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Tedypendah
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Joined: May 26th, 2013, 10:11 am

Transportation problems reducing income in an LBO target

October 3rd, 2017, 3:18 am

We have identified an LBO target that is a Mining company producing Salt and Soda ash. However, the target has a market in a foreign country situated 861 km away. The target is doing good and has positive cashflow, however there is still room for growth as the demand is not being met. The only problem is they use a train to transport the goods and it takes very long.

Any suggestions on how we can deal with the operations to increase supply? I was thinking we can build a warehouse halfway and store the goods there.
 
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ppauper
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Joined: November 15th, 2001, 1:29 pm

Re: Transportation problems reducing income in an LBO target

October 3rd, 2017, 6:17 am

unless this is one of those brainteasers where the train only has enough fuel to get halfway round the world, I'm not sure how the warehouse helps.
If the problem is that you need to fill orders quickly, why not put the warehouse all the way there.
You need to tell us a little more about what the issue is
 
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Traden4Alpha
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Joined: September 20th, 2002, 8:30 pm

Re: Transportation problems reducing income in an LBO target

October 3rd, 2017, 12:12 pm

Why does the the long train journey limit supply? Why can't you ship more?

A warehouse will add costs and increase the total delay between mine and market.

A warehouse only helps if BOTH customers have a lead-time requirement shorter than the transportation time AND demand is unpredictable. If customer don't mind waiting, the long train ride is fine. If customers demand faster service but demand is predictable, then predictable trainloads can be dispatched in advance of orders. It's only the combined condition (fast & capricious demand) that would drive adding a warehouse (either in the foreign country or on the border depending on differential costs of holding in the two countries and the differential times for service across the border versus direct).
 
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ppauper
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Re: Transportation problems reducing income in an LBO target

October 3rd, 2017, 10:21 pm

this is a story on a similar company, botash (botswana ash) whose operations are based in sua pan. The issue for them is the cost of transport
Botash aims to double revenue
Mphathi further revealed that Botash intends to optimize the existing supply chain and design market strategies with logistics channels in mind. However, he raised concerns about the high transportation costs that the company has to grapple with, which end up eating into its bottom line. Botash transports salt and soda ash products to its market throughout Africa using rail. Botswana Railways also transports coal from Morupule mine to Sua Pan. Mphathi said they have been in earnest talks with Botswana Railways with a view to reducing the costs of production, especially since fuel prices have been gradually decreasing over the last few months. 
“We spend about P300 million on transport every year. To demonstrate the crippling costs of transport, I can tell you that more than half of the landed cost of coal used in out plant is attributed directly to transport,” he said.
Botash currently produces 300 000 tonnes of soda ash and 650 000 tonnes of salt per annum. The mine boasts of an OHSAS 18001 certification for safety, ISO 14001 certification for environmental awareness and ISO 9001:2008 certification for quality. Botash is currently the leading supplier of soda ash and industrial salt in southern Africa, with a staff complement of 452 employees mostly in the engineering and operations department. South Africa buys 47 percent of Botash products, followed by Zambia with 24 percent, Zimbabwe 16 percent, Malawi seven percent, Botswana four percent and DRC two percent.
 
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Tedypendah
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Joined: May 26th, 2013, 10:11 am

Re: Transportation problems reducing income in an LBO target

October 4th, 2017, 2:16 am

The problem is that they don't own the train and have no control over it. I mean built a storage house...Ppauper, Botash is the target we want to buy!
 
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ppauper
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Joined: November 15th, 2001, 1:29 pm

Re: Transportation problems reducing income in an LBO target

October 4th, 2017, 10:05 am

if the issue is control, then your choices would appear to be to either buy your own train, if that's both practical and legal, or use a different mode of transport, such as trucks
 
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Traden4Alpha
Posts: 23951
Joined: September 20th, 2002, 8:30 pm

Re: Transportation problems reducing income in an LBO target

October 4th, 2017, 12:51 pm

You could buy your own locomotive(s) and rolling stock to run unit train(s) between the mine and key markets (assuming the Botswana Railways will let you use their tracks).

A storage house at the destination would insulate you from irregular train schedules but it would also increase the landed cost (unless running fewer, larger cargos provided a price break with Botswana Railways).
 
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DominicConnor
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Joined: July 14th, 2002, 3:00 am

Re: Transportation problems reducing income in an LBO target

October 4th, 2017, 9:38 pm

I suspect the issue is latency. If you only start shipping the stuff when you have an order then you must wait, so you need to store more neaer your customers. Ther is an optimisation issue in terms of cost, price and time which would take effort, but is not every hard.
 
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bearish
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Joined: February 3rd, 2011, 2:19 pm

Re: Transportation problems reducing income in an LBO target

October 4th, 2017, 10:48 pm

If my undergrad operations research class has any relevance, there is a square root in the optimal solution.
 
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TraderWalrus
Posts: 25
Joined: March 24th, 2017, 6:54 am

Re: Transportation problems reducing income in an LBO target

October 5th, 2017, 4:15 am

Buy a few trucks. Rent a few more. That will at least help you with the negotiations with Botswana Railways. If you have no choice, why should they go down.
 
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ppauper
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Joined: November 15th, 2001, 1:29 pm

Re: Transportation problems reducing income in an LBO target

October 5th, 2017, 10:04 am

I don't know the rules  in that part of the world, but if you're delivering from botswana to south africa, do you have to use botswana railways or can a south african train come to you? or do you have to change train companies at the border?
 
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Tedypendah
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Joined: May 26th, 2013, 10:11 am

Re: Transportation problems reducing income in an LBO target

October 5th, 2017, 5:59 pm

If my undergrad operations research class has any relevance, there is a square root in the optimal solution.
What optimal solution is that?
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