ADANI WILMAR LIMITED GROUP G CASE ANALYSIS

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Subject MODELING FOR DECISIONS , TERM 1
Case ADANI WILMAR LIMITED
Group G : Members 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 hub-
and-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 0 (no warehouse required)
Ghaziabad 995 (Managed by AWL)
Gorakhpur 0 (no warehouse required)
Jhansi 67 (Managed by C&FA)
Kanpur 1164 (AWL)
Lucknow 0 (no warehouse required)
Varanasi 0 (no warehouse required)
ADANI WILMAR LIMITED GROUP G CASE ANALYSIS
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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
Modes of Shipment
(Figures in Rs per Ton)
Bareilly Ghazia
bad
Gorakhp
ur
Jhansi Kanpu
r
Luckno
w
Varan
asi
1 By ROAD : Mundra to 1550 1300 1900 1500 1600 1700 1800
2 By ROAD : Mundra- Ahmedabad
to WH
1600 1300 2000 1250 1500 1600 1900
3 By ROAD : Mundra -Indore to
WH
1600 1400 1850 1350 1500 1550 1750
4 By RAIL : Mundra - Ghaziabad
then by ROAD to WH
1250 950 1750 X 1400 x 1650
5 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
<200 tons/month 35000
200-400 tons/month 55000
400-600 tons/month 75000
>600 tons/month 85000

ADANI WILMAR LIMITED GROUP G CASE ANALYSIS
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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. Primary transportation cost
2. Secondary transportation cost
3. Warehouse operating cost by AWL (depend on capacity of warehouse)
4. 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 <200 tons of oil per month
= 0 otherwise
Qi = 1 if respective warehouse is handling 200- 400 tons of oil per month
= 0 otherwise
Ri = 1 if respective warehouse is handling 400 - 600 tons of oil per month
= 0 otherwise
Si = 1 if respective warehouse is handling more than 600 tons of oil per month
= 0 otherwise
Inputs
Cij = Cost of transporting one ton of oil from Mundra to dealer j via warehouse i
Dj = Demand at dealer j (in tons per month)
M = a large number (conceptually at least 2200, to theoretically enable one of the warehouses (with
a capacity of more than 600) to handle all the dealers)
ADANI WILMAR LIMITED GROUP G CASE ANALYSIS
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The desirable routing on the primary element was analyzed using different model scenarios.
Formulation
The following formulation contains 136 +7 (dij + CFi) continuous and 28 (4 choices of capacity and
management for 7 locations) binary decision variables.
( ) ) 3 ( 1 , 0 , , , 0 ,
) 2 ( 7 .. ,......... 2 , 1 600 400 200
) 1 ( 28 ...... ,......... 2 , 1
* 150 85000 75000 55000 35000
28
1
7
1
7
1
7
1
28
1
7
1



e >
= + + + + s
= =
+ + + + +

=
=
= = = =
Si and Ri Qi Pi CFi dij
i every for Si M Ri Qi Pi CFi dij
j every for Dj dij
to Sub
CFi Si Ri Qi Pi Cij dij Min
j
i
i i j i

(1) --- Demand at every dealer must be satisfied.
(2) --- A warehouse of required capacity managed directly by AWL or C&FA must be opened for
dealers to be assigned. If that warehouse would be managed by C&F agents and in that case
Pi, Qi, Ri, Si will be zero. If that warehouse is managed by AWL, then we have a step function
that guides the maximum value of demand that can be satisfied by the warehouse.
(3) --- Nonegativity constraints and binary value constraints
Solution for LP problem using Premium Solver
The LP was solved using Premium Solver add-in for Excel and the results were calculated at both 0.05
tolerance (default) and 0.00 tolerance (to obtain the most optimal solution).
Assumptions :
1) We considered M as 9999 so as to force solver to treat the specific case of warehouse capacity
being larger than 600 to be considered only as a last option and when all other optimality
conditions fails.
2) All calculations are based on the assumption that the dealer demand and costs would remain
relatively constant in the period under study , in this case , 1 month.
3) Our optimal solution lies at Tolerance of 0.00

SOLUTION SUMMARY TABLE COMPARING TOLERANCES (0% Vs 5%)
Allocation of Edible Oil Supplied to
Warehouses at tolerance = 0.00
(in Tons/Month)
Allocation of Edible Oil Supplied to
Warehouses at tolerance = 0.05
(in Tons/Month)
ADANI WILMAR LIMITED GROUP G CASE ANALYSIS
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Bareilly 0 (no warehouse required) Bareilly 0 (no warehouse required)
Ghaziabad 995 (AWL) Ghaziabad 1054 (AWL)
Gorakhpur 0 (no warehouse required) Gorakhpur 197 (C&FA)
Jhansi 67 (C&FA) Jhansi 67 (C&FA)
Kanpur 1164 (AWL) Kanpur 568 (C&FA)
Lucknow 0 (no warehouse required) Lucknow 0 (no warehouse required)
Varanasi 0 (no warehouse required) Varanasi 340 (AWL)

Solution Alternatives
In addition to our recommendation , we would like to bring management attention to certain
scenarios that need to be considered. The recommendation provided takes into consideration that
the demand from UP will remain constant or that Concor will be operational by the time the Plant
goes live.
However, the more probable scenario is that the demand for oil (being an essential consumer good)
will increase and hence, we need to look at something less than the most optimal solution e.g. a 0.05
tolerance solution. In that case, our recommendations to the management are as follows:
Case Scenario Warehouse Selection Recommendations Costs
1 The demand
could
fluctuate , so
we consider
Tolerance of
0.05 as well
1) Build two large capacity warehouses at Ghaziabad and
Varanasi that are managed by AWL and served by railroad.
2) Establish a relationship with C&F Agents for warehouses at
Jhansi and Gorakhpur. Serve Jhansi by road and the rest by
a combination of railroad and road transport.
3) It should be noted that with further increase in demand
from the dealers being served by Kanpur warehouse, it will
be cheaper to manage the Kanpur warehouse ourselves
rather than using a C&FA. The C&FA cost keeps increasing
linearly while warehouse option becomes constant after a
certain capacity.
Rs.
32,16,290
Per
Month
2 Possibility
that Concor
services may
not start on
time.
1) Build three self-managed warehouses at Ghaziabad and
Lucknow
2) Establish a relationship with C&F Agents for warehouses at
Jhansi, Kanpur, Gorakhpur and Varanasi
3) Once Concor service is operational, we can convert the
Kanpur warehouse to a self-managed warehouse and
close/downgrade the Lucknow facility.

Rs
38,83,460
with 0%
Tolerance
AND

Rs.
3917100
with 5%
Tolerance