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Published by:
WHU - Otto Beisheim School of Management (2008)
Length:
11 pages
Data source:
Field research

Abstract

The case provides an introduction to the current topic of real options analysis for business students. It enables students to simulate relevant management decisions within the context of the volatile Chinese logistics market environment. Also, the case provides students with an overview of the contract logistics market in general. The story is centred on the General Manager of Contract Logistics of Kuehne + Nagel in China, Christopher Steffens, who has to decide on various ways to expand warehouse capacity. Within the case, a thorough analysis of the market environment and the inherent business risks has to be performed, to properly evaluate the various capacity expansion options available. The required analysis could be conducted according to the three suggested assignments, which are split up in consecutive steps and build upon each other. To solve the case, in a first step the market characteristics of the Chinese logistics market have to be identified. Subsequently, the resulting risks for the company''s operations in China need to be examined and potential real options discussed. Finally, the students should, based on quantitative data, valuate a capacity expansion option for the warehouse. In this context, a simulation tool (for example Crystal Ball) should be applied, building a model based on reasonable assumptions that can be derived from information delivered in the case study. The overall design of the case study makes it suitable for students in their senior Bachelor year as well as for MBA programmes and other graduate courses dealing with real option analysis or logistics. To solve the case a general understanding of real options is advantageous.

Topics

Real options analysis; Capacity planning; Logistics management; Contract logistics; 3PL (third party logistics (provider)); China; Kuehne + Nagel; Warehouse management; Expansion option; Growth option; Simulation
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