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Total Cost to Serve

CASE STUDY #1 - Develop distribution strategy alternatives

Brief: Develop cost models for alternative distribution strategies and for a large foreign retailer to enter the Australian market.

Approach: This entailed facilitating their warehousing and distribution strategic planning and thereafter building a financial model of the warehousing and distribution costs to cater for all the known variables so that the various scenarios could be compared.

Outcome: The outcome of the analysis led to the implementation of our recommendations and the successful completion of their national DC in the proposed location.

Case study #2 - Develop Supply Chain Forecasting System

Brief: Develop a “lowest-inventory-cost” Supply Chain Forecast System for a new Queensland frozen meal manufacturing operation supplying airline meals to Australia’s largest airline catering group.

Approach: We developed a model product demand forecast model to ensure the availability of the correct meal quantity and type at each of the 7 catering centres. The forecast took into consideration airline meal policies, booking activities, double catered flights (where passenger meals are not loaded at the same port as the passengers consuming them), special meals and crew meal requirements. Additional factors were minimum batch sizes, pallet configurations, raw material lead times, refrigerated transport network and passenger upgrade and flow-forward activities.

Screenshots of main menu and forecast

Outcome: The model and supporting software tools provided the client with forecast accuracies of better than 3% at the 8 weeks ahead, significantly better than the previous 18%. Inventory holding costs were reduced by 23% and availability improved by over 30%. The meal preparation plant in Brisbane now has total visibility of the meal stock at each site, as well as an accurate forecast of the short-term manufacturing requirements.

Case study #3 - Alternative Distribution Channel Cost Model

Brief: Assess the expected costs of an in-house distribution and warehousing solution for a client wishing to exit an industry solution.

Approach: Detailed cost modelling of warehousing and distribution costs of a national network of warehouses for Direct-to-store deliveries with very demanding service levels. Additionally, a detailed gap analysis was carried out to assess the human capital requirements and skill shortages in the organisation. Finally, a review of inventory management and IT systems was required to close the operational gap.

Outcome: The review showed that although the costs of the services were substantially higher than expected (given they should have been highly geared), they were still cheaper than “going it alone”. The review, however, was shared with other members of the industry solution and from this factual basis, more realistic rates were negotiated.

Case study #4 - Warehouse Operational Improvement Initiative

Brief: Review the warehousing operation of a large national distributor of stationery products to improve productivity, reduce labour costs and improve service levels as part of a SAP WMS implementation.

Approach: The 26,000 sq.m. warehouse operations were substantially re-engineered to very closely align with SAP WMS functionality. At the same time, the ERP’s WM functionality was extended through customisation (by the SAP implementor) to completely support the unique operational requirements of the business. The operational component of the project included a major re-layout of the warehouse floor and racking, recalculation of bin sizes and location of all products as well as assessing forklift requirements and pick strategies following the installation of an 8-lane sortation system. Additionally, department activities were aligned to the new operational regime and activity performance targets set.

Piece and Inner Picking Processing

Outcome: This project delivered a massive reduction in delivery errors and a productivity improvement of around 50% with a huge overall reduction in congestion. Management is now pro-actively addressing long-term improvement opportunities like product re-packaging to reduce ‘piece’ picks and optimising pallet configuration, implementing continuous improvement initiatives. The company has recently been acknowledged by the LAA as an Australian market leader i.t.o. its warehousing processes, systems and hardware. 

Case study #5 - Profit Calculator

Brief: To develop a desktop tool that enables product/sales/marketing teams and logistics to assess the true cost of selling each product in the sales range.

Approach: This was the 1st phase of a comprehensive Cost To Serve review for a large Australian stationery manufacturer, importer and distributor. The company has over 2000 active SKUs and a multi-tiered delivery service. The traditional analysis was augmented with a volume:value analysis identifying underperforming and/or high-risk products as well as allowing a recalculation of expected logistical costs with package configuration of MOQ changes.

Costs Calculator screenshots
LOG Volume Value Piece and Inner area bin sizing solution

Outcome: A deeper insight into true operational cost drivers supported by a desktop application that has been used extensively by both marketing and operations. Identifying true product yield substantially supported a targetted Continuous Improvement initiative of carton reconfiguration that has delivered substantial savings in storage and transportation costs.

Case study #6 - Airline Client Profitability Segmentation

Brief: Review the profitability of each client in a large airline catering centre

The well established data gathering methodologies developed for the DemandPlanner® solution were deployed to provide accurate labour demand for each client airline and service delivered. The raw data was aggregated and analysed in a comprehensive labour standards database to provide truly granular and actionable cost to serve information. 

Task View Screeshot Segmentation Graphs 

Outcome: The highly granular profitability review allowed senior executives to understand the true labour costs of each client for the first time. Business improvement strategies were modified from trying to drive unrealistic productivity improvements to a more revenue-focussed strategy, with emphasis on capturing revenue “leakage” and bundling services to better leverage the physical operation.

Case study #7 - Supply Chain Restructure

Brief: Reduce the lead-time of imported product and reduce inventory levels for a residential brown goods importer and distributor.

Approach: An audit of the current forecasting ad purchasing processes was conducted, supported by detailed analysis of transactional data. Recommendations were made addressing e-commerce trading (via the creation of extranets for residential dealers and aftermarket customers), the use of bar coding through the distribution network, and a software integration with a major Korean supplier to match order entry directly to factory production schedules. A detailed implementation plan was developed and assisted management through the changes.

Outcome: An overall reduction of inventory in the supply chain by 70% while simultaneously reducing the product lead time from 25 to 6 weeks.

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