Adani Wilmar Case Anaysis

ADANI WILMAR LIMITED

Subject Case Group G : Members

GROUP G CASE ANALYSIS

MODELING FOR DECISIONS , TERM 1 ADANI WILMAR LIMITED Kapil Tiwari , Karthik Srinivasan , Pramod Singh , Pratik Tamhane , Devendra Kale , Ashish Ahuja , Chandrasekhar Kotillil

Executive Summary Adani Wilmar Limited is a 50-50 joint venture between the Adani Group and Wilmar Trading Private Limited (WTPL) of Singapore for refining and marketing edible oil in western and northern India. The company was planning to setup a refinery of capacity 600 tons per day at Mundra, on the coast of Gujarat. The company had focussed on the north Indian market to realize competitive advantage in its logistics operations, due to the proximity of Mundra to the edible oil markets in north India. Mr. Pakarashi, Logistics manager at AWL, decided to evaluate different cost scenarios in setting up warehouses in Uttar Pradesh (UP). From a strategic perspective, Mr. Pakarashi feels that the huband-spoke model of distribution will suit the territory best. To this end, he has identified Bareilly, Ghaziabad, Gorakhpur, Jhansi, Kanpur, Lucknow and Varanasi as the warehousing hubs. The analysis if of the cases focuses on providing solutions to the 3 problem statements below: 1. Which cities/towns in UP are most suitable for setting up new warehouses, and what would be the costs associated with shipment of refined oil to these warehouses? 2. What is the optimum way in which one can allocate dealers in different towns to warehouses , so that the offtake by these dealers involves a minimum cost to AWL 3. Which are the optimum ways in which edible oil can be transported to the warehousing hubs and should the oil be handled by the C&F agents Our Recommendation to the AWL Management 1) Build two large capacity warehouses at Ghaziabad and Kanpur that are managed by AWL and would be served by railroad through Concor from Mundra Port. 2) Establish a relationship with a C&F Agent at Jhansi for servicing dealers allocated to Jhansi. In addition, supply oil to Jhansi by road (via Ahmedabad) from Mundra Port. 3) The total cost of the optimal transportation solution is Rs. 31,34,712 per Month. 4) The allocation of dealers to warehouses are provided in the attached exhibits (Spreadsheets) 5) The selected warehouses with their supplied capacity and the amount to be handled by CFA is given in the table below Allocation of Edible Oil Supplied to Warehouses (in Tons/Month) Bareilly Ghaziabad Gorakhpur Jhansi Kanpur Lucknow Varanasi Page 1 of 5

0 (no warehouse required) 995 (Managed by AWL) 0 (no warehouse required) 67 (Managed by C&FA) 1164 (AWL) 0 (no warehouse required) 0 (no warehouse required)

ADANI WILMAR LIMITED

GROUP G CASE ANALYSIS

Analysis of the Situation The objective of this step is to determine the combination of warehouses which will yield the lowest cost per ton of oil shipped to the warehouse. Therefore there are 3 cost components to the logistics cost    

Primary costs – Cost of shipment of oil to the warehouses Secondary costs – Cost of shipment of oil from warehouses to dealers Warehousing costs – Cost inclusive of rent, labour and overheads Carry and Forwarding Agent handling costs – In certain cases, it is cost effective to consider C&FA for delivery of oil to dealers, rather than stocking the oil in the warehouse. C&FA cost is Rs. 150 per ton Primary Cost Analysis The function is based on the data from the below table which shows the different freight rates for shipping via rail and road to different warehouses. We will only consider the minimum cost value in Rs. Per ton for each warehouse. S N o 1 2 3 4 5

Modes of Shipment Bareilly

(Figures in Rs per Ton) Gorakhp Jhansi Kanpu ur r 1900 1500 1600 2000 1250 1500

Luckno w 1700 1600

Varan asi 1800 1900

By ROAD : Mundra to By ROAD : Mundra- Ahmedabad to WH

1550 1600

Ghazia bad 1300 1300

By ROAD : Mundra -Indore to WH By RAIL : Mundra - Ghaziabad then by ROAD to WH

1600

1400

1850

1350

1500

1550

1750

1250

950

1750

X

1400

x

1650

By RAIL : Mundra - Kanpur then by ROAD to WH

X

x

1535

x

1135

1260

1485

Secondary Cost Analysis The secondary costs are calculated as Rs. 1.50 per ton per km. The costs per combination of warehouse and dealer location are provided in the exhibit attached. Cost of operating warehouses by AWL Slab

Rs/month

600 tons/month

85000

Page 2 of 5

ADANI WILMAR LIMITED

GROUP G CASE ANALYSIS

Model - Formulation The objective of the model is to minimize overall transportation cost from Mundra to all dealers of UP. The following decision areas and inputs were incorporated in the model. Warehouse decision areas 1. Location and capacity of warehouses 2. Allocation of dealers to respective warehouses 3. Own management or outsourcing it to a C&FA Inputs 1. 2. 3. 4.

Primary transportation cost Secondary transportation cost Warehouse operating cost by AWL (depend on capacity of warehouse) Cost of outsourcing warehouse to a C&FA ( Rs per ton)

Considering seven warehouse locations in the state (i = 1, 2, … , 7) and 28 dealer locations (j = 1, 2,…, 28) Decision Variables dij = tons of oil per month served to dealer j from Mundra via warehouse i CFi = tons of oil per month supplied by C&FA from warehouse i Pi = 1 if respective warehouse is handling