Delivering a great Supply Chain network strategy
The Background
The client business may not be a household name, but their reach sees them delivering to their customers across the length and breadth of the UK. They may not be well known in their own right but the chances are most of the public would see their delivery vehicles on a regular basis visiting local restaurants, bars, cafes, schools, hospitals and the range of other customer points.
The business had grown over decades to be the biggest player in the UK market in their sector. Operating from over 30 distribution centres across the UK, that growth had come from a combination of organic sales growth as well as local competitor acquisitions. Over time, the distribution network had become disjointed where new sites were added, sometimes quite close to where other sites in the network already existed.
This led the chief executive of the business consider the potential to rationalise the supply chain infrastructure of the business to create a leaner, more cost focused operation. However, they were keen to ensure that the business retained its position with strong local presence and clear relevance to local markets in order to maintain its position providing excellent customer service.
The task
The challenge in this instance was to identify how the business could set about making operational cost savings across its distribution footprint without harming customer service. To achieve this, the consulting team had to work very closely with national and local management to fully comprehend the range of service offerings and desperate local challenges faced by the company.
This meant that this could not be a desktop review simply analysing data and evaluating Geo-location. Whilst data and metrics were clearly important to the process, the bigger task was understanding the subtle variances in local and national operations.
Add to the mix the fact that this business operated multi temperature deliveries and therefore had distribution footprint working within different temperature regimes, this created an additional level of complexity that could only be understood by conducting detailed local review and operational understanding.
To achieve the level of understanding required to identify the options available, also meant going beyond the normal sphere of the working day. This business operates 24/7, with a large proportion of their warehousing activity being carried out on the night shift. Therefore to conduct this review properly the consulting team needed to work night shift as well ensuring the correct level of detail could be captured and used in reference to project delivery.
The actions
The project team had to evaluate the best course of action to develop a robust understanding of the client’s business. Prior to arriving at any client site, the project team evaluated how best to structure a data and information gathering process to enable complete and accurate records that could be used in future modelling to be compiled.
Meetings were held with client senior management to discuss how the project team should go about the gathering of the data. An issue within this business was that some parts of the business did not sit on the organisation central ERP system as they had been acquired but not fully integrated. The project team were able to work through these challenges with the client’s data specialists to ensure that the requests for data would return useful comparable information from each of the locations.
The operational specialist consultants for both warehousing and transport then created a schedule of site reviews across a broad mix of the various sizes and types of site present within the client network. The reviews covered national, regional and local distribution centres, and also single and multi-temperature operations.
Where the client advised that a particular site would be best to see at 2am, the consulting team ensured they were there before and after 2am to ensure they could see the full scope of activity both in the run up to and beyond peak activity points. Processes were observed and documented, and then compared and contrasted from site to site covering each of the different types of operational process is that were evident within the client network.
The consulting team pulled together the ‘day in the life of’ (DILO) for each of the operations that was observed and reviewed. This enabled project leadership to understand the range and variability of the types and sizes operations, and the levels of conformity or nonconformity to expected process.
Whilst the operational reviews were underway, the consulting data team were busy compiling the business volumetric data set to support other elements of the evaluation. They also compiled a central repository of comparable cost items so that costs for different types of operations could be compared and contrasted. In this business it was not sensible to attempt to compare and contrast every operation to each other. There were too many different sizes and types of operation and it would not be practical to compare a 100,000 ft2, lean sizable efficient operation to a 10,000 ft2 small local distribution point. However comparing two small local distribution points to each other was distinctly possible and this was the objective of the cost validation process.
Additionally, whilst historical data was being captured, the consulting team were also working with the client to establish how the business would continue to grow in future so that this could be factored in to the future network scenarios. This growth estimation was based upon expected levels of organic customer growth, SKU range increase and new business acquisition. As this review was looking long term at distribution infrastructure that is not necessarily easy to change quickly, growth estimates for the following ten years were produced and agreed at board level to be included within the review process.
The operational cost and data review supported 2 streams of project activity:
- The Geo-Locational analysis
- The Network Operations Optimisation Review
The Geo-Locational analysis was primarily focused on establishing the best locations for this business to have its distribution infrastructure across the UK. This process started off with a complete blank canvas and was evaluated against a range of different types of operation within the business including national distribution centres regional distribution centres and multi temperature facilities.
Whilst the blank canvas is a useful steer as to perhaps an endpoint to where the client could ultimately go, the review process had captured and included limitations on change such as operational building leases, factors such as requirements for varying degrees of temperature control as well as external factors such as import processes and supplier location that all have an impact on the future network choices.
