Background

The client tasked GRA to assist in developing a business case to determine whether it was more cost effective to continue with its direct to store deliveries from suppliers  or use its own distribution network to centrally receive and then ship to its network of stores across Australia.  The project allowed the client to quantify the benefits  available under both scenarios  and then identify an approach to deliver them .

Challenges

• The business was undergoing significant, sustained  growth and needed a quick, concise assessment of its  distribution network to understand what options were best for it in the medium term.
• Due to an expansion into NZ with a new store “brand”, the client’s resources were focussed elsewhere at times.
• Integrating the different streams of data from varied sources (sales transactions, financial reports, internal performance measures, transport provider rates, interviews) caused some delay.
• In order to understand the network capacity and footprint requirements at a 5 year horizon, an incremental sales increase based on the expected store locations had to be agreed total network cost.

Approach

In order to assess where the opportunities lay,  the project was divided into 4 distinct work streams:

• Develop a distribution optimisation model to determine the best footprint to support the current & future store network, identifying which DC’s should support which stores.
• Undertake an Operational Opportunity Assessment to identify the direct and overhead costs associated with both operational modes and determine the potential benefits available through  more efficient ordering, receipting and accounts payable processes.
• Perform an inventory requirements analysis to determine the levels of investment required in both scenarios to deliver the desired service levels using a best of breed forecasting and replenishment toolset.
• Complete an interview based readiness assessment to review and understand the  current operational and process capability of the business to support the flow of product through the changed network in order to identify any significant gap.

On completion of the 4 work streams, a consolidated project report was developed  detailing the opportunities identified including best operational footprint, inventory savings and operational cost reductions.

Outcome

• The baseline costs for the current network were identified at $19.1 million pa.
• Operational cost savings  of $1.6 million pa identified in store receipting activity and through the accounts payable function.
• The offset increase in DC operational and transport costs of $3.6 million pa was able to be recovered in a reduced cost of goods achieved through savings available to suppliers through increased delivery sizes to a single point.
• Indications from the inventory requirements analysis showed that by adopting an optimal inventory position in stores, minimal changes to the total inventory investment of the store and DC’s would be required to support a change from the direct to store to a central distribution model.
• The major shortfall in capability for the business was its lack of planning system capability to support the change in stock flows – all other areas of the business were substantially ready to adopt the changes.