suspension repair costs, if there was any difference between the east and west operations. Finally would  you recommend buying life-time warranty? If so why and how?

Answer:

Joe saberian, the owner and president of Friendly Couriers Inc. in Toronto  Ontario entered his office on October 3, 2018 deeply concerned about a nearly 10% reduction of his parcel delivery service revenue. His concern to a great extent was in light of the expected Canada Post service interruption with the adamant postal worker strike because that could spike his services.  After consulting with his dispatcher he learned this reduction had been due to repeated delivery truck break-downs.  The company has been Chevy light trucks for their delivery for the past eight years. Trucks have been used for delivery to businesses in East and West parts of Toronto and driven by two crews commonly referred to as “west team and “east Team”.

Aside from losing revenue Mike had concerns about his operational cost because he noted that maintenance costs rose in older trucks. He also noticed frequent payments for suspension and brakes repairs on these trucks. The following table shows these repair costs for the West and East teams. 

While Joe was primarily concerned  about losing business during the peak holiday season, he wanted to better understand the cause(s) of truck break-downs. He knew that trading in the existing truck for new ones was neither cost effective nor a solution to the repair costs he has been paying. His nearly 30 years of experience in the field suggested the repair costs should be related to the mileage travelled by truck (normal wear and tear). However, his dispatcher suggested the mileage travelled could have different impact on brakes compared to suspension.   

Additionally the dispatcher pointed out that the driving habits of the driver or the road conditions could have contributed to the break-downs. So Joes thought perhaps it would be a good idea to switch trucks between the east and west teams, but then he thought he needs to verify whether there has been indeed any repair cost difference between east and west teams. His dispatcher also suggested that they can have free repairs by buying life-time warranty for suspension and brakes at an annual cost of $4500 per truck. Joe is not sure whether this warranty be beneficial for the trucks of both teams.  

As understood by Joe correctly that replacing existing trucks can be very expensive considering it to be heavy capital expenditure. Hence its better to focus on optimising the existing recurring expenses. 

There can be multiple parameters of analysing the cost incurred on repair of brakes and suspension such as analysing the trend of cost, amount of weight carried in trucks, cost per mileage incurred among other. Basis given figures we are trying to calculate the average cost of repairs for suspension and brakes per mileage and the average cost of repair on suspension and brakes for past seven years. Below is the tabular snapshot showing cost of repairs per mileage (both brakes and suspension) for past few years and also the average cost parameters.  

The average fleet mileage have direct impact on repair cost of suspension. From the above trends in Table 1, we can see that average repair cost of suspension is variable with no of mileage travelled. However for past seven years there have been two instances for both the teams where the average cost of suspension shot up, for east Toronto team it went $0.11 in 2012 and for west team it went $0.10 in 2014 as exception. The average cost for past 7 years is coming out to be $0.07 for both the teams and have been hovering around it. 

We can see this for both East and West team, the average repair cost of suspension per mileage has been revolving around $0.07. However, the average repair of brakes has not been variable for each mileage travelled. We witnessed the seven years average cost for west team $0.07 including exceptionally high cost for the year 2015. For east team, however the average repair cost of brakes has been on a higher side and never been in trend. In Initial years this been on higher side. The average repair cost for brakes has not been similar for the both the teams. The average repair cost of brakes for east team has always been high side in when compared to west team. It is to be noted that the mileage travelled by east team is way high in comparison to west team. East team in total for past seven years have travelled 28197 mileage whereas west team for the same period travelled 17051 mileage. The average repair cost per mileage for brakes of both team are not in same trend. This is also shown in Table 2 where the trend of repair cost of brakes per mileage for west team is very high for the past seven years.. 

It is clear that east team has been contributing to higher than average repair cost for brakes that the west team. The cost of repair of brakes of east team was $472 in comparison to $213.36 of west team, though east team had very high no of mileage travelled for all past years. Therefore if we look at the average brakes repair cost  of east team at $0.10 is much higher in comparison to west team of $0.07. The average repair cost of suspension although has been moving in the same direction. 

It looks like that the driving habits and road condition is contributing to higher repair cost for brakes for east team, thus switching drivers or trucks may not be the right solution. Every driver have different skill set of driving. Considering the fact that east team is incurring very heavy recurring repair cost of operating trucks on suspension and brakes. East team in the past year has incurred accumulated repair cost of $ 4893.62 as against the accumulated of $ 2383.62 incurred by west team. The trend of cost of repair per mileage for both brakes and suspension has been very stable for all past years. Since the trend of cost for the west team for past seven years is way below the total cost of warrantee there fore it will not be advisable to take lifetime warrantee for west team. 

East team however has been experiencing lot of break downs which not only affecting the overall operation of the company but also leaking lot of money in to repairs of brakes and suspension of trucks. Since the company incurred cost of $ 4893.62 during last 7 years it shall be prudent to take life time warrantee for trucks with team east at $4500 which will result in saving of $ 393.62. The over all repair cost incurred on brakes and suspension will come down by 5.4% from $7290 to $6896 which shall give boost the over all profitability of the company. This shall however beneficial only in the event if the trucks run for another minimum seven years and also assuming that there will not any drastic improvement in condition of roads and driver skill sets. 

The other factor which shall be taken into account to save long term capital cost to ensure that trucks run for longer life span and these are the factors that should help reduce the existing break down of trucks in crucial times. These solutions however are very subjective- 

There can be way by exchanging trucks between east team and west team which will result east team with little better trucks since all trucks in west has been driven half of mileage as compare to east team assuming that normal wear and tear on such trucks with west team is far lesser. 3) Driving habits of both teams shall be studied to identify inefficiencies in driving behaviour of drivers and they shall be trend to overcome the same on time to time basis. 

Conclusion: There fore it is concluded that Joe should take life time warrantee for all trucks of team east and for all trucks of Team west he shall continue the existing arrangement of repairing trucks as when required.