The business expansion opportunities and ability to lower operating costs illustrated in this case study are largely due to the rebuilding of the Angolan railway system. This system was once one of the finest in Africa. But during the Angolan Civil War (1975 – 2002) it was mostly destroyed. The rebuilding of this transportation infrastructure opens up many new opportunities (http://www.bbc.com/news/world-africa-11295533)
As the railway network becomes operational again, and expands to link up with previously isolated cities, it is possible to transport people and products quickly and inexpensively (http://www.railwaygazette.com/search.html?q=angola). This enables commerce to increase and companies to grow.
[There is a study guide for this case study. It is structured as a sequence of five scenarios to explore different aspects of this case study in detail. The structure can be modified as needed. It is illustrated with screenshots and commentary. Instructors using this case study can contact email@example.com to request a study guide.]
As this network connects with rail systems in surrounding countries such as the Democratic Republic of Congo (DRC), Zambia and Namibia, it makes Angola a powerful commercial hub in south and central Africa. Angola’s deep water ports in Luanda, Lobito and Namibe are connected to the vast mining operations in Katanga (southern DRC) and other areas of central Africa. These ports then become the fastest and least expensive way to ship mineral ore to European and North and South American markets (“Rebuilding Angola’s Infrastructure” http://www.eaglestone.eu/xms/files/IJ_-_Rebuilding_Angolas_Infrastructure_150114.pdf).
The Caminho de Ferro de Benguela railroad is the shortest rail line linking Congolese (DRC) and Zambian mining operations to world markets. It could prove to be a game-changer in the new race for Africa’s mineral resources. Once the 1,344 km Benguela line is connected to the rail system in Katanga, it could well become the main transport corridor for much of the mineral resources of central Africa (“China Railway Construction Completes Rebuilding of Angola’s Benguela Railroad” http://macaudailytimes.com.mo/china-railway-construction-completes-rebuilding-angolas-benguela-railroad.html). At the moment, all minerals are exported via Richard’s Bay in South Africa, some 8,000 km away by train or truck. Now Lobito’s brand-new facilities are less than 2,000 km away.
Powerful business interests (Angolan, Chinese and Swiss) at the center of these infrastructure rebuilding projects are positioning themselves to dominate the petroleum and mining commodity trade in Angola and much of central Africa (“Angola’s Chinese-built rail link and the scramble to access the region’s resources” http://china-africa-reporting.co.za/2014/02/angolas-chinese-built-rail-link-and-the-scramble-to-access-the-regions-resources/ ).
Yet regardless of the motives for building transportation infrastructure such as that now being built in Angola, once it is built, it also enables the expansion of many other types of businesses, not just those directly connected to the building of railroads or the mining of minerals. Just as the development of the American railroad system once enabled the growth of the American economy, development of the Angolan railroad system is now driving growth in the Angolan economy.
S&J Trading Company – Starting Out
Your family has been in the import/export business for a long time. They have a way of seeing opportunities early and jumping in before everybody else. They noticed over the last several years that Angola’s economy has been one of the fastest growing in the world. So your uncle and your father spent some time in Angola a while back; they opened up a distribution center (DC) in the capital, Luanda, plus three stores in cities around the capital (Uige, Malanje, and Dondo).
You’ve just joined the business and this is your opportunity to prove yourself. Business is growing in Angola and the company needs somebody who can guide the Angola operation to success. It will call for long hours and lots of perseverance, but the potential rewards are well worth the effort. The company is importing products from America and Europe and selling the merchandise through its three stores. Your first job is to fix the supply chain that supports those stores. There are some problems, as you quickly find out. So you set to work making changes and improvements to the supply chain.
Then as soon as you get the existing supply chain stabilized and able to run for 30 days, you need to expand the business and open four more stores. There are a lot of decisions to be made. Everything from picking the location for the four new stores to figuring out how to best distribute products to those stores.
You import three types or categories of products in quantities large enough to fill a growing number of shipping containers (the categories are: Product A; Product B; and Product C). And you track inventory movement and demand at the shipping container level. The table below shows how many shipping containers of each product category will be needed every day at the new stores. When you load the S&J Trading Company supply chain model from the SCM Globe library, you can see demand at the existing stores, and you can see more about the products, facilities, vehicles and routes that make up the existing supply chain.
