European supply chain cost reduction saves client >$25m
This project is one of the largest our team have delivered and it demonstrates our ability to drive cost advantage for clients both big and small. In this case the project was on behlalf of a global manufacturer and distributor, but the principles applied can just as easily be applied in any number of sectors and operating environments, big and small.
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CHALLENGE
Our client was a FTSE 100 global manufacturer supplying the food and drink market with an enviable array of well known branded beverages. Their operations were truly global serving every continent, and in all bar two continents they were the biggest player by market share.
In Europe, they had an operating presence across the whole of the continent and manufacturing in eight countries. This was a business of some scale. The executive team of our client had conducted an overall end to end review of their business operations and had identified that their logistics and supply chain operations could potentially be delivered significantly cheaper. Their logistics budget was in the region of $250 million annually, spread across their operating countries. The business utilised the services of thousands of staff, hundreds of vehicles serving their markets from dozens of distribution facilities.
The broad business review conducted by our clients had identified a target savings level across their logistics of $25 million. This was by far the most significant cost saving opportunity identified by the business and clearly it posed many significant challenges for the executive team as to how to deliver such a sizeable cost reduction.
It was clear that tinkering around the edges was not going to provide adequate levels of cost reduction to meet the businesses objectives. A significantly larger programme of change was required come up but before that programme could be delivered, an assessment of where the savings could be made was required. Our client recognised that they did not have the bandwidth across their own operational team to deliver such a project of this scale from within their existing pool of resource is. Now identified the need for external support to help accelerate programme delivery and robustly access the savings available.
This is where the expertise of our team came in.
The operational scope of where the project could identify savings spanned all elements of the organisation’s supply chain operations. This included raw material and packaging material inbound logistics, factory and distribution warehousing operations, all transport operations, and all labour planning monitoring and control processes.
Overarching all these areas was also organisation structure and management process.
At the same time these savings were identified, an added complexity was that the business was undertaking a wholesale change of IT structure, implementing a significant new ERP system across it’s business estate. Whilst implementing the ERP was not part of this project, understanding the impact of that ERP change and how it would impact logistics and supply chain operations was critical to the success of the programme.
At the outset of this programme the client did not have a full understanding of how best to approach the task to make the savings required. As part of our process of evaluation the client reviewed proposals from a range of consulting service providers as well as an internal approach developed by the European management team and considered how best to deliver the level of change required.
Our team developed a robust and clear approach that provided they executive team of our client the knowledge and certainty about how the programme would be delivered they needed, what the critical milestones would be, and most importantly how the programme’s deliverables ($25 million of cost savings) would be delivered.
APPROACH
Our leadership team, led by Craig Willoughby, gave significant consideration as to how best to approach such a complex task with such an open-ended set of objectives. We identified that it was critical to avoid scatter-gun approaches that would not provide adequate detail for the client to go ahead and deliver the recommendations that would create the savings they needed.
We recommend it to the client that an initial project team review should be conducted across the eight biggest operating countries in the network. It was clear that those eight countries accounted for more than 80% of the total logistics and supply chain operating cost base and that these would be the geographical areas where opportunity to make significant savings would be more readily identifiable.
Our team carefully planned out how best to achieve a clear understanding of the ‘size of the prize’ available in each of the major operating countries. The team firstly reviewed operating cost budgets for each country to compare and contrast cost bases to identify any particular stand-out costs.
Prior to engaging with local country management teams on site, video conferencing was held with local management to gain their input into the process in advance of project delivery to ensure that the first stages of client buy-in and acceptance of the changes required would get underway.
It was identified by the project leadership team that the biggest risk to delivering the cost reductions required would be failure to accept the need for change, or inability to deliver the change required due to local capability. This was why the approach to create inclusivity for local management and leadership to take part in, and help steer the project outcome was seen as essential to deliver the project successfully within the timeframes required.
Before starting the project another critical element of the approach was to baseline the current costs and ensure that the executive team from the client were fully briefed and cognisant of current costs and current cost drivers. There were a range of different operating methodologies across the European estate and each one of those methodologies comes with its own cost and customer service profile and challenges. The impact of those customer service methodologies were made clear to the executive team so that we could be clear that we were not developing ‘a one-size-fits-all approach to delivering outcomes across a broad and complex manufacturing and customer service estate.
