Princess Nourah bint Abdulrahman University Strategy and Operations Consulting Seminar: Open Cases October 2022

Case 1: Supply Chain Optimization in the Dairy Sector 3

▪ Context

▪ Data to consider

▪ Questions to solve

Case 2: Business Case for an Investment Opportunity in Real Estate 18

Case 3: Financial Valuation for a Renewable Energy Start-up 22

Annex 31

2PNU – Strategy and Operations Consulting Seminar

INDEX

An important group in the dairy sector of the Basque Country. “Lácteos SA”. carries out the distribution of all kinds of food products to the different distribution channels: Food and HORECA

FOOD DRY SMOOTHIES BEVERAGES

DERIVATIVES SWEET SAUSAGES

MILK MILK POWDER SINGLE DOSE

CHEESES WITHOUT LACTOSE YOGURT

product familiesmain channels

Total References: 510

29,4%

7,2% 4,8%

22,2%

35,6%

0,8%

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

Frío Seco Din

41,4% 58,6%

Kaiku

Km0

Food

HORECA

References (in number of references)

Open case 1. Context

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own product

external product

Cold Dry

I

The current flow of the distribution process of Lácteos SA entails the passage of most of the product through the central platform located in Jundiz (Basque Country) From there it is distributed to Food customers. and the Horeca channel (food service) both directly and through its delegations.

Location of delegations

Biscay Gipuzkoa

Araba-Jundiz

Navarre

Cantabria

Rioja Barcelona Zaragoza

Valencia

Madrid

Current Flow of the Distribution Process

Other Manufacturers/ external suppliers

Central platform Jundiz

Food

Horeca Channel

Delegations

Manufacturers/ Suppliers own self

of Lácteos SA

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Open case 1. Context

Central platform Jundiz

The current network of Lácteos SA has 64 origins and 1.120 destinations of the Jundiz platform

64 Origins 1.120 destinations664.316 lines prepared 48.636 orders prepared

560 Food destinations

550 Horeca destinations

10 Delegations Own factories of

Lácteos SA

5

15 own suppliers of Lácteos SA

45 external suppliers

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Open case 1. Context

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In this background, the client requests…

Project Objectives

… to carry out a diagnosis of the current logistics model to carry out the appropriate network design for current and future market demand, considering the possibility of separating or outsourcing certain

channels

▪ Dimensioning of the network from the production centres and external suppliers to the distribution carried out from the distribution centre of Jundiz

▪ Distribution system sizing. current scenario vs. other possible scenarios

▪ Cost evaluation of scenarios based on ratios available by Lácteos SA: cost €/km by type of vehicle. cost €/m2 of warehouse by location…

Open case 1. Context

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In order to meet the needs raised, IDOM carried out the design and optimization of the logistics network of Lácteos SA

What is Strategic Network Design?

What is a model?

What is optimization?

▪ The process used to evaluate and/or propose changes to the supply chain to reduce costs and/or increase profitability without incurring investments

▪ It is a computer representation of a physical system.

▪ It is a grouping of information of the desired level of detail (by family. class. code. by provider. by cluster. etc..)

▪ It allows us to test without affecting the real world by optimizing

▪ Network optimization is finding the structure that provides the greatest profitability among multiple options that can be obtained. based on current optimized network characteristics.

▪ Mathematical programming is used to find the optimal solution

▪ Business logic is introduced through constraints; Although 100% of the cases cannot be modelled. a large part of them can.

Network Design

Sales & Ops Planning

Transportation modelling

Inventory modelling

Strategic sourcing

Product Intro/ phase-out

M&A Rationalization

Green house Gas Analysis

Risk Analysis

Open case 1. Context

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The characterization and optimization of the logistics network will be carried out. based on 7 key concepts of logistics management Each concept will be defined based on supply. transportation and inventory policies

Open case 1. Data to consider

Data

Products and packaging

Current distribution centre

Supply centers

Delivery points

1

2

5

6

Supply policies

Transport policies

Inventory policies

Service levels 3

Growth forecasts 4

Transport modes and politics 7

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Products Real case

Open case data

▪ Lácteos SA distributes 2 types of product: Cold and Dry

▪ Products have different dimensions. logistics sizes and packaging

▪ Products are stored and distributed differently depending on whether they are cold or not (refrigerated warehouse/room temperature warehouse. refrigerated truck/room temperature truck)

▪ From the Jundiz warehouse. 510 different references are distributed

▪ The following products and the production ratio will be considered for this case: ―Cold product: 3 references ―Dry product: 3 references

Cold product Dry product

Cold coffee Whole milk

Vanilla milkshake Lactose Free Milk

Yogurt Olive oil

Open case 1. Data to consider

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Suppliers- supply centers Real case

Open case data

supply policies ▪ Jundiz receives the product from 62 origins; divided into:

▪ own factories Lácteos SA: 4 ▪ own suppliers Lácteos SA: 15 ▪ External providers: 45

transport policies ▪ Road transport ▪ Transportation costs are borne by Lácteos SA for products produced in its factories or that come from its suppliers. Third-party

vendors deliver the product directly to Jundiz bearing the cost of transportation

inventory policies ▪ The capacity of the supplier to supply the product is considered.

