Case Study: Retail and Grocery
The merger of two former clients created a unique opportunity for Miebach to design a consolidated distribution network. However, due to the regional footprint of the network with many of the existing facilities located within a 200 mile radius, Miebach brought in strategic partner JLL to provide real estate benchmarks and local city knowledge. Without these insights, identifying significant cost differences and prompting change from the existing network would be difficult to achieve.
The combined network from the companies resulted in 7 distribution centers servicing over 300 stores. The increased network complexity and supply chain issues stemming from the pandemic, such as increased lead times, rental rate hikes, and labor shortages, drove the newly combined company to look for areas of improvement. With 5 distribution centers in in one area, 2 distribution centers only a few hundred miles away, and several overflow warehouses, store delivery routes were inefficient. Consolidating the distribution centers would drive savings from fewer route stops, reduced out-of-route miles, and more efficient asset usage.
Miebach utilized a three-phase project methodology to deliver a solution that targets the optimal number of facilities and the proper capacity designed for efficient operations now and with future business growth. The first phase consisted of mapping the as-is state for both individual supply chains and interviewing stakeholders to understand the common concerns. This phase also included the compiling and cleaning of outbound, inbound, and inventory data, and construction of a baseline model with Coupa’s Supply Chain modeling software. The second phase was a collaborative effort between the client and modeling team to develop scenarios that identified synergies in the networks based on cost, risk, resilience, and sustainability. Once those scenarios were modeled, the quantitative results were blended with qualitative discussion to determine the scenarios that best meet all the clients’ objectives. Finally, roadmaps and a business case for the selected scenarios were developed and presented to senior leadership for approval.
Miebach evaluated over 15 scenarios that highlighted different possibilities within the network(s) and focused on understanding the benefits achieved through consolidating sites. With the client’s focus on agility and resilience, Miebach tested assumptions to ensure the solution remained accurate with a +/-5% shift in volume projections.
Finding the Ideal Combination
Quick wins that the client could implement immediately within their network were one of the first analyses conducted by Miebach. These leveraged the increased volume from the newly acquired company and recommended a shift to a complete self-distribution model. This eliminated the layer of wholesalers within the network and helped increase the cost margins for the client by reducing cost of goods by 8% and transportation costs by 1%. This analysis gave the client a peek into the benefits from merging the two individual supply chains into one. Additional analyses identified the ideal number of campuses within the area, the product mix to be held at each DC location based on velocity and supplier contracts, and the reduction of transportation costs from a consolidated DC network.
With 95% of the store volume concentrated within the area, initial analyses such as Center of Gravity or unconstrainted scenarios did not reveal networks that justified any changes from the status quo. The area was too saturated to use traditional zip codes to split out and optimize the network. However, Miebach was able to leverage the strategic partnership with JLL to further layer the analysis with market rates for real estate by regional areas. This insight helped supplement the model results and allowed the inclusion of specific market trends, like the upcoming rental hikes caused by the pandemic and increased demand for real estate. With JLL magnifying the network study to the specific area, Miebach was able to showcase regional warehousing cost that affected existing and new sites and was able to derive quantifiable benefits between scenarios. Additionally, using real-time data on space availability from JLL, Miebach could provide an implementable recommendation, thereby removing any hypotheticals and allowing the client to contract moves into the locations the model identified.
The client prioritized network agility and maximized ROI as their strategic objectives in the study. By adopting the recommendation to consolidate five facilities into one, multi-building, multi-temperature centralized campus, the client can reduce their operating costs by 4.5% by 2030. Miebach created a business case and implementation roadmap to transition into a consolidated distribution center network which reduced the number of deliveries received at stores, reduced overall transportation spend, provided capacity requirements for growth and expansion, and maintained required service levels to the stores.