Creating a distribution model in the Russian market

The thesis is written to provide the focal company with a distribution model in the Russian market in a changed manufacturing situation: the company has thus far imported its goods to Russia and is starting local manufacturing in Tatarstan in 2015. The thesis focuses on the locations of distribution centers (DCs) in relation to the geographical distribution of actual and potential customers. Also, it assesses future demand and the role of intermediaries between the company and its end-customers. The materials used for the thesis start with reviewing qualitative research on the Russian market, which is then supplemented by the pragmatic application of centers of gravity and other geometrics-based tools to find optimal locations for DCs. The process being iterative, two alternatives for the base case proposed by the focal company are developed. All three scenarios are assessed based on location optimization, mode of transportation, logistics costs, lead times, risks and sensitivity analysis. The results indicate that the potential distribution of end-customer demand is highly uneven, but not as uneven as the actual sales distribution of the company, over half of which are to three Moscow-based distributors. Based on demographic and sales data, the location of the new plant in Tatarstan is found to be an ideal location for a DC when only one center of gravity is calculated. When centers for European and Asian Russia are calculated, Moscow and Chelyabinsk are the most suitable locations. The recommendation is to open DCs in Moscow and Chelyabinsk accommodating the possibility for direct contacts to end-customers. This is the most customer-oriented and strategically far-sighted option. Imports still enter Russia through Saint Petersburg by ship, but transportation within Russia happens by road. Trains are a possibility between manufacturing and DCs. The progression can be gradual, since the DC in Moscow is capable of serving all of Russia, while the Chelyabinsk DC can be added later. This proposal is based on high service level prioritization, and arguments for the base case (Tatarstan and Saint Petersburg DCs) can be made too. The results of the research are limited by the availability of data and other hindrances in the project. In the future, the company should develop their solution to an executable plan and further investigate the Russian business environment. Research in general should examine the application of centers of gravity to similar decision making and the use of external, demographic data to approximate end-customer demand