Following the initial conversations and review of cost bases within each country the project team made plans for a number of high impact and well organised reference visits across the major operating countries. Project leadership understood that it was essential that the review process across each of the countries was as consistent as possible even though it was not possible for the same people to conduct each of the reviews. Likewise it was not practical to review all right countries operations in parallel. The operating nature of each of the countries was assessed and the review team was split into four groups, each reviewing the operations in two specific countries.
The scale and operational methodologies for each of the countries what considered so that each review team would see a mix of sizes (typically one larger country, and one smaller operating country). This approach was specifically identified to ensure the best mix of cross fertilisation of ideas and challenges could be set out within the initial project findings.
The team dispatched to each country was designed to provide the ideal level of expertise in both warehousing and transport operations to ensure maximum breadth of operational coverage and skill could be applied to the reviews.
The consulting teams were briefed and provided consistent recording templates for capturing issues and potential opportunities when visiting each of the sites. The project overall was supervised by the project director who spent time with each of the project teams whilst in-country across Europe. This approach ensured that learnings from one country could be applied queried and validated for operations in other countries quickly and consistently.
The approach for the second stage review was to narrow down the range of opportunities to be investigated and to drill down into significantly more detail locally with the relevant management teams, to create clear evidence of the potential for cost reduction across a range of work streams.
As part of the initial feasibility study a schedule of potential opportunities was developed and prioritised. These opportunities formed the bedrock of a second phase deep dive study. This deep dive was aimed t a narrowed down number of operating countries identified during the initial feasibility study.
The approach for the deep dive study initially was conducted to review and rationalise the opportunities to identify the level of consistent themes that were present across the operating countries and to identify where the biggest ‘bang for the client’s buck’ could be achieved in the shortest possible time. These opportunities then self identified as the primary focus areas for the deep dive review.
The initial feasibility studies across each of the countries identified a significant range of headline opportunities, in fact over 300 were identified.
ACTIONS
In the deep dive review the consulting team spent a significant amount of time with operational teams in each of the five major selected countries.
The team worked with operational stakeholders from local country directors and executive leadership through to on the shop floor management and workforce. It was essential that the consulting team did not simply work at a ‘helicopter view’ level and that they ensured that they gained the input, knowledge and experience of local ground level team members to ensure that innocuous and inaccurate assumptions were not made and that solutions that were developed could be clear, validated and agreed at a local level.
Throughout the process the project leadership team met regularly with both local and regional management to discuss with them the opportunities and tasks required to deliver benefit from those opportunities. Some of the reviews and discussions were tough… Local management teams sometimes found the prospect of significant change within their operations hard to take bearing in mind these were the teams who had been delivering operational logistics and supply chain activity in some cases for many years.
Project leadership however is about taking those teams on the journey and helping the local management teams to ultimately understand that some change, whilst it seems difficult, is the right thing for the business overall. Some of the changes identified as part of the process were strongly welcomed. But overall a list running to hundreds of opportunities was eventually reviewed one-by-one and agreed whether or not they should be included in the final set of solution recommendations for implementation.
For those opportunities that were to be included, the project team created the required implementation plan with regard to timelines, resources, cost to implement, risks and contingencies to ensure that each solution was evaluated in the same way and the benefits were presented with the same level of certainty. All benefit assessments were made based against clear and auditable cost impact methodology such as direct labour reductions due to productivity enhancements.
Each of these opportunities was then assessed on a prioritised scale of desirability and were incorporated into the business benefit tracker that was compiled in conjunction with pan-European finance team managers.
RESULTS
In the end, 300+ solutions across five countries were evaluated with over 100 solutions recommended for implementation. The solutions that were recommended were graded prioritised and ranked in terms of time to achieve, cost and benefit.
The outcomes were not a surprise to the client at the end of the project as throughout the entire process the project director and consulting leadership team had conducted periodic review sessions with the client’s executive team keeping them up to speed with progress and expected outcomes. By the end of the process the client’s executive management team fully understood why the 100 or so solutions had been selected for implementation and also why the additional 200 or so solutions identified were at this stage parked for review at a later date.
