FPT Group (Pty) Ltd forms part of the Capespan Group, an international leader in delivering dew-fresh, world-class product and service solutions to global fruit trading partners 365 days a year. The company was looking to grow its market share by establishing one or more logistics hubs in the Mpumalanga and Limpopo provinces of South Africa, closer to the export corridors of the Durban and Maputo ports. Up to one million pallets of citrus fruit are packed in this region each season with a number of packhouses located near the core growing towns of Nelspruit, Hoedspruit and Letsitele. A key criteria for FPT was that the logistics hubs must be located within a 100 kilometre radius of the packhouses in order to minimise transport costs for producers. By establishing a logistics hub in this region, FPT would be able to increase its share of the citrus export market while offering its clients improved supply chain flexibility.
The Solution
The South African fresh produce industry has a global reputation for excellence but given the volumes involved and varying customer requirements, the underlying supply chain is both complex and critical. When considering changes to this supply chain it is essential to be able to accurately model multiple scenarios, run various ‘what if’s’ and understand the full financial impact of each potential decision. Business Modelling Associates (BMA) was contracted by FPT Group to conduct a supply chain network analysis to determine the optimal number and location of logistics hubs taking into account factors such as annual production volumes, transport distances and network costs.
A centre of gravity model to determine the optimal number and locations of hubs. The model finds the optimal locations based on the volumes per packhouse and the distances from each packhouse to the potential hub locations as well as the export volumes per port and the distances to each port from the potential hub locations. The centre of gravity model minimises overall volume over distance. After the optimal locations were determined using the centre of gravity model, a supply chain network model was developed to determine the optimal number of hubs looking at distribution costs. The model also determined the required size and throughput capacity by product type for each of the hubs.
The model analysed both inbound supply from the packhouses as well as export demand from the ports. It looked at ways to maximise revenue and throughput for FPT at the hub and from the hub to the terminals. Once the baseline network model was in place, FPT was able to conduct scenario planning such as the impact of increasing its market share by 10% and the knock-on effect this would have on the total number of hubs required. Various business scenarios were considered in the model such as moving more export volume via Maputo than Durban, increasing the use of rail freight, and the option of operating a logistics hub for only 6 months of the year versus all year round by stocking alternate products during the citrus fruit off-season. Another industry trend analysed was the shift in volumes from conventional pallets to container loads and what impact this would have on future supply chain strategies, network costs and hub configuration.
Outcome:
BMA prepared detailed recommendations for FPT on the number of hubs required and optimal locations and also developed a financial analysis of the overall effect on supply chain costs of setting up a new logistics network. FPT was able to use these recommendations to build a business case for shareholders to invest in four new logistics hubs in the Mpumalanga and Limpopo provinces.
“With a CAPEX decision of this magnitude it is crucial that shareholders understand the business case and associated risks before committing to it. Therefore the ability to thoroughly understand the full financial impact of our decisions is invaluable. BMA’s expertise, approach and technology allowed us to make a more informed decision with less risk about our future strategy. We are very pleased with the outcome of this project and our successful partnership with Business Modelling Associates.” Danie Schoeman, Managing Director, FPT Group
