Challenge
The challenge for our client was to manage distribution to minimize total supply chain costs while meeting customer service goals. The complete cost picture included the impact of inventory throughout the system (DCs, hubs and vendors), the administrative costs of order management at the vendor and DCs, and freight costs. The use of a hub reduces inventory while allowing the aggregation of items for different DCs. It also enables high volumes to move inbound and outbound through a hub from different vendors. In this operating environment, the economic promise of a multi-tier distribution design is very high. The challenge is to select the Item-DC choices that could be routed through the hub to reduce total logistics cost to enable realization of system optimums.
Solution
The SCA Planner implementation was customized within 6 months to meet our client’s unique supply chain needs. The easy-to-use tool helped to compute the ideal Item-DC list that reduced their total supply chain logistics costs by 6 percent. One of the most important features is the rapid re-computation of the item list based on demand change. Our client runs the model on a routine basis to select the right item list for the time period. SCA Planner further assists in the pricing decision for customers to standardize the “system optimum list”, thus preventing cherry picking. The model’s methodology has been validated and audited by various supply chain partners. Computational results are electronically available to the suppliers and the DCs. This enabled quick implementation of the right logistic process for different items.
Results
Our client reduced their inbound logistics cost by 6%. This reduced the inbound logistics costs by just under $25 million and helped them to avoid investing more than $30 million in additional distribution storage facilities.