Nimbus Health: How Many Distribution Centres?
Operations
medium50 min0 submissionsAmazon
Scenario
Nimbus Health is a digital health business in US shipping about 12m orders a year on $729 M of revenue.
It runs 2 distribution centres today. The supply chain team has proposed moving to 4.
Current economics per order:
- Line-haul: $37
- Last-mile: $126
- Average delivery time: 5 days
Under the proposed network:
- Each additional DC costs $15 M a year to run
- Last-mile falls to about $92 per order, because stock sits closer to customers
- Average delivery time falls to 4 days
- Marketing estimates faster delivery is worth roughly 1.5% of revenue in additional sales
The CFO is resisting on the grounds that fixed costs go up.
Supporting data
volume
- revenue
- 729
- orders m per year
- 12
derived hints
- added fixed cost
- 30
- revenue lift value
- 10.9
- last mile annual saving
- 408
current network
- avg delivery days
- 5
- last mile per order
- 126
- line haul per order
- 37
- distribution centres
- 2
proposed network
- avg delivery days
- 4
- dc fixed cost each
- 15
- last mile per order
- 92
- distribution centres
- 4
- estimated revenue lift pct
- 1.5
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