Network Optimization Paves the Way for Operating Profitability

Industry:  Specialty Retail

Problem: Determine best supply network to minimize logistics cost and maximize customer service.

Mission: Support national expansion of a major retail specialty chain by identifying the optimal number, location and mission of distribution centers.

Results:

• Immediate savings of 6% of supply chain cost by minor reconfiguration of the current network.
• A five-year plan to open three new distribution centers, the first scheduled to open Spring 2008.
• A complete evaluation of the costs and benefits of using multiple service points for any given store.
• A pro-active evaluation of the cost impacts of increased use of Pacific Rim sourcing.

Actions:

• Worked with senior management to understand and develop a baseline computer model of current business operations.  Status quo system involved several hundred retail outlets, with several thousand manufacturer-vendors shipping through two distribution centers to the stores.
• Developed detailed transportation costing algorithm to simulate movement of goods of a wide variety of densities into current and candidate distribution facilities.  This algorithm included the full spectrum of shipment sizes; from domestic parcel through containerized intermodal imports. A similar model was developed for the flow of merchandise from DC to store, based on truckload routing with stop-offs.
• Worked with management to develop a reliable predictor of the capital and operating cost for forty candidate distribution center locations based on available data on land, labor, taxes and utilities.
• Management had determined a five-year plan for store rollout. Completed, tested and applied a network optimization model in this multi-year environment to provide a view of which candidate facilities should be selected, what size each should be, which stores each should serve and precisely when each facility should come on-line.

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