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Corn Feed Company

Medium
Agriculture
Operational Improvement
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A corn feed company has eight manufacturing plants located in the Midwest. These plants service the entire United States. Their plot in Ohio is in need of refurbishing.

A corn feed company has eight manufacturing plants located in the Midwest. These plants service the entire United States. Their plot in Ohio is in need of refurbishing.

There are two issues to this decision. The plant size and the plant location should be considered Separately. 1. Size of Plant First consideration is the demand for the product. Corn feed is a commodity product. Pricing on the product is dependent on current corn prices as opposed to the manufacturing process. There are four main competitors - our company is the second largest. All four competitors have similar manufacturing processes and similar cost structure. The purposed largest plant will not have economies of scales not currently present a the existing plant. The capacity utilization is 65% which is industry standard. The current customers buy from all four manufacturers in order to guarantee supply. Currently demand is being met and there are no alternative use for corn feed. 2. Location of Plant Transportation cost and perishability are the main issues with location. The transportation cost for the corn stock (raw material) is much higher than the cost of transporting the actual feed. The corn is grown in the Ohio area and the feed is sold to the East Coast. The raw material is perishable where as the corn feed can be stored for any length of time and easier to transport. Cost analysis of the transportation cost of feed versus raw materials should be completed. Included in this analysis would be the % of spoilage for longer transportation of corn stock

• Current capacity utilization: 65% (industry standard — no demand gap to fill) • Corn feed is a commodity product — pricing driven by corn market, not manufacturing • Four competitors with similar processes and cost structures; client is second-largest • A larger plant would NOT unlock new economies of scale • Customers buy from multiple suppliers to guarantee supply security • Raw material (corn) transportation cost is significantly higher than finished feed transport cost • Corn grown near Ohio location — proximity reduces raw material logistics cost • Finished feed can be stored indefinitely and transported efficiently to East Coast
The company has four possible options:
1. Refurbish the existing plant
2. Build a larger plant at the current location
3. Build a similar size plant at a new location
4. Build a larger plant at a new location
Which is the best option for this plant?

Separate the two decisions — size and location — and analyze each independently. On size: no economies of scale and 65% utilization means expansion is not justified. On location: raw material transport costs dominate, and Ohio is optimal. Recommended action: refurbish the existing plant at its current Ohio location.

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Published October 2, 2025 • 27 views
Firm/University: Australian Graduate School of Management
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