Case Study – Circa 2010-2020 Timeframe
Five flows of supply chain Project
Large Scale cost savings
Better Cost Savings
Higher equipment utilization
Lower logistics rates and costs
Improved service levels fewer logistics chaos
company and Industry
The company was a Large-scale B2B with a continent-wide footprint covering densely populated and remote areas of Canada, the USA, and Mexico. Mid-size operation with annual revenue of around $1 Billion + and profits in the low 0-10% range. The company had suffered from low profitability for the past 5-7 years and suffered from a very high-cost base. The company had made several acquisitions over the past 20 years and the supply chain was an amalgamation of several separate supply chain features from those acquisitions.
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Management Details
The head of the project was the Client executive who had the title of Head of Procurement, but for several years now he had been working as the Head of Business Transformation, with the blessing of his
boss (the CFO), the CEO, and the board. As he kept finding more and more opportunities for cost savings, his sphere of influence expanded to every part of the entire supply chain and business.
Eventually, after the success of the cost savings program which our project was part of, he was promoted to CPO, reporting directly to the CEO, and acting more like the Chief Cost Officer (CCO). After so many years I still cannot forget his favorite maxim – ‘keep digging, more you dig – more you will find” as he spoke about the cost savings opportunities.
Always the one to take calculated risks on cost savings ideas and new teams, he would keep backing up the winning teams till they kept delivering savings. We had a very long and profitable association till he retired after about 8 years of service.
Company situation
Company Had Lots of activity. Everyone appeared keen to get the savings. Yet the profitability continued to be low.
People were perpetually busy, running from one meeting to the next. Most of the meetings were discussing basic failures of coordination between sales, delivery, invoicing, and receivables.
There were several indications that the basic supply chain planning was inadequately embedded in the business despite the availability of personnel and software specifically designated for that purpose.
Despite being in a protected industry with a long-standing market position and secure market share, the business was barely profitable.
Everyone was working hard, long hours, and a significant amount of travel.
Yet, the agenda in most meetings were to discuss basic delivery failures and customer complaints.
The company had recently built a state-of-the-art manufacturing facility in Mexico and closed down a series of plants in the USA and Canada. This move made the supply chain a lot more complex than it had ever been in the past. Combined with the industry trend of consolidation, a series of recent acquisitions of smaller rivals had left the company with an overly complex supply chain.
Supply Chain Problem
The key problem in this company was the outdated supply chain model made up of large-scale milk runs to each depot from the manufacturing location. Nobody in the business had heard of the merits of the hub and spoke model and how it worked.
We learned from this case work that even when the stated problem was with the Profits, the actual problem may be in the rest of the flows of the supply chain.
Complicating Factors
It Was Not An Easy Problem
Several supply chain software companies had come and done demonstrations of their wares and sold multiple alternate concepts – each with little grounding in the realities of the business where it was currently.
Each of the models had some merits and its proponent inside the business. None of the models was well understood, particularly in terms of its limitations and shortcomings.
Strategic Question
- How to create the new model, struggle to get it accepted, and once embedded
impossible to remember the old model. - How to Suppress The Cost Savings Amount.
Key actions to Answer the Strategic Question
- An alternate model of the supply chain was built with a hub and spoke model at its core.
- More than 18 scenarios of the hub and spoke model was created and modelled – with the number of hubs ranging between 3 and 15. Hubs were spread all over the North American continent, and the spokes were within reach hub’s circle of influence.
- Each hub acted as the Stock Keeping Location (SKL) for all its spokes. Stock holdings of each hub were modelled under each scenario, as were the fulfilment runs from to and from hubs.
- Costs were modelled for each of the 18 scenarios for each customer order for one year. Costs, service levels and risks for each of the 18 scenarios were modelled and compared with each other to create a recommendation.
- The recommended scenario was test piloted on the desktop and proven as a concept.
- Detailed plans were created for the recommended scenarios and implemented in full to get the projected savings.
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- BUSINESS TRANSFORMATION
- OPERATIONAL NETWORK RATIONALISATION
- OUTSOURCING 3.0
- GLOBAL MANUFACTURING FOOTPRINT OPTIMISATION
Project Results
- Savings of $2.3 m pa.
- Service level increase of over 26% – accompanied by less risk in the supply chain.
- The company won the cost structure battle against the remaining competitors, and finally acquired its largest competitor because it could not cope with the lower cost structure of the new supply chain model.
- Lower prices and High profitability.
