SOUP

CASE HISTORY:
Soup operates a passenger rail services in Deeland, a technologically advanced country with high
demand for fast, reliable railway travel from business and leisure passengers. Many passengers choose
rail travel because they think that it is less harmful to the environment than other forms of transport.
Soup purchased old trains and subsequently failed to reinvest. They have bought this train 25 years ago
at a cheap rate from an operator whose license was withdrawn by the government. However, the trains
are becoming unreliable and their condition is deteriorating. In the long term this will reduce customer
satisfaction and financial performance.

ISSUES AT HAND:

 That is the case for Soup, which acquired old trains and then refused to reinvest, which implies that
Soup's ROCE is presumably better than its rivals. The trains, however, are becoming unreliable and
their condition is deteriorating. This will reduce customer satisfaction and financial performance in
the long term.

 Soup measures the growth in passenger numbers that could be a measure of customer satisfaction.
It is, however, a limited, quantitative measure. Although Soup has rivals and is likely to be required
to operate a specified level of service under the terms of the government license, some passengers
may be forced to travel on Soup trains.

FACTS AND FIGURES:

The following data applies to Soup:

Region-A Region-B

Number of services per day

Peak times 4 4

Other times 6 8

Number of passengers per day

Peak times 2,500 1,400

Other times 2,450 1,850

To measure the extent of overcrowding, some measure of occupancy is needed. The number of
passengers per available seat can be used as a measure of occupancy.

Seats available per train is 490 (7 coaches x 70 seats) in Region A and 420 (7 coaches x 60 seats) in
Region B.
Seats available per day Region-A Region-B

Peak times 1,960 (490 x 4) 1,680

Other times 2,940 3,360

Seat occupancy Region-A Region-B

Peak times 128% 83%

Other times 83% 55%

Total seat occupancy = 82·5% (8,200/9,940)

ALTERNATIVES:
Within the customer perspective Soup could use a range of performance measures. This will be
beneficial as where passengers are able, they are likely to choose to use Soup if they provide a good
service. This can be easily measured by surveying or asking passengers’ opinions. For example

 We can move some of region’s B train to Region A as region B is less crowded than Region A in
working hours as well as normal hours to decrease overcrowding.
 key element of customer satisfaction will relate to the amount of fare paid. Many customers
while valuing a particular aspect of the service may be unwilling to pay more for it; some may
accept a reduction in the level of service if fares were reduced.
 Other aspects of Soup’s service may be less valued than reliability and occupancy, like wireless
access and the on-board cafe, but will be important to certain groups.
 Soup must try and maximize both the seat occupancy and the amount of time its trains are
actually running. These internal measures would then help to support financial targets.

RECOMMENDATIONS:

They should gradually invest in their trains and they should switch to electrical train rather than going
for diesel train as their passengers prefer train as a form of transport because it is less harmful to the
environment than other means.

FINANCIAL IMPLEMENTATION:
Investment:

2010 2011 2012 2013 2014

$ $ $ $ $
Investments 2.7M 3M 3.5M 4M 5.5M
Prediction after implementation of proposal:

Current Trains After Investment in new trains

Performance(diesel) (electrical)
$M
Sales Revenue 27.50 45.50
Operating profit 551.4 641.7

Sales forecast:

2010 2011 2012 2013 2014

Sales Revenue 50,000 53,000 58,000 63,000 68,000
Cost of Sales 46,000 48,000 51,000 52,000 55,000
Gross Profit 4,000 5,000 8,000 11,000 13,000