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//case study
Global Supply Chain

Uncovering the true 'Cost to Serve'

The case study is a UK retailer, with a global supply chain serving all areas of the UK. With such complexity, the actual cost of serving a particular customer was unknown - we helped uncover this and put in place true-cost transparency which revolutionised the distribution model.
THE BACKGROUND
Logistics 4.0, digital supply chain, or modern logistics, goes by many names but the power of an organisation's supply chain is seen as the key to its success or failure.  With the growth in IoT, AI and machine learning, the bar is increasing rapidly and the ability to understand your supply chain is critical for an organisation's survival.

The organisation was embracing a host of new customer functionality at the front-end, to make the customer experience as frictionless as possible.  However, the back-end systems and processes were designed on traditional push-based production; creating stocks in distribution centres and relying on sales incentives to create demand and clear-down excess product.

The cost of this approach was largely unknown, with large fixed overheads and supplier contract costs absorbed equally across all product lines; resulting in an average distribution cost allocated to all products.  The result was a complete lack of transparency of the actual cost of distribution for each individual product and as a result no ability to optimise the logistics processes.

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The value chain for each individual stock item was unique; made up from production, wholesale shipping, storage, handling, insurance, days in stock and retail delivery.  The approach was to largely average these costs and allocate across all products; masking high and low points and removing the opportunity to improve.

The client's current systems were also based around a national stocking model, rather than reflecting regional distribution hubs - this was adding significant distribution cost as stock was moved from one end of the country to the other without factoring in the additional logistics burden on the P&L.

In addition, when looking at the client's customer portfolio, the value generated for each customer was in some cases masking large logistics costs - what would initially appear to be a high value customer was actually loss-making once the true cost-to-serve was factored in.

THE APPROACH
With such a complex supply chain, our first step was to conduct a snapshot analysis on a group of products and customers to prove the concept.

We worked with the clients own data and it's 3rd party suppliers to assemble cost data for every link in the supply chain, for a cross-section of the product range.  We then took the data into our Analytics Studio to create a single row view of every item in stock to cover the following costs:

How much it had cost to produce?

Transporting from the factory to the port?

Loading onto a ship?

To ship into the UK port?

The cost of unloading into storage area?

Transport to regional distribution centre?

Warehousing & ongoing storage?

Handling for delivery?

Delivery to end customer?

Costs for insurance?

Cashflow costs for holding stock?

Once we had analysed the data we were quickly able to demonstrate significant variances in logistics costs with a number of opportunity areas to either reduce costs or improve customer service.  We also identified a number of processes which were adding a significant logistics costs due to the poor stock visibility, store incentive policy and an informal approach to build-to-stock planning.

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Once we had proved the concept we returned to the studio to design and develop a live Cost-to-Serve insight tool.  The back-end data store assembled over 25 million data points, to generate clear enough insight to be delivered through a single desktop + mobile dashboard UI.

Within the tool, we were able to create scenario planning functions to allow the business to simulate the effect on different strategies on the supply chain performance.  For example, reducing 'out of area' deliveries by 1% would reduce annual logistics costs by almost £1m per year - this could be achieved by amending the national stock locator for stores searching for products, to encourage a more local-first approach through incentives and reward points.

The second major exercise was to review the entire product category portfolio and really understand which products and customer groups were adding to the organisations profitability and which ones were actually reducing the performance of the business.

With increased transparency of the supply chain, also came the opportunity to review efficiency of logistics.  Storage times. delivery lead-times and customer wait times are now available as analysis metrics so can be mapped by product line, category and customer type. Bottlenecks can be identified quickly and resolved with precision without the need for long audit processes.

THE DELIVERY
With the ability to track logistics effectively, the client not only has the benefit of optimising costs, but also the ability to shape the supply chain to deliver excellence in customer service.
The client is now looking at providing real-time tracking for customers and retail stores and has strategically reviewed its product range and processes to ensure it can continue to stay ahead of the competition as it's logistics 4.0 strategy unfolds.

"We were extremely impressed with the approach taken by Metryx.  Not only did they produce an amazing product for us, they really took the time to understand the data and it's commercial impact on our business - this made it easy to focus on the right areas from the start"

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Not only do we have the technical ability to create a solution for your supply chain, our senior team have a wealth of experience in Supply Chain & Logistics, so we are able to use this to drive the best outcome for your organisation. 
 
Get in touch to have a conversation about how we might be able to support you.

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