Driving Cost from the Supply Chain while Maintaining Resiliency Against Threats

Industry: Consumer Staples

Problem: How to stay lean; sustain operations while extending the supply chain.

Mission: Develop a complete supply chain for a set of recently merged production and distribution operations. Seek to reduce annual operating costs, including overhead, while maintaining sufficient redundancy to guarantee the system’s ability to recover from internal or external interruption.

Results:

• Initial optimization exercises proved an 8-12% savings opportunity in total supply chain cost, an annual savings in excess of $100 million.
• Secondary (“softer”) optimization exercise sacrificed 1.5% of the savings, while maintaining far more robustness and slack capacities in the supply system. Thus providing a risk mitigation solution.
• Achieved immediate savings (“low hanging fruit”) from simple realignment of production and distribution on a seasonal basis providing an annual $25 million cost reduction.
• Capital projects, including expanding existing facilities and creating new facilities were evaluated vs. corporate investment hurdle rates. Several of the projects were approved and now underway.

Actions:

• Organized a complete supply chain optimization model of corporate operations which included over 40 production sites (both company owned and independent) located throughout the US and Canada plus an additional 10 market-facing distribution centers.
• Developed detail costs for sourcing raw and packaging materials, conversion, transportation and warehousing as well as a forecast for monthly demand over the next year.
• Evaluated costs and benefits of internal vs. external production (the “make” vs. “buy” decision) in such a way that the mathematical optimization would correctly reflect the impacts on capital investment, recurring overheads and true variable cost.
• Included modeling of inventory pre-build in the optimization process, allowing the model to choose between timely production away from the market (incurring additional transportation cost) and early production near the market (incurring additional inventory carrying cost).

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