Supply Chain Review

Client: National Heating Ventilation & Air Conditioning (HVAC) Parts Supplier

Background

Our client recognised that logistics; including the management of business operations, the acquisition, storage, transportation and delivery of goods along the supply chain was a potential area for improvement. GRA was tasked with a review to identify opportunities available through improved internal and external customer service levels , reduced inventory levels , improved operating efficiencies , processes and structures and using synchronised replenishment systems to maximise logistics efficiency.

Challenge

A project was commissioned to determine the following:

• Understand how many DC’s it needs in its network to effectively service its customer needs
• Review its operational practices at each DC uIdentify what products to stock in its central warehouse and distribution centres
• Provide a net margin analysis at SKU level incorporating inventory related costs
• Review its demand planning, inventory management and replenishment planning processes and systems
• Provide an assessment of any vendor constraints and the price break opportunities that may exist in the current procurement framework uReview its KPI’s and recommend others where required
• Review its supply chain organisational structure uIdentify the training and education needs of its staff
• Provide an assessment of any vendor constraints and the price break opportunities that may exist in the current procurement framework
• Review its KPI’s and recommend others where required
• Review its supply chain organisational structure uIdentify the training and education needs of its staff

Approach

Define the current operational “landscape”

• Define the current operational states of each area being reviewed uUnderstand the current performance of the business against its service, cost and capital targets
• Agree the “to-be” operational states with all stakeholders

Perform the following review and analysis tasks:

• Develop a high level Warehouse optimisation model using Linear Programming techniques
• Perform an Inventory Analysis to determine “what to stock where” and “how much to stock at each location”
• Review the DC operations at selected “good, bad & ugly” sites
• Review the planning team, their processes, rights & responsibilities and the systems in use
• Review the procurement practices

Report and recommend:

• Business opportunities identified during the review and next steps required
• Improvements to the existing operation from observations made during the assessment exercise
• Total costs and the relative cost benefits between scenarios for the DC network and the optimal inventory.

Review Results:

• The assessment indicated that the potential savings realisable through inventory optimisation were $5.3 million
• The DC structure and footprint was appropriate for the current & planned branch network – both adding and removing DC’s to the network increased operational costs, however, if planned branch footprint were to change, the DC network should be revisited
• The net margin analysis revealed 33% of sku’s eroded $1.7 million of net profit – recommended that new item & exit strategies be more effectively managed
• The planning review indicated that a heavy reliance was placed on a small number of people – changes in roles, accountabilities and responsibilities, the implementation of a more structured S&OP approach supported by training and cultural change were recommended

Further Opportunities exist to:

• Introduce category management disciplines to improve both revenue and profitability outcomes
• Move from a “display stock” to a “counter stock” branch model to reduce the investment required for display stock
• Implement a broader Sales & Operations Planning process across the business