Supply policies ▪ A) Factory. B) Own supplier and C) External

supplier

Transport policies ▪ Transport costs per kilometre/tonne

― See distance matrix annex and annex transportation cost

*Lácteos SA will only be responsible for the transport to the central warehouse of the product that comes from our own factories and suppliers

Inventory policies ▪ Does not apply

A) Factory B) Own supplier C) External supplier

Product Tons Product Tons Product Tons

Whole milk 12000 Cold coffee 6700 Vanilla Smoothie 2300

Lactose Free Milk 10000 Yogurt 3600 Olive oil 5400

Open case 1. Data to consider

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Delivery points Real case

Open case data

supply policies ▪ Customers of Lácteos SA demanded 42.000 tons in 2019 to be distributed from the main warehouse of Jundiz. ▪ The distribution of the products was analysed until their delivery to the final food customer. to the final customer of the

channel Horeca or up to 10 delegations ▪ We did not work with the price of the final product sent. but with its weight

transport policies ▪ Road transport ▪ Transportation costs were borne by Lácteos SA for all products that are distributed from the warehouse of Jundiz

inventory policies ▪ not considered

Supply policies

Delivery points

Tons DP1 DP2 DP3 DP4 DP5 DP6 DP7 DP8

Whole milk 1.613 1.290 1.452 1.387 1.258 2.419 1935 645

Lactose Free Milk 1.157 370 556 648 324 1.620 3.704 1.620

Cold coffee 587 391 489 734 342 978 1.467 1.712

Yogurt 220 263 351 439 132 659 1.098 439

Vanilla Smoothie – 174 279 209 70 1.045 348 174

Olive oil 524 210 367 262 105 1.049 2.097 786

Open case 1. Data to consider

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Distribution centres Real case

Open Case Data

supply policies ▪ Lácteos SA currently has 1 supply centre located in the Jundiz industrial estate in Vitoria (Alava)

transport policies ▪ Road transport

inventory policies ▪ The maximum capacity per period is considered ▪ Inventory costs:

▪ Fixed cost and variable cost of the operation

Supply policies ▪ A single plant ▪ Storage capacity: No capacity limit

Transport policies ▪ Transport costs per kilometre

― See transport costs annex

Inventory policies ▪ Operating costs

― See annex operating costs

Open case 1. Data to consider

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Annex. Matrix of distances (km) between nodes

Destination

Kilometres Current

distribution centre

DP1 DP2 DP3 DP4 DP5 DP6 DP7 DP8

Source

A) Factory 100

B) Own supplier 166

C) External Provider 327

Current distribution centre 70 15 100 170 93 570 354 560

Open case 1. Data to consider

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Annex. Costs

Sections (km) Cost (€/km)

Between 0 and <= 10 220 SAR (fixed cost)

More than 10 and <= 25 250 SAR (fixed cost)

More than 25 and <= 40 295 SAR (fixed cost)

More than 40 and <= 50 330 SAR (fixed cost)

More than 50 and <= 150 7.8 SAR/km

More than 150 and <= 350 5.5 SAR/km

More than 350 and <= 900 4.8 SAR/km

More than 900 3.5 SAR/km

Transportation costs

Operating costs

cost type Cost

Fixed 300,000 SAR

Variable 150 SAR/ton

* It is considered that they are complete trucks loaded with 18 tons each

Open case 1. Data to consider

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The following questions about the case must be answered Open case 1. Questions to solve

1. Considering the costs of transportation and operation of the current distribution centre:

a) What would be the current total logistics cost for Lácteos SA?

2. In the following slides, two possible new locations for the distribution centre are incorporated by adding the distance matrices:

a) Compare the base scenario with the two new proposed distribution centres. What would be the most optimal distribution centre?

b) Using the plugin Solver of Excel, find the most optimal combination of flows with the current distribution centre and the centre with the lowest cost of the two new distribution centres analysed in exercise 2A.

3. What is better for the warehouse, insourcing/outsourcing?

4. Identify other qualitative variables that help us select between one distribution centre or another.

Suggested questions

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Possible new location – A Open case 1. Data to consider

Destination

Kilometres Distribution centre A DP1 DP2 DP3 DP4 DP5 DP6 DP7 DP8

Source

A) Factory 7

B) Own supplier 260

C) External Provider 380

Distribution centre A 165 140 95 260 74 480 390 480

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Possible new location – B Open case 1. Data to consider

Destiny

Kilometres Distribution centre B DP1 DP2 DP3 DP4 DP5 DP6 DP7 DP8

Source

A) Factory 370

B) Own supplier 393

C) External Provider 25

Distribution centre B 395 410 450 395 435 635 30 350

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