It became apparent from the analysis that there were some outlying distribution centres and facilities that could and should not be supported within the business in future. This included several sites based in locations in close proximity to each other that could either be merged or moved.
It was also apparent from the analysis that there was large amounts of customer overlap between different distribution facilities. Whilst it was not a core projective of the project, the national management team of the client was made aware of the level of potential savings to be accessed by optimising the allocation of customer to distribution centre.
The Network Operations Optimisation Review developed they proposed sizing and general layout of three types of distribution centre to be employed within the network:
- National Distribution Centres for Slower moving and import SKUs (SMG)
- Regional Hubs holding all Fast and medium moving Goods (FMG / MMG)
- Local Hubs holding only the top 20% of SKUs by throughput (XFMG)
The network principle would be that slower moving products would be cross-docked from the national distribution centre to the regional hubs and onto local hubs. Each hub would be sized specifically to enable localised sales support to be retained and serviced effectively from the national and regional centres on a just in time basis enabling the minimisation of warehouse space requirements and transport cost.
The solution design process captured how each facility should be laid out and this was mapped out with documented processes shared with the client and tested to ensure completeness aligned to current customer requirements and IT support infrastructures.
The process between the Geo locational analysis and the operations review was iterative leading after a range of sets of analysis to a recommended future network. At each stage of the iterative process the consulting team worked to identify the compromise solution that offered the best mix of outcome for the client in terms of minimising risk, investment, level of change and timescale whilst maximising service and profitability through reduced cost to serve.
Some of the compromises that were required included retention of some sites in sub optimal locations on the basis that the cost of exiting those sites would strongly outweigh the benefits. The consulting team reviewed and understood challenges in relation to site exit costs that were not simply lease dependent. Some sites had specialist temperature control equipment and infrastructure that would be expensive to remove and would have little benefit elsewhere within the network. In such circumstances compromises were required that meant that some sites’ life expectancy would be extended to minimise the impact to the business in terms of cost of change and losses versus asset book value.
When the consulting team were finally able to present its recommendations to the group board for the client, the review did not simply inform the client on how many distribution centres they needed to have and where. The client was provided background information and advice across a range of linked operational areas:
- Operating IT systems and functionality
- Physical operating layouts, handling and storage media
- Operational shift process is and recommended types of flow through, cross-dockk and pick from stock solutions
- Operating shift and time parameters to optimally meet client needs
- Recommendations regarding standardisation of customer offer and process across the whole distribution estate
The Results
The outcome for this business was a very clear plan outlining three years of development to move from the current state position through to network delivery with all necessary sites exited and all new sites up and running.
The business was advised clearly on the optimal location to open three new sites within the network. It was also advised on a number of sites that should be closed and consolidate it into the remaining network to save cost for the business.
In addition to new facilities, physical extension was recommended for some sites in the network to enable them to conduct larger scale activities than they previously were.
The savings to be achieved from these changes were significant. The business would save in excess of £7m p.a. within its logistics operations. Headcounts and vehicle fleet would be reduced significantly as well as reductions in space costs, lease liabilities and building repairs and maintenance.
Thorough detail was presented to the group finance leadership team and detailed analysis and walkthrough of the proposed cost was conducted using specific expert finance managers from within the client’s team to ratify and validate the cost proposals put forward to ensure that business acceptance could be guaranteed following any approval to progress to implementation.
After the detailed financial review and oversight sessions, executive summary information was produced and shared for group executive review prior to periodic board meetings where the outcomes of the project and its recommendations would be discussed.
The recommendations from this project were clearly laid out and demonstrated to the group board of the client by the consulting team. The levels of investment required to make the necessary changes to the network were itemised and costed at local site level including the exit costs for the sites no longer required within the network.
This enabled much more straightforward business decision making about how to proceed to make the necessary changes. Whilst the level of investment was significant, the need to make the investment, the priority of certain areas and the recommended path to future operational benefit made that decision more straightforward than it would otherwise be.
Traditionally this business would have looked at each individual site on its own merits attempting to estimate site profitability alone as a metric regarding whether to keep or retain that facility. Armed with the output of this project, the group board was able to clearly understand the impact of each site to group profitability unmasking where cost impacts had previously not been fully measured and understood. This enabled the group to move forward confidently to deliver the network change programme.
This network review enabled our client to accelerate their supply chain solutions and achieve significantly greater profitability by applying our expert supply chain and logistics consulting expertise. If you would like to find out more or to talk to a member of our consulting team about how ASCALi can help you accelerate your supply chain and logistics, please contact us here.