A Kolkata bakery sells more and earns less
Before the decision
Night-shift production increased to avoid stockouts, and unsold boxes started coming back. Sales staff count every dispatch as a sale until retailer credits arrive. The owner sees two possible fixes: produce less late at night or shift scarce shelf space toward products that earn more per box.
The problem
Should the team choose Cut returns or Raise premium mix for the next 12 months?
Decision owner: The business unit lead.
A premium assortment can reduce volume on the same delivery routes.
Option economics
Scroll the table to see all figures.
| Option | Volume (boxes) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Cut returns | 92,000 | 66 | ₹17 lakh | ₹43.72 lakh |
| Raise premium mix | 77,000 | 83 | ₹18 lakh | ₹45.91 lakh |
Make the call
- Calculate net contribution for Cut returns and Raise premium mix. Which assumption makes the comparison most fragile?
- If the leading option delivers 10% fewer boxes, does your recommendation change?
- What evidence would you ask for before the team makes an irreversible commitment?
Reveal the worked solution
Start by validating Raise premium mix. It contributes ₹45.91 lakh after fixed costs and leads by ₹2.19 lakh. Treat that gap as the amount of unmodelled cost or lost contribution the option can absorb before the ranking reverses.
- Frame the decision
Start with price, volume, mix and cost. Reconcile the gap at the transaction or batch level before treating a forecast as an explanation of past performance.
- Calculate both options
Cut returns: 92,000 boxes × ₹66 less ₹17 lakh in fixed costs gives ₹43.72 lakh. Raise premium mix: 77,000 boxes × ₹83 less ₹18 lakh in fixed costs gives ₹45.91 lakh.
- Stress-test the forecast
Raise premium mix leads by ₹2.19 lakh in the base case. If Raise premium mix delivers 10% fewer boxes (69,300) at the same margin and fixed cost, it contributes ₹39.52 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, Raise premium mix needs at least 74,362 boxes to match or beat it under the model. Measure returns and credits by stop, separating product loss from route costs.
A premium assortment can reduce volume on the same delivery routes. 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 | Cut returns | Raise premium mix | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹37.65 lakh | ₹39.52 lakh | Raise premium mix |
| Base assumptions | ₹43.72 lakh | ₹45.91 lakh | Raise premium mix |
| Both gain 10% of volume | ₹49.79 lakh | ₹52.3 lakh | Raise premium mix |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.