FIRST CHALLENGE — Do what you need to do to make the existing supply chain run for 30 days. Then expand the supply chain. Add the four new stores shown below and create trucks and routes to deliver your products to those stores.
When you add the four new stores, zoom in and look at the four cities named below. Switch to the satellite view and select a location for each store that looks like a good retail location. Look for a place on a main road, in the middle of a large concentration of population, and look for facilities that would allow a large truck to drive up and park and unload products for the stores.
Notice how the transportation and operating costs of this expanded supply chain change. What cost rises by the largest amount?
Outline your findings and the main challenges you faced to this point in the case study in a short executive report. Use screenshots and simulation data to illustrate your findings and back up your decisions.
TIP: Save backup copies of your supply chain model from time to time as you make changes. Then if a change doesn’t work out, you can restore from a saved copy.
S&J Trading Company – Expanding
S&J Trading is going to open new stores in Lubango, Namibe, Haumbo, and Kuito. Here is the product demand information you need to start planning for these new stores. For each of these cities, zoom in and use the satellite view to explore the city layout. Find a suitable location for a store in each of these cities and plan to open each store with on-hand product inventory equal to 10 days demand:
|Daily Demand||Product A||Product B||Product C|
Your existing supply chain uses trucks. As you start considering ways to extend your supply chain to supply these new stores you see how quickly transportation costs go up with trucks. Angola’s road system is not in good repair over much of the country and keeping stores supplied by truck is expensive. And you also notice there is another way to make deliveries to the stores. Your stores and facilities are all located in cities that have rail service. You have a DC in Luanda, and could open a DC in Lobito or one of the other cities. There are now, or soon will, be stores in the other cities highlighted with orange circles.
SECOND CHALLENGE — The railway system is a viable alternative to using trucks. Do some experimentation to find the best way to build a rail-based supply chain. In your experimentation do things to explore answers to questions such as:
- Can you service all stores out of a single DC or do you need another DC, and if so then where should it be?
- What kind of delivery schedule would be best? What if you could deliver by rail every day?
- What if you could only deliver every second or third day?
- How does the delivery schedule affect inventory needed on-hand at stores?
- And how does amount of on-hand inventory affect store operating and rent costs?
- How much will the move to rail transportation reduce costs?
- Do reductions in transportation costs offset some increased costs elsewhere?
The answers to these and related questions will emerge as you model different supply chain options, and simulate their performance to see what works best.
Things to Think About Regarding Your Distribution Center: As you change from truck to rail for your main mode of transportation, look at the map of the Angolan Railway System above and locate nodes in the network where different rail lines (planned and existing) come together. Then use your SCM Globe account and zoom in and look at those places. Switch to satellite view and look for freight handling facilities that would indicate a good location for a new DC. The screenshot below shows the Huambo railway station. Huambo is one of those nodes where different rail lines come together. Notice the size of the warehouse facilities and the presence of a rail yard that can handle several large trains simultaneously (red arrows). Notice also there is a potential facility for the Huambo store located right near the train station (yellow circle).
Note some other cities on the rail lines that might make good locations for a new distribution center. Then zoom in to view those other locations and switch to the satellite view. Find the railway stations in those cities. Look at the size of the stations and the size of warehouses and other freight handling facilities next to them. What do you see? How do those other stations compare to the one in Huambo regarding their freight storage and handling capabilities?
Also note how these freight handling facilities compare to those at the port in Luanda where your present DC is located (yellow circle on right side of screenshot below). Your present DC is located in a large warehouse near the container storage yards where the freight containers are stored after they are unloaded from cargo ships at the port. You can also see your DC is located on the rail line that runs along the south side of that facility. Follow the rail line to the left and see the railroad station (yellow circle in lower left of screen).
You have three options for the location of your DC: 1) you can maintain your Luanda DC and continue to serve the whole supply chain out of that DC; 2) you can maintain the Luanda DC and open another DC in another city; or 3) you can close the Luanda DC and serve the whole supply chain from product stored at the new DC. What are the pros and cons for each of these options based on what you see by looking at the facilities involved? How do these different options affect transportation costs and why?
Along with your new supply chain model create a short presentation explaining how you built your rail-based supply chain and why you choose the locations you chose for your facilities. Show how the costs and inventory levels compare to a truck-based supply chain.
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