Tyre Making Firm

C: Since how long have the profits been declining?

I: We’ve seen a 30% decline in profits in the past 8-9 months. 

C: That is a significant decline. Can you walk me through the clients' business model?

I: Our sales of tires can be classified into demand from original equipment manufacturers (OEM) and replacement market (RC). We have a pan-Indian presence.

C: Noted, and are we seeing a decline across both markets?

I: We are witnessing a decline in both markets but slightly higher in the RC market.

C: Alright, also is the issue of declining profits an industry-wide problem? 

I: No, the problem seems to be with our company.

C: Since the issue is limited to our company, and the profits are declining, that could be because of lower revenue or higher costs. I’d like to evaluate declining revenues first.

I: Sure, go ahead. 

C: Has there been any major change in the pricing?

I: No, the prices have remained mostly constant in the past year.

C: What about the no. of customers? Have our volumes decreased? 

I: Yes, there has been a loss in the number of customers. 

C: So, for this, the factors that I would like to consider are Awareness, Accessibility, Affordability and Customer Experience.

I: Okay, go ahead.

C: Starting with Accessibility, are we seeing any issues in terms of our tires being available to the customers? 

I: Yes, in fact, we have had complaints about our products being unavailable at several dealerships.

C: And are these dealerships concentrated in a particular city or area? Or are they spread across?

I: The complaints can be traced mostly to a specific area near Kolkata.

C: Alright, Now that we've identified the root cause behind the drop in demand as lack of product accessibility, it seems that the supply of our tyres to these dealerships needs further scrutiny, have there been any changes in the distribution channels? 

I: Yes, we changed our transportation partner as the current vendor offered us a discounted rate as the earlier vendor was charging a much higher rate. However, as a result, we are witnessing a delay in shipments.

C: Understood, I would like to analyze the reason there is a delay in transportation. It could be because the vendor is taking a longer route to deliver the goods maybe because of delivering other goods along the route. Or they wait to get a specific number of shipments and only then send them.

I: Yes, since the vendor is charging us a lower rate they send our shipments along with other shipments, thus causing a delay. What would be your solution?

C: Ok so, in the short term the solution would be to send across a higher volume of shipments at once to the main hubs in Kolkata so that there isn't a long delay in availability in lieu of a little higher warehousing cost. In the long run, we could negotiate a contract with the vendor to supply to more areas with the vendor at similar costs but guarantee a faster delivery by sending our shipments regularly. 

I: Alright, but do you think it would be beneficial if our warehousing costs increase significantly and offset the increase in revenue?

C: Yes, so even in the short term, to bring profits back to earlier levels, I would also like to look at possible avenues of cost reduction in warehousing costs.. The client can do a trade-off analysis of optimizing the location of the warehouse vs the rent that they pay so that it caters to the right demand centers and reduce the transportation cost. 

I: These points sound good; we can close the case here.