Supply chain transformation for a big box retailer
With more than 9,000 suppliers, seven store platforms and 1,800 stores, a large multinational retailer was weighed down by an insufficient supply chain. This big-box retailer lagged most of its competitors in inventory productivity and was at a significant competitive disadvantage.
The retailer’s supply chain was predominately based on a supplier-direct store delivery model. Its distribution network and supply chain processes were sub-optimal, and there was minimal integration with the rest of the organization.
Challenge
The big box retailer asked A.T. Kearney to develop a transformational, “greenfield” plan and a roadmap for the supply chain transformation.
The challenge was twofold:
- Design a flexible and adaptive supply chain – effective for multiple store formats and channels, and a diverse customer base – using an outside-in view, as if the supply chain was going to be recreated from the ground up
- Develop a transformation roadmap that would take the current supply chain to a new level of efficiency
Approach
First, the team used a rigorous analytical approach for distribution design, which included
- Demand segmentation
- Inventory modeling
- Flowpath modeling
- Should-cost modeling
- Sizing algorithms
- Network modeling
Then they developed a high-level implementation plan and financial evaluation based on
- Impact to stores
- Supplier management
- Sales & operations planning
- Distribution and transportation processes
For each major process change, the team developed key stakeholders as part of the transformation.
Results
A two-tier distribution network was developed, with detailed parameters for 35 new facilities, 12 expanded facilities, and a partially outsourced network.
The business case identified:
- More than $1 billion (net) annually in savings, by improving network efficiency and service to stores and customers
- An additional 18 percent reduction in inventory
- Plus 25 to 40 percent reinvestment opportunity in store labor
In addition, plans included
- A phased, five-year strategic plan that detailed how the retailer would reach world-class status, including critical path items for the first 12 months
- A transformation plan that ensured success by balancing benefits against risks, minimizing the impact on external and internal customers, and achieving results in a timely manner
Contact
Kumar Venkataraman
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