Case Study 2: Location Analysis

In the last two decades, the olive oil industry has grown considerably, which was mainly caused by an increased awareness of the olive oil benefits to the human health. Because of its exceptional conditions to produce olive oil, Portugal played an important role in the growth of this industry. Since the olive oil production its only possible in the Mediterranean geographic area, the Portuguese olive oil companies have an opportunity to remain growing their businesses in the foreign markets. Contrasting with the rising of the global demand, a demand increasing in the Portuguese market isnt predictable, which amplifies the importance of this expanding strategy.

Oliva (a fictitious name as a request for confidentiality) is one of the companies focusing in an expansion outside of the national market. This company has only one manufactory facility, located in the central region of Portugal, from where it serves more than 40 markets. Although this company also extracts the olive oil in its olive grove, for this study, it was considered that its business model comprises only the acquisition of olive oil lots from different suppliers and their combination in a process called blending. So, the only manufacturing processes in the production plant are: selection and classification; blending; and packaging, as it can be observed in the figure 1. These are the only processes executed by Oliva, which contracts other companies, specialized in logistics management, to carry out the distribution process.

As it can be observed in the last figure, this plant receives two types of raw materials, olive oil and packaging materials, and dispatches the products for all markets. The oil arrives in tanks and the packaging materials in trucks, separated by type of material, currently by land transportation. The products are shipped to the European markets also by land transportation, in trucks that carry out a maximum of 30 pallets. For the remaining markets, the products are shipped in a multimodal transportation (land and sea) by containers, which can carry up to 20 pallets.

Oliva is predicting a demand increasing in its markets outside Europe. Therefore, this company wants to achieve a better resource efficiency in responding to the rising of raw materials and products flux within its supply chain. In order to be able to achieve their goals, the company needs to find the location for its plant that minimizes the total transportation costs. Consequently, Oliva needs a decision model which enables the analysis of the best location, taking into account different scenarios.

Currently, Oliva is considering four European cities for the new plant. Although he could not provide the names, for competitive reasons, the following is known:

Factors	European City Under Consideration				Importance
	A	B	C	D
Demographics	60	70	65	55	10
Proximity to Olive Oil Supplier	65	72	80	61	25
Proximity to Packaging Supplier	70	65	70	75	25
Transportation	80	80	70	85	10
Low Political Risk	85	80	65	85	10
Plant Capacity	90	70	75	85	20

Discussion Questions:

1. What do you think are the factors that should be evaluated in determining Olivas new plant location?

2. Which is the highest rated of the four European cities under consideration, using the table?

3. Why does Oliva put such serious effort into its location analysis?

4. Under what conditions do you think Oliva prefers to open a new plant rather than supplying the Europe market from their current location?