Can a seedling supplier expand into Madurai?
Before the decision
A grower group has asked for uniform seedlings before the next planting window. Last season a batch arrived after workers had finished preparing the beds. Growers are willing to reserve trays, but only if the supplier can demonstrate that seedlings survive transport.
The problem
Should the team choose Local nursery or Transport from existing hub for the next 12 months?
Decision owner: The business unit lead.
Transport shifts delivery risk to a narrow morning window when missed loads lose value.
Option economics
Scroll the table to see all figures.
| Option | Volume (trays) | ₹ per unit | Fixed cost | Net contribution |
|---|---|---|---|---|
| Local nursery | 88,000 | 49 | ₹32 lakh | ₹11.12 lakh |
| Transport from existing hub | 78,000 | 33 | ₹10 lakh | ₹15.74 lakh |
Make the call
- Calculate net contribution for Local nursery and Transport from existing hub. Which assumption makes the comparison most fragile?
- If the leading option delivers 10% fewer trays, does your recommendation change?
- What evidence would you ask for before the team makes an irreversible commitment?
Reveal the worked solution
Start by validating Transport from existing hub. It contributes ₹15.74 lakh after fixed costs and leads by ₹4.62 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 nursery: 88,000 trays × ₹49 less ₹32 lakh in fixed costs gives ₹11.12 lakh. Transport from existing hub: 78,000 trays × ₹33 less ₹10 lakh in fixed costs gives ₹15.74 lakh.
- Stress-test the forecast
Transport from existing hub leads by ₹4.62 lakh in the base case. If Transport from existing hub delivers 10% fewer trays (70,200) at the same margin and fixed cost, it contributes ₹13.17 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, Transport from existing hub needs at least 64,000 trays to match or beat it under the model. Compare survival and uniformity on matched lots after seven days.
Transport shifts delivery risk to a narrow morning window when missed loads lose value. 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 nursery | Transport from existing hub | Higher contribution |
|---|---|---|---|
| Both lose 10% of volume | ₹6.81 lakh | ₹13.17 lakh | Transport from existing hub |
| Base assumptions | ₹11.12 lakh | ₹15.74 lakh | Transport from existing hub |
| Both gain 10% of volume | ₹15.43 lakh | ₹18.31 lakh | Transport from existing hub |
Explain which option you would take forward. Check whether capacity, price or customer mix would also change as the market moves.