Grain Catchment Area Analysis

As freight costs, volumes, and asking prices fluctuate, managers of logistics networks know that adapting to the market via re-evaluation of current strategies is needed to maximize profitability. What sourcing or distribution regions naturally emerge from different price scenarios in different locations? How can owners and operators ensure optimal performance of the business?

Ploughman has encountered this problem in different regions and industries. Our solutions for assessing sourcing/distribution zones take into account a variety of factors – locations of facilities and terminals, prices at those locations, production and demand, truck freight costs per ton-mile across different road classes, and the physical road network itself. After running analyses to illustrate likely grain producer decision making, Ploughman can provide maps showing expected catchment areas and the amount sourced or distributed through each location.

Original price: $5.96
Clicking the buttons will raise or lower the bid for corn at the northern facility in this map.
Operations Research & Logistics
Shaded areas are locations of corn production, and the colors indicate catchment areas.
The sidebar indicates change in corn volume in the blue catchment area. (USDA 2010)

For example, consider a grain merchandiser in east central Illinois. His facility lies in a region with several nearby facilities competing for grain from local farmers. The price that a merchandiser offers affects the range of farmers who are incented to bring their material to his facility, rather than a competitor’s, given the transport costs, and subsequently the volume of grain that can be expected at that facility. Ploughman can model the relationships between price, draw range, and other factors, providing estimates of expected sourcing regions based on current conditions.

In the example above, a change in offered price as small as 5 cents can shift the expected volume to the facility more than 50%.

This can be informative not only for actual situations, but also as a means to evaluate different pricing strategies. By changing the prices involved in the model, the merchandiser can explore resulting changes in expected grain volume, which allows for more informed decisions. The model can also be applied to evaluate facility performance: is a facility generating the volume that one might expect given the price it offers and the farms in the area? Additionally, merchandising efforts can be targeted to suppliers or customers that lie near the fringe of a sourcing region; a small change in price could be enough to convince those customers to transport to a more profitable facility. The model can also be used to help management explore possible green field construction and get idea of the input costs necessary to handle expected volumes.

These methods allow for enhanced decisions before committing large amounts of money and resources to a project. These enhancements can mean the difference between profitability and facility failure going forward.