It is fair to say that the client objectives were more than adequately met by the outcome of this project. It was made clear from the outset of the project that each and every opportunity for improvement that was agreed and signed off at a country level would be entered into the businesses ongoing budget for logistics and distribution and that is why each country was given and took the opportunity to be fully engaged in all project delivery processes.
The objective to reduce operating cost by $25 million was achieved and surpassed by a further $2,000,000 of operating cost. It was revealed by the executive management team at the end of the project that they had planned in their own executive level forecasts that they would actually achieve approximately half of the benefit that was targeted. The fact that not only was the target fully achieved but surpassed meant that the outcome from this programme was extremely well received by the international and global leadership team of the client.
So how did the consulting team deliver such successful results?
The project team delivered outstanding improvement in warehouse performance by applying their expertise in warehouse operations and identifying a range of issues and enhancements to drive advantage. Our team were able to evaluate warehouse layouts to establish how both capacity and operational flows could be improved.
The team evaluated how local management were organising their people. A range of distinct opportunities to improve labour planning and management controls were identified and agreed with the local management teams.
We were able to confidently establish ways to improve operational process that streamlined activity and reduced wasted time and effort. By applying learnings from across the European estate, our experts were able to both share knowledge between the sites and add external application of processes that were not present within the group. Many of the solutions identified were quick-wins that could be delivered with minimal time impact and limited investment. Where investment would be required, the team developed a clear benefits case for that investment, so it could be agreed with the local team and justified to the executive leadership team.
In transport operations, our team was able to identify a range of methods that not only improved cost and efficiency, but also added safety to operations. By evaluating performance metrics and variable cost metrics in a like-for-like comparison, our team could see where costs were disproportionately high across the estate, even accounting for variations in localised labour costs. We were able to demonstrate to local and regional management that evaluation on a pure ‘cost per’ basis, did not present a true reflection of actual performance. We identified a range of metrics that removed the localised cost impact from the operation’s performance evaluation matrices, so that ongoing operational performance could be truly measured in a genuinely comparative way.
Whilst our experts focused on warehouse, solution, layout, process, and design, and our transport expert focused on both primary and secondary transport opportunities, the team, as a whole also evaluated network opportunities where synergy benefits were available cross-border to help streamline, cost and operations.
As is typical, in many pan-regional operations, localised country operations were, to that point, happening largely ‘in silos’. Our team were able to evaluate methods to share transport resource, and even warehousing to streamline certain activities. There was even scope to centralise some activity to save money in areas where all countries were spending independently on similar product sets, such as GNFR materials.
Overall, the client hardcoded and delivered in excess of $27 million of cost reduction into its operation as a direct result of this project. The local teams were also presented with the deep, prioritised solution options, as well as a significant plan for longer term options, and about how to deliver ongoing improvement over time. These outcomes added significant future planning capability to the local teams and presented the business with a clear path as to how to drive continuous improvement across its Supply Chain and Logistics estate.
As an outcome of this project and its success, the project team were subsequently engaged to support the delivery of some of the solutions identified that did require external support to achieve. They were also engaged by the client to look at other operating challenges across the business.
Overall, the project to review the operations of this client across many countries with many obstacles such as language culture and operating methodology, took approximately 10 months to complete. However each phase of activity was concluded precisely on time, within cost budget and without any unnecessary delays or issues. The ability to pull together such a complex project when faced with such a wide variety of challenges set apart our project team from its competitors and added real value to our clients supply chain and logistics operations.
The poay-back from the investment in this project was less than 12 months.
The client was extremely satisfied with the way this programme was delivered:
“Our Operations Teams have been taken on a journey by this project and the Consulting Team. They have delivered the programme by displaying a level of expertise that challenged us to think laterally about what we could do to make a difference. The forensic attention to detail displayed by this project team was perfectly in tune with our ways of working as a business, and that is why this project has been a considerable success” European Supply Chain Operations Director
The value demonstrated by our project leadership team was clearly evident to this client, as this project was one of over 40 discrete projects delivered for this client across its European and global operations.