What does the optimal distribution network look like and how can it help you drive your overall network strategy now and years into the future?
Supply chain challenges can be incredibly diverse whether you’re dealing with a new geographic footprint, network imbalances, determining the most efficient way to position raw materials and finished goods, or the acquisition of a new brand.
One of our global diversified manufacturing and distribution clients came to us looking for a strategic partner who could help define what the optimal distribution network looks like and drive their overall network strategy into the future.
- Client challenge
- Benefits to client
- Why KPMG
Our client is a global diversified manufacturing and distribution company. The organization had recently broken ground on a new manufacturing site in the U.S. and recently purchased a new brand name of consumer products that are made from overseas. Additionally, the evolving consumer expectations for online purchases of product were creating unforeseen challenges.
The new geographic footprint led to a network imbalance. The client needed to understand the most efficient way to position its raw materials and finished goods in order to make, store, and ship items to customers (given the addition of a new facility). The introduction of higher volumes of inbound goods flowing from Asia was an increase into the network versus what the client had previously managed. The acquisition of the new brand also led to an increase of online direct-to-consumer orders. Requirements that came with the e-commerce channel included quicker pick-to-ship times, procurement of packaging and dunnage, larger labor force, and faster delivery to customers.
Our client was looking for a strategic partner who could help define what the most optimal distribution network looks like and drive its overall network strategy into the future. Key elements needed for the client were improved network utilization and reduced cost. After some deliberate and careful evaluation of the different service providers in the market, the client chose KPMG as its business partner.
Benefits to client
In positioning our client for the future, we’ve delivered benefits in three key areas:
Network capacity and costs
To help the client identify an optimal distribution scenario to drive efficient operational performance and costs, KPMG:
- provided multiple quantified distribution network scenarios identifying operational cost impact and network capacity utilization
- identification of one scenario with 13 percent operational cost savings driven by a new distribution center location, inventory positioning optimization, and transportation costs improvements.
Future network projections
To help the client ensure viable capacity into the future with budget estimations, KPMG:
- identified key capacity constraints the client may need to address in “today’s current state” in order to have a successful network in the future
- estimated storage utilization three to five years out for the preferred network scenarios >projected dollar savings recognized in the most “optimal”.
Direct-to-consumer insource versus outsource comparison
Should the client continue to manage a portion of its business internally, or outsource to a thirdparty provider? To answer this question, KPMG provided:
- a detailed cost comparison of managing the business “as is” internally versus outsourcing to a third-party provider and three-year estimations of cost change based on forecasted growth
- financial considerations for implementation timelines and fees.
Based on our experience of working with clients in a wide range of industries across the globe, we have developed a wide-ranging methodology that supported our client through its decision-making process of its supply chain network landscape and structure for the future. KPMG assessed the impact of the client’s consumption of the newly acquired consumer brand into its distribution network, the influence of a new facility with regard to distribution, and provided insights to insourcing versus outsourcing its direct to consumer business.
- Baseline establishment: In a cross-functional effort, we worked with the client’s Logistics, Finance, and IT teams to obtain a thorough understanding of the current operations. The robust financial and operational cost baseline included inputs from location footprint and space capacity, shipment volumes and customer demand, headcount, transportation costs, and other miscellaneous overhead. The baseline provided the client with the foundation for the network scenario analysis cost and performance comparison.
- Develop network scenarios. We developed multiple scenarios enabling the client to reduce cost by applying the specifications of the client’s new manufacturing/distribution site, past sales performance and future projections, the introduction of the newly acquired brand’s product flows, and other customer delivery site locations. KPMG was able to examine various inventory capacity shifts, entertain scenarios that consolidate or eliminate different distribution facilities, rationalize transportation modes (e.g., truckload versus LTL) and payment terms (e.g., prepaid versus collect), and estimate fixed and variable costs within the four walls of the facilities.
- Insource versus outsource comparison. In efforts to best understand if the client should continue managing its online sales and direct-to-consumer business, KPMG conducted a 3PL RFP and was able to quantify the proposal pricing against current baseline costs and performance. This allowed us to assess the value of either outsourcing the business or keeping it “in house” for the client.
- Leadership alignment and understanding. Showcasing the various scenarios and what it means to true cost and performance can sometimes be “lost in translation.” Our approach to voicing the findings back to the client allowed for easier comprehension, consensus on preferred scenarios, and directional insights to decision-making.
KPMG helps organizations improve their ability to drive efficient transport and distribution operations. Better planning and execution of transportation and distribution management, including the coordination of inbound and outbound transport requirements (and inter-company product flows), leads to improved overall operations.
Warehousing and distribution is an important aspect of customerfocused supply chains. It effects every product, and customer, directly or indirectly. Distribution and warehousing strategies are now the cornerstone of a seamless end-to-end customer experience, enabling organizations to service their customer and exceed expectations.