Launch frozen breakfast in Kochi?
Before the decision
The company built its brand through ambient snacks and has never owned a frozen route. The first few stores are close enough to restock twice a week. The expansion list includes longer runs across the city, where an unsold tray may have to travel home before it can be written off.
The problem
Should the team choose Direct freezer route or Cold-chain distributor for the next 12 months?
Decision owner: The business unit lead.
A freezer failure can wipe out contribution on an entire stop.
Option economics
Scroll the table to see all figures.
| Option | Volume (packs) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Direct freezer route | 1,80,000 | 18 | ₹22 lakh | ₹10.4 lakh |
| Cold-chain distributor | 2,25,000 | 11 | ₹8 lakh | ₹16.75 lakh |
Make the call
- Calculate net contribution for Direct freezer route and Cold-chain distributor. Which assumption makes the comparison most fragile?
- If the leading option delivers 10% fewer packs, does your recommendation change?
- What evidence would you ask for before the team makes an irreversible commitment?
Reveal the worked solution
Start by validating Cold-chain distributor. It contributes ₹16.75 lakh after fixed costs and leads by ₹6.35 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
Direct freezer route: 1,80,000 packs × ₹18 less ₹22 lakh in fixed costs gives ₹10.4 lakh. Cold-chain distributor: 2,25,000 packs × ₹11 less ₹8 lakh in fixed costs gives ₹16.75 lakh.
- Stress-test the forecast
Cold-chain distributor leads by ₹6.35 lakh in the base case. If Cold-chain distributor delivers 10% fewer packs (2,02,500) at the same margin and fixed cost, it contributes ₹14.28 lakh. Holding the other option constant, the stressed result still leads. 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, Cold-chain distributor needs at least 1,67,273 packs to match or beat it under the model. Log temperature excursions and allocate spoilage to the route that caused it.
A freezer failure can wipe out contribution on an entire stop. 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 | Direct freezer route | Cold-chain distributor | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹7.16 lakh | ₹14.28 lakh | Cold-chain distributor |
| Base assumptions | ₹10.4 lakh | ₹16.75 lakh | Cold-chain distributor |
| Both gain 10% of volume | ₹13.64 lakh | ₹19.23 lakh | Cold-chain distributor |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.