Apoorva: A Facility Location Dilemma Custom Case Solution & Analysis

1. Evidence Brief: Case Extraction

Financial Metrics

• Land Acquisition Costs: Bangalore exhibits the highest cost at 45 million INR per acre. Mysore follows at 22 million INR per acre. Hubli is the most economical at 12 million INR per acre.
• Operational Expenses: Transportation costs average 18 INR per kilometer for a 10-ton truck. Labor costs in Bangalore are 35 percent higher than in Hubli and Mysore.
• Required Investment: The total budget for the facility is capped at 150 million INR.
• Revenue Impact: Out-of-stock incidents in North Karnataka result in an estimated 12 percent loss in potential monthly revenue.

Operational Facts

• Current Network: A single central warehouse in Bangalore serves 42 outlets across Karnataka.
• Lead Times: Delivery to northern clusters (Hubli, Belgaum) currently takes 36 to 48 hours. The target lead time for perishables is 12 hours.
• Distance Matrix: Bangalore to Hubli is approximately 410 kilometers. Bangalore to Mysore is 145 kilometers. Hubli to Belgaum is 100 kilometers.
• Inventory Turnover: The retail chain maintains a 4-day inventory buffer for non-perishables and a daily replenishment cycle for fresh produce.

Stakeholder Positions

• Vikram Singh (CEO): Prioritizes rapid market share expansion and high service levels to compete with national players.
• Anjali Rao (CFO): Expresses concern regarding the high capital lock-up in Bangalore real estate and favors a low-cost operational model.
• Rajesh Kumar (Operations Manager): Emphasizes the logistical difficulty of managing a fragmented supply chain and prefers a centralized hub to maintain quality control.

Information Gaps

• Tax Implications: The case does not detail the specific Goods and Services Tax (GST) credit differences between the proposed locations.
• Competitor Positioning: Specific locations of competitor distribution centers are not mapped.
• Future Demand Forecast: Detailed 5-year demand projections for the Mysore cluster versus the Hubli cluster are absent.

2. Strategic Analysis

Core Strategic Question

• How can Apoorva optimize its distribution network to reduce lead times for North Karnataka while staying within capital expenditure limits?
• Should the firm double down on its Bangalore stronghold or decentralize to capture regional growth?

Structural Analysis

Applying the Factor Rating Method reveals that Hubli scores highest for geographic centrality and cost-efficiency. While Bangalore has superior infrastructure, the diminishing returns of a single-hub model are evident in the 48-hour lead times to northern stores. The Center of Gravity analysis indicates that as store density increases in the north, the optimal distribution point shifts away from the southern tip of the state.

Strategic Options

• Option 1: Establish a Regional Hub in Hubli.
  • Rationale: Reduces lead times to North Karnataka by 70 percent and offers the lowest land costs.
  • Trade-offs: Increases management complexity and requires a new local vendor network.
  • Resource Requirements: 110 million INR for land and construction; 15 new operational staff.
• Option 2: Expand the Bangalore Central Warehouse.
  • Rationale: Maintains centralized control and utilizes existing management expertise.
  • Trade-offs: Fails to address the transit time issue and incurs the highest land cost.
  • Resource Requirements: 140 million INR for expansion; increased fleet size for long-haul transport.
• Option 3: Hybrid Mysore-Bangalore Corridor.
  • Rationale: Targets the high-growth southern region with lower costs than Bangalore.
  • Trade-offs: Completely neglects the North Karnataka service level problem.
  • Resource Requirements: 85 million INR for a smaller satellite facility.

Preliminary Recommendation

Apoorva must select Hubli for its next facility. The financial data confirms that land costs in Bangalore are prohibitive, and the operational data proves that the current centralized model is failing the northern stores. Hubli provides a strategic gateway to both North Karnataka and Southern Maharashtra, aligning with the growth targets of the CEO while satisfying the cost constraints of the CFO.

3. Implementation Roadmap

Critical Path

• Month 1: Finalize land acquisition in Hubli and secure environmental permits.
• Month 2: Contract third-party logistics providers for local milk-run deliveries in the northern cluster.
• Month 3-6: Construction of the 50,000 square foot facility and installation of the Warehouse Management System.
• Month 7: Inventory transfer and pilot run with five high-volume stores in Hubli and Belgaum.

Key Constraints

• Talent Availability: Finding experienced warehouse managers in Hubli may be difficult compared to Bangalore.
• Infrastructure Quality: Power stability and road conditions in rural North Karnataka may disrupt cold chain integrity.
• Vendor Integration: Local suppliers must be onboarded to the electronic data interchange system to ensure real-time inventory visibility.

Risk-Adjusted Implementation Strategy

To mitigate execution risk, Apoorva will adopt a phased activation. Instead of closing the Bangalore long-haul routes immediately, the company will maintain a 20 percent buffer capacity in the central hub for 90 days post-launch. This ensures that any teething issues in the Hubli facility do not result in empty shelves during the transition. Contingency funds of 15 percent are allocated to address potential construction delays caused by the monsoon season.

4. Executive Review and BLUF

BLUF

Apoorva must establish the new distribution facility in Hubli immediately. The current centralized model in Bangalore has reached a point of diminishing returns, evidenced by 48-hour lead times and 12 percent revenue leakage in northern markets. Hubli offers a 73 percent reduction in land acquisition costs compared to Bangalore and places inventory within 12 hours of the northern store cluster. This move is the only viable path to support the expansion without exceeding the 150 million INR capital budget. Delaying this decentralization will cede the northern market to national competitors who are already optimizing regional logistics. Approved for leadership review.

Dangerous Assumption

The analysis assumes that the 12 percent revenue loss in North Karnataka is solely due to lead times. If the loss is actually driven by local assortment preferences or pricing sensitivity, the new facility will improve delivery speed without fixing the underlying sales problem.

Unaddressed Risks

• Fuel Price Volatility: A decentralized model increases the total number of short-haul trips. A 20 percent spike in diesel prices could erode the margins gained from lower land costs.
• Labor Relations: The case does not account for the potential pushback from the Bangalore-based transport unions who may lose long-haul mileage income once the Hubli facility is operational.

Unconsidered Alternative

The team did not evaluate an Asset-Light Strategy. Instead of building and owning a facility in Hubli, Apoorva could lease space from a third-party logistics provider. This would convert the 110 million INR capital expenditure into a variable operating expense, preserving cash for aggressive store front expansion while still achieving the 12-hour delivery target.

MECE Assessment

• Financials: Costs are categorized into fixed (land) and variable (transport/labor).
• Geography: The state is divided into South (Bangalore/Mysore) and North (Hubli/Belgaum) clusters.
• Options: Choices cover expansion (Bangalore), relocation/decentralization (Hubli), and compromise (Mysore).

VERDICT: APPROVED FOR LEADERSHIP REVIEW