Maximizing Business Success: Choosing between Setting up a Greenfield Plant or Optimizing Supply Chain
Scope For This Project
- The scope of this project encompasses Supply chain expenses- both inbound costs for raw materials and outbound costs for finished product.
- Needed to make a decision on country, location within the country, and supply chain infrastructure, supply chain systems and operations.
- We modelled delivered cost at key locations for every competitor for pricing strategy
Table of Contents
Methodology
- The project team will use a combination of market research, data analysis, and internal process evaluations to identify areas for improvement.
- They will also engage with suppliers, stakeholders, and customers to gather feedback and implement changes.
Project objectives
- Identify which country is more suitable for greenfield plant – Peru or Venezuela or whether to have a broader view regarding which country to set up greenfield plant in.
- Reduce cost of inbound raw materials and outbound finished goods.
- Setting up efficient supply chain model.
Stay Ahead of the Game: Latest Trends in Chemical and Ammonia Industry
- The latest trends in the chemical and ammonia industry include a focus on sustainability, the use of renewable energy sources, digitalization and the implementation of Industry 4.0 technologies
- The industry is also looking for ways to reduce its carbon footprint, for example through the use of carbon capture and utilization technologies.
- Additionally, there is a growing trend towards localization and decentralized production, as well as a focus on ensuring the safe and responsible handling of chemicals throughout the supply chain.
DATA Analysis: Problems faced
- Political and economic instability: Both Peru and Venezuela have experienced significant political and economic instability in recent years, which can make it difficult to predict the future business environment and create uncertainties for long-term investments.
- Infrastructural constraints: Lack of adequate infrastructure, such as reliable power supply and transportation facilities, can increase production costs and cause logistical difficulties for chemical companies in Peru and Venezuela.
- Access to raw materials: Access to raw materials, such as natural gas and oil, can be limited in both countries, which can affect the production of certain chemicals.
- Environmental and social regulations: The chemical industry is heavily regulated in terms of environmental and social impact, and companies may face difficulties in obtaining the necessary permits and complying with regulations in Peru and Venezuela.
- Labor and human resources: Finding and retaining skilled labor can be a challenge in these countries, particularly in the chemical industry where specialized technical skills are often required.
- Competition: Competition from local and international companies can be intense, and companies may face difficulties in securing market share and establishing themselves in the local market.
Data Collection: Key to Understanding Business
- Accurate forecasting and demand planning was achieved by collecting B2B, ] and stock transfer data for a period of 25 months.
- For more efficient data analysis and machine learning, the collected data was cleaned and organized
Initial problems faced by client
- Political and economic stability
- Infrastructural constraints
- Access to raw materials
- Environmental and social regulations
- Labor and human resources
- Competition
The Importance of Data Analysis
- Market analysis: Data analysis can help the company to better understand the local market and make informed decisions about the demand for different chemicals, the competition, and the best location for the plant.
- Resource optimization: Data analysis can be used to optimize the use of resources, such as raw materials and energy, by providing insights into production processes and identifying areas for improvement.
- Risk management: By analyzing data on local political and economic stability, access to raw materials, and regulations, the company can better assess and manage potential risks and make more informed investment decisions.
- Cost reduction: Data analysis can be used to identify cost-saving opportunities and improve the efficiency of production processes. This can help the company to remain competitive in the local market and reduce operational costs.
- Compliance: Data analysis can help the company to monitor and comply with local environmental and social regulations by providing insights into their impact on the business and helping to identify areas for improvement.
- Performance monitoring: Data analysis can be used to monitor the performance of the greenfield plant and make data-driven decisions to optimize production and improve the bottom line.
Key Actions
To reduce inbound and outbound delivery cost
- Negotiating with suppliers: The plant can negotiate with suppliers for better pricing and delivery terms, such as bulk discounts, longer payment terms, and improved transport services.
- Optimizing transport routes: The plant can analyze and optimize transport routes to minimize the cost of delivery and reduce transit times. This can include using a combination of road, sea, and air transport to balance cost and speed.
- Improving inventory management: The plant can improve inventory management to reduce the cost of ordering and holding raw materials. This can include implementing just-in-time (JIT) inventory systems and reducing inventory levels.
- Investing in technology: The plant can invest in technology to improve the efficiency of its supply chain and reduce costs. This can include implementing supply chain management software, using automation to streamline processes, and using data analytics to make informed decisions.
Pros and cons of setting the plant in Peru
Pros
- Peru is strategically located in South America, providing easy access to markets in North America, Europe, and Asia.
- Peru is rich in natural resources, including minerals, oil, and gas, making it an attractive location for resource-intensive industries.
- Peru has several free trade agreements, including the Pacific Alliance and the US-Peru Trade Promotion Agreement, providing companies with access to a large market of potential customers.
Cons
- Setting up a business in Peru can be time-consuming and complicated, due to the bureaucratic red tape and regulations involved.
- Peru has a history of political instability, which can make it difficult for companies to operate and make long-term plans in the country.
- Infrastructure in Peru can be inadequate, particularly in rural areas, making it difficult for companies to transport goods and access resources.
- The labor laws in Peru can be complex, and companies may find it difficult to hire and retain employees.
