LEM Restaurants is operating 30 restaurants
Question One
LEM Restaurants is operating 30 restaurants in different locations. The total revenue is 15 million HKD per restaurant. This means that each restaurant makes 500,000HKD per day. The total daily revenue for LEM is therefore 15M HKD. Each restaurant handles a maximum of 10,000 orders per day implying against a constraint of 100 orders per employee there are 100 employees. The revenue for each order is thus (15,000,000)/ (30* 10,000) =50 HKD.
The decision variables are thus the cost of the staff since there is no inception cost being incurred. Revenue from the stay-in sales is also a decision variable in this case. Eventually, the revenue is a decision variable.
It is required that the revenue is above the cost. Furthermore, the orders per day per restaurant cannot exceed 15000 thousand alongside a personal allocation of 100 orders per employee in case of a delivery. Additionally, no matter how extensive the verge to maintain a profit margin, the operational time ought not to be extended beyond 7 am and 10 pm.
The linear model is formulated based on Profit=Revenue –Cost. Since the delivery cost is not included in the cost analysis. The profit equation for stay-in operation is thus
P=50-30=20 HKD
For the delivery service, therefore, the cost is 20m, inception cost, and (12000*100) = 12m thus 32m. The revenue, therefore, is 15000*30*30 for all restaurants. From the linear equation
P=13.5m-32m=-18.5m, we assume that the restaurant will take the maximal orders at 15000 rather than the normal 10,000. Furthermore, it is assumed that the number of employees remains constant in a measure to reduce the operation cost.
The restaurant will thus result in losses if they undertake the venture in the delivery service. It would be advisable to adopt an extensive number of employees to add to the number of deliveries. The resources are thus not constrained alongside the working timeline.
Question Two
The firm now resolves to adopt 3PL instead of full-time staff delivery. The delivery cost per order is now 8HKD. We now assume that the numbers of orders are taken to the maximal extremity thus 15000. The number of employees undertaking delivery services is further assumed not to change.
The cost in this case is thus (15000*30*8) = 3,600,000.
Linear model
In terms of profitability, the preferred model is P=R-C
The cost is, in this case, reduce thus the profit is 13.5M HKD-3.6 M HKD=9.9MHKD
The use of 3PL is thus profitable as compared to the delivery system. The foundational argument is based on the minimal cost incurred.