Corveta Motors: How Many Distribution Centres?
Operations
hard50 min0 submissionsMcKinsey
Scenario
Corveta Motors is a automotive business in Europe shipping about 8m orders a year on €1157 M of revenue.
It runs 2 distribution centres today. The supply chain team has proposed moving to 3.
Current economics per order:
- Line-haul: €56
- Last-mile: €90
- Average delivery time: 4 days
Under the proposed network:
- Each additional DC costs €6 M a year to run
- Last-mile falls to about €59 per order, because stock sits closer to customers
- Average delivery time falls to 3 days
- Marketing estimates faster delivery is worth roughly 4.3% of revenue in additional sales
The CFO is resisting on the grounds that fixed costs go up.
Supporting data
volume
- revenue
- 1157
- orders m per year
- 8
derived hints
- added fixed cost
- 6
- revenue lift value
- 49.8
- last mile annual saving
- 248
current network
- avg delivery days
- 4
- last mile per order
- 90
- line haul per order
- 56
- distribution centres
- 2
proposed network
- avg delivery days
- 3
- dc fixed cost each
- 6
- last mile per order
- 59
- distribution centres
- 3
- estimated revenue lift pct
- 4.3
Your task
Advise on the network. Your answer should provide:
- Analysis — total cost-to-serve under both networks, computed.
- Risks — what the case depends on and what you would monitor.
- Recommendation — a specific number of DCs and why.
State any assumptions you make.
Ready to move forward? Up next: Wavelength Media: Review This DCF Before It Goes to the ICNext question
How you'll be graded
100 points, 60% to pass.
- recommendation20
- service tradeoff25
- problem structuring25
- quantitative analysis30
Hint
Reveal suggested structure
Cost-to-serve build-up; fixed vs variable trade; service level as revenue; marginal DC analysis