- Peru is prone to natural disasters such as earthquakes, floods, and landslides, which can disrupt business operations and incur significant costs.
Pros and cons of setting the plant in Venezuela
Cons
- Venezuela is currently facing a severe economic crisis, with high levels of inflation and shortages of basic goods and services, making it difficult for companies to do business.
- Companies operating in Venezuela often struggle to access foreign currency, which is necessary for importing raw materials and paying for equipment and services.
- Corruption is a widespread issue in Venezuela, and companies may face challenges related to bribery and unethical business practices.
Our Recommendations
- Based on our analysis neither Peru nor Venezuela doesn’t make financial sense.
- We recommended a broader region wide site selection process.
- Negotiating better prices and payment terms with existing suppliers can help to reduce inbound costs.
- Investing in technology, such as supply chain management software, can help to optimize the supply chain and reduce inbound costs
Time to conduct Analysis, Pilot Projects & Documenting Results
- The process of conducting the preliminary analysis took 8 week, followed by 28 weeks of additional analysis aimed at optimizing shipping costs.
- An additional 2 weeks were required to present the findings and gain approval from the board
Pros and cons of setting the plant in Peru
Pros
- Peru is strategically located in South America, providing easy access to markets in North America, Europe, and Asia.
- Peru is rich in natural resources, including minerals, oil, and gas, making it an attractive location for resource-intensive industries.
- Peru has several free trade agreements, including the Pacific Alliance and the US-Peru Trade Promotion Agreement, providing companies with access to a large market of potential customers.
Cons
- Setting up a business in Peru can be time-consuming and complicated, due to the bureaucratic red tape and regulations involved.
- Peru has a history of political instability, which can make it difficult for companies to operate and make long-term plans in the country.
- Infrastructure in Peru can be inadequate, particularly in rural areas, making it difficult for companies to transport goods and access resources.
- The labor laws in Peru can be complex, and companies may find it difficult to hire and retain employees.
- Peru is prone to natural disasters such as earthquakes, floods, and landslides, which can disrupt business operations and incur significant costs.
Pros and cons of setting the plant in Venezuela
Cons
- Venezuela is currently facing a severe economic crisis, with high levels of inflation and shortages of basic goods and services, making it difficult for companies to do business.
- Companies operating in Venezuela often struggle to access foreign currency, which is necessary for importing raw materials and paying for equipment and services.
- Corruption is a widespread issue in Venezuela, and companies may face challenges related to bribery and unethical business practices.
Project Recap
- The company is a global leader in chemicals and ammonia operating in Central and South America.
- They are looking to expand by building a greenfield plant in either Peru or Venezuela and reduce costs of inbound raw materials and outbound finished goods by setting up an efficient supply chain model.
- The project team will use market research, data analysis, and internal evaluations to identify areas for improvement and gather feedback from suppliers, stakeholders, and customers.
- The project aims to determine the best country for the greenfield plant and address challenges such as political and economic instability, infrastructural constraints, access to raw materials, environmental regulations, labor and human resources, and competition.
- Data analysis will be used to better understand the market, optimize resources, manage risks, reduce costs, comply with regulations, and monitor performance.
- Key actions to reduce costs include negotiating with suppliers, optimizing transport routes, improving inventory management, and investing in technology.
- In the end ,we recommended our client not to set plants in neither Peru nor Venezuela.
About the Author
Vivek Sood: Sydney based managing director of Global Supply Chain Group, a strategy consultancy specializing in supply chains. More information on Vivek is available on www.linkedin.com/in/vivek and more information on Global Supply Chain Group is available www.globalscgroup.com
Vivek is the Managing Director of Global Supply Chain Group, a boutique strategy consulting firm specialising in Supply Chain Strategies, and headquartered in Sydney, Australia . He has over 24 years of experience in strategic transformations and operational excellence within global supply chains. Prior to co-founding Global Supply Chain Group in January 2000, Vivek was a management consultant with top-tier strategy consulting firm Booz Allen & Hamilton.
Vivek provides strategic operations and supply chain advice to boards and senior management of global corporations, private equity groups and other stakeholders in a range of industries including FMCG, food, shipping, logistics, manufacturing, chemicals, mining, agribusiness, construction materials, explosives, airlines and electricity utilities.
Vivek has served world-wide corporations in nearly 500 small and large projects on all continents with a variety of clients in many different industries. Most of projects have involved diagnostic, conceptualisation and transformation of supply chains – releasing significant amount of value for the business. His project work in supply chain management has added cumulative value in excess of $500M incorporating projects in major supply chain infrastructure investment decisions, profitable growth driven by global supply chain realignment, supply chain systems, negotiations and all other aspects of global supply chains.
Vivek has written a number of path breaking articles and commentaries that are published in several respected journals and magazines. Vivek has spoken at several supply chain conference, forums and workshops in various parts of the world. He has also conducted several strategic workshops on various aspects of supply chain management. He received his MBA with Distinction from the Australian Graduate School of Management in 1996 and prior to these studies spent 11 years in the Merchant Navy, rising from a Cadet to Master Mariner.
More information on Vivek is available on www.linkedin.com/in/vivek and more information on Global Supply Chain Group is available on www.globalscgroup.com
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