Beverage Manufacturer/Distributor in North America
New management wanted a ten-year plan to optimize the manufacturing and distribution footprint to reduce costs using a supply chain network optimization design tool.
Profit Point engaged with the client to determine the best way to operate the current supply chain network in light of some recent manufacturing improvements, and to develop recommendations for a future network that would maintain customer service levels while reducing future costs.
Profit Point and the client assembled a set of historical data to understand the current operation of the supply chain. Some of the cost data were not captured at the required level of detail, so we developed activity-based methods to assign these costs to specific areas of the manufacturing and delivery processes. This resulted in the first-ever detailed end-to-end analysis of the supply chain. We then used this dataset to develop an optimization model of the current supply chain to identify “quick hits” resulting in a significant shift of planned volume from a high-cost plant to a lower cost plant.
The team then shifted focus to the manufacturing and distribution footprint over the next ten years. They evaluated a number of different options against future demand and cost forecasts. (Summary results for a subset of the scenarios is shown above.) These options included adding new manufacturing capability at existing plants, shutting down plants and distribution centers and/or opening distribution centers in new locations. In addition to the total cost to serve the demand, capacity utilization and potential customer service issues were identified for each of the options evaluated.
The team recommended the shutdown of an existing manufacturing site. This option required the movement of one line from the plant to be shutdown to another plant and reduced the operating cost of the network by $11-12 million/year yielding a positive NPV of over $60 million. The team further recommended the relocation of several distribution centers and the use of drop-and-swap yards to further reduce costs and address capacity issues. Implementation of these recommendations was successful.