Evolving a Distribution Network (CS225a)
The first step on a TVO supply chain transformation journey for a leading alternative energy company.
This story is for CEOs who:
- Want to optimize distribution networks and transform the way logistics are managed in their organization
- Are innovators who need to remain relevant and competitive in a rapidly changing market
- Need to regain leverage following a spin off
This leading designer and manufacturer of solar panels for commercial and residential purposes had been slow to adapt to a dynamic shift in the market which had significantly impacted its profitability. The company had recently been split into two separate entities; make and install. This process had exposed substantial gaps in terms of people and processes in the new stand-alone organizations. Leadership brought in Maine Pointe to help plug these gaps across the supply chain.
In the first step in the client’s Total Value Optimization (TVO)™ supply chain transformation journey, Maine Pointe focused on reengineering the logistics network. Our goal was to reduce working capital, improve visibility and evaluate whether the client’s last-mile logistics strategy was able to meet changing customer expectations.
Realigning the view of cost to serveOur analysis team confirmed that the company was losing money at a worrying rate. The business was an innovation leader in terms of its products but had failed to apply that same innovation to its supply chain. Leadership’s mindset had not adapted to the changes in the market. Put simply, they were still “selling a Mercedes in a Honda market”. Logistics was low priority and was not data driven and the company was paying premium rates to its 3PL provider but receiving a sub-premium service. Warehouse facilities were overcrowded with little operating space, which was impacting the speed of order fulfillment. In response, rather than consolidating, the organization had plans to add new warehousing facilities. The business needed to change its approach to logistics and adapt to the demands of a direct-to-customer business model.
To help meet this challenge, Maine Pointe:
- Launched a “Logistics 101” initiative, implementing a new thought process on total cost-to-serve
- Helped the business understand how to use 3PL in a managed context
- Defined current supply chain and developed initiatives to reduce non value-added cost
- Addressed transportation spend on high-volume lane in mode shift to reduce cost per transaction
- Defined and removed wasted warehouse space and cost by consolidating locations
- Designed a new returns program, simplifying the steps needed and the approval process
- Established a network of qualified recyclers to reduce transportation cost and speed product disposal and recovery of dollars
- Rebid the 3PL warehouse and transportation (TL<L) to align with market philosophy and pricing
- Renegotiated with incumbent 3PL supplier to ensure same service at a better price
- Reduced cost of outside returns vendor to match industry norms and performance
The impact both in terms of working capital reduction and improved time to service customer orders has already been felt across the organization and has helped cement the partnership between the client and Maine Pointe as they move to the next stage of their TVO supply chain transformation journey.
The ResultsWorking closely with the client’s team, Maine Pointe’s logistics and distribution network experts helped deliver the following benefits:
- Reduced lead times from warehouse to distribution by 24-36 hours
- Improved EBITDA by 11%
- Delivered logistics savings benefit of 19% of total addressable spend
- Reduced working capital / inventory by 86% of total objective
- Reduced inventory level from 99% to 87%, improving cycle time to service customer orders
- Improved main warehouse efficiency, creating the ability to consolidate two alternate warehouses into it
- Executed a highly competitive supplier sourcing process, providing four qualified suppliers with significant savings to base
- Incorporated advanced negotiations approach with strategic suppliers to optimize P&L impact and mitigate operational risks
Lessons learned for other executives
- Companies talk about innovation and evolution in terms of products and services but often fail to apply the same approach to supply chain and operations
- You cannot underestimate the financial impact of releasing the value in your supply chain
- Businesses in an evolving market need to take a big picture approach. It isn’t enough to make small changes if you don’t have an end in mind