Consumer products & retail

Replenishment and logistics strategies for a large merchandise retailer

A leading U.S. discount retailer was using a one-size-fits-all approach for inventory and logistics management across different product categories in its supply chain. When the country’s economic conditions worsened, the retailer fell further behind its competitors in operating performance.

Challenge
The retailer asked A.T. Kearney to help with reducing the company’s expenses and improving inventory productivity.

The project had two specific challenges:

Build a segmented approach to enable differentiated replenishment and logistics treatments across the retailer’s complex supply chain
Develop the approach while contending with tens of thousands of SKUs and hundreds of stores

Approach
The team used a four-step approach:

Divided demand into eight unique segments (based on criticality of customer experience and margin, selling cycle, and rate-of-sales) and analyzed demand profiles and characteristics of each segment to identify inefficiencies in product flow planning, handling, and space usage – using a combination of rigorous analytics and top-down hypotheses
Developed an integrated decision framework to generate ideas and define distinct merchandising, replenish¬ment, distribution, and store treatments for each segment
Defined business cases and short and medium-term initiatives to improve execution of promotional sales, distribution center replenishment processes, and vendor-to-shelf product flow
Designed detailed pilot programs to test processes and system changes within the initiatives

Results
The project resulted in significant value for the merchandise retailer:

Increased revenues by 0.5 percent through segment-specific replenishment strategies and improvements in promotional in-stocks
Identified more than $100 million in savings, achieved by reducing in-store labor requirements, and DC and store inventories