Enter Dehradun’s hotel linen market?
Before the decision
Boutique hotels complain about missed replacement deliveries during the season. The sales manager can fill planned orders from the existing depot. A local hub is only useful if hotels pay for the smaller emergency runs that now make the remote route unreliable.
The problem
Should the team choose Local service hub or Regional reseller for the next 12 months?
Decision owner: The business unit lead.
The reseller can combine deliveries but will not guarantee emergency stock.
Option economics
Scroll the table to see all figures.
| Option | Volume (sets) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Local service hub | 19,000 | 410 | ₹41 lakh | ₹36.9 lakh |
| Regional reseller | 22,000 | 220 | ₹9 lakh | ₹39.4 lakh |
Make the call
- Calculate net contribution for Local service hub and Regional reseller. Which assumption makes the comparison most fragile?
- If the leading option delivers 10% fewer sets, does your recommendation change?
- What evidence would you ask for before the team makes an irreversible commitment?
Reveal the worked solution
Start by validating Regional reseller. It contributes ₹39.4 lakh after fixed costs and leads by ₹2.5 lakh. Treat that gap as the amount of unmodelled cost or lost contribution the option can absorb before the ranking reverses.
- Frame the decision
Separate demand you can reach from demand you can serve reliably. Test reorder behaviour before using the full-year forecast.
- Calculate both options
Local service hub: 19,000 sets × ₹410 less ₹41 lakh in fixed costs gives ₹36.9 lakh. Regional reseller: 22,000 sets × ₹220 less ₹9 lakh in fixed costs gives ₹39.4 lakh.
- Stress-test the forecast
Regional reseller leads by ₹2.5 lakh in the base case. If Regional reseller delivers 10% fewer sets (19,800) at the same margin and fixed cost, it contributes ₹34.56 lakh. Holding the other option constant, the stressed result falls behind. This isolates volume risk. Check whether both options would respond to the same change in demand.
- Set a decision threshold
Holding the other option’s result fixed, Regional reseller needs at least 20,864 sets to match or beat it under the model. Get hoteliers to specify emergency order frequency and the price they would pay.
The reseller can combine deliveries but will not guarantee emergency stock. Compare the cost of a limited test with the loss the business would face if the full commitment failed. Ask the team to agree the decision criterion before collecting more evidence.
Check whether your answer names the trade-off, cites a number from the exhibit and specifies a reversal condition.
What if the whole market moves?
The worked solution tests a change to one option at a time. Here, both options gain or lose the same percentage of volume. Unit contribution and fixed costs stay constant.
| Volume scenario | Local service hub | Regional reseller | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹29.11 lakh | ₹34.56 lakh | Regional reseller |
| Base assumptions | ₹36.9 lakh | ₹39.4 lakh | Regional reseller |
| Both gain 10% of volume | ₹44.69 lakh | ₹44.24 lakh | Local service hub |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.