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Medium Operations Capital Investment Cost-Benefit Analysis

To Automate or Not

#Logistics #Operations #Distribution
ProHub Comment

This case tests candidate ability to conduct financial analysis on a capital investment decision while also evaluating strategic judgment about a CEO's decision-making motivations. The case requires candidates to map the distribution process, quantify labor costs, calculate break-even analysis, and ultimately recommend whether to automate based on financial merits rather than the CEO's enthusiasm for innovation.

Estimated Time 15 minutes
Difficulty Medium
Source Darden
50 / 100
After returning from a trade show, the CEO of a large grocery distribution center calls you. He enthusiastically describes a new technology which could be used to automate part of his company’s process. He asks whether you think this would be a good idea for his business. Knowing that this CEO is a tech-enthusiast who loves innovation for the novelty of it, you ponder the implications. How would you tackle this problem?

Clarifying Information

  1. The company does not have a specific goal in mind with this decision. This CEO trusts us and will do whatever we advise. This is to test the candidate’s business judgment.
  2. Shipments are made to roughly 50 grocery stores in the immediate area, and the company does 1M shipments per year
  3. Costs to automate – (1) one-time outlay of $4M, plus (2) recurring OH, training, and additional maintenance costs of $1.0M (make the candidate request BOTH pieces of info)
  4. The candidate should visualize the distribution process (i.e. receiving, holding & picking, shipping) to think through this question