Spartan Harvard Business Case Summary

5. Currently, Spartan is charging a flat rate of 1.5 percent of sales, to deliver to its customers. The company reflects its freight charges from the pricing practices of other building materials distributors in the region. In addition, the case states the reasons to why some deliveries are free of charge, they are: high volume orders, promotions, and price pressures. The gathered data from the Ontario region demonstrates these factors as their customer relationship strategy.
The activity for a local run, presented in Exhibit 3, with a particularly heavy load (Drop #1), took the carrier just over 2 hours to deliver to a location within 8 Km. There was no charge on this delivery in the local Ontario region. Yet, another drop of close weight and distance to that of drop #1, only took .75 hours (45 min) and was charged the 1.5 percent of sales delivery rate. Since the weight and distance is similar, a
Yet, If we calculate the sales delivered ($118,950,000) and the flat rate delivery fee (1.5% of sales) we find that the company could have charged $1,784,250 in delivery fees, by their established flat fee.
Delivery charges rebated ($460,000)/Amount the company could have charged for delivery ($1,784,250) = Approximately 26% loss
Next, we looked at the total amount the company the company charged for deliveries, against the cost paid to the delivery carriers. We reduced the free delivery amount in order to notice the impact of the flat delivery fee. “In 2014, the Ontario Region paid $3.1 million to its carriers for customer deliveries” (Case, p.6)
(1,784,250- 460,000)/ (3,100,000) = 43% loss
There is a dramatic difference between the amount that is charged to customers for delivery and what has to be paid by the company for the delivery to their customers. Customers are being