Case Statement:
Client is dealing with a special technology based electric bulb, he imports it from Australia via a port in Goa and sells in Bangalore. The competitors have shifted the port to Vizag. Our client thinks it is because Vizag port is cheaper. Should the client also shift his operations?
C: Do our competitors also sell only in Bangalore?
I: Yes, and there is enough demand for all the competitors, no inventory issues for anyone.
C: What is the distribution channel used by the client? Is it like that of our competitors?
I: Yes, Australian port -> Ship -> Docking period (Indian port) -> Truck -> Warehouse -> Shops.
C: What is the docking period of port Vizag and port Goa?
I: Vizag has extra 5 days of wait at the port because of heavy traffic at the port.
Since our client is thinking that the operations are cheaper in Vizag. I would like to analyze the costs incurred at both the ports.
C: Since Goa is nearer to Bangalore as compared to Vizag, the transportation costs, that is the fuel costs, would be lesser?
I: Yes, take Vizag- 700km and Goa-500km, and fuel cost as Rs.10/km
C: If we talk about the distance covered by ships from Australia to India, Vizag is on the eastern coast, nearer to Australia as compared to Goa which is on the western coast. So, for Vizag the costs should be lesser. Also, do our ships have this capacity to travel extra distance?
I: Yes, our ships can travel, Vizag saves 400km, you may take Rs 8/km as fuel costs here.
C: Are the ships and the quantity that we are unloading at both the ports similar?
I: Yes.
C: Then can I say that the custom clearance is similar?
I: Yes.
C: As you mentioned that the docking period is longer in Vizag, what is the extra costs that we are incurring while parking 5 extra days.
I: It is Rs 240/day.
C: Are there any other costs, that I am missing?
I: No, these are all.
C: So, the costs are appearing similar for both the ports. We must analyze other factors to understand the competitors’ move.
I: I think we can move to recommendations based on the information gathered.
C: Since our client was thinking that it is cheaper to operate from Vizag, but according the analysis, it is not appearing so. Still, we are observing that the competitors are shifting to Vizag port. Based on the information gathered we should not move to Vizag, though the costs are same, but the docking period is extended by 5 days. This waiting period might cause inventory issue. Since we have been operating for 5-7 years without an issue of supply-demand mismatch, we should continue our operations with the Goa port.
Background Information:
All the competitors (4-5 competitors) buy from the same manufacturer in Australia
Company is in business for 5-7 years and sells only one type of bulb
Price of the bulb is comparable to that of competitors
All Deal with similar customers
Case recommendations:
We should not move to Vizag, though the costs are same, but the docking period is extended by 5 days. This waiting period might cause inventory issue. Since we have been operating for 5-7 years without an issue of supply-demand mismatch, we should continue our operations with the Goa port.
