Network Analysis: Improved customer service and reduced inventory through optimised networks

Forward-thinking companies focus on network optimisation – to reduce working capital and to meet ever-increasing customer requirements with perfect service. This is true for one of our clients in the pet food industry, owned by a large Private Equity Fund.

Our client is an innovative, leading European pet food company producing branded feed and private label products for the retail market. Production takes place at nine sites in five countries. He is the only market operator with an integrated pan-European production network, which makes it possible to deliver products to customers efficiently at the desired time and place for about 500 customers in 38 countries.

TenglerConsulting worked with the client in the analysis and implementation of their new network, the selection of the future LSPs (Logistics Service Providers) and in the optimisation of planning.

Originally the client wanted merely to increase its delivery service level, but additional requirements in the white label FMCG (Fast-Moving Consumer Goods) market were not long in coming: ‘Either you achieve an OTIF (On Time in Full) of 95 % or we will no longer list you‘ was the clear message from major retailers. To meet constantly increasing delivery service requirements the company already had 25 warehouses located throughout Europe.

Despite higher stocks and shorter production cycles – leading to lower machine utilisation – OTIF was still at 86 %. Improvement in planning by a central supply chain department failed on several occasions. The balance between finance, operations and sales could not be found. There were several truths but no common plan. It soon became clear that integrated planning and an optimised network would lead to reaching the objectives.

It is not easy to win over successful customers for a differentiated view of the supply chain. According to every sales department every customer is equally important. But if this is true, then it follows that every customer is also equally unimportant. We were able to convince the client through in-depth data analysis that there are indeed differences. ABC/XYZ analysis immediately revealed not only significant variations in the demands of customers but also differences in e.g. delivery time requirements and delivery units (FTL/LTL), and transport distances were able to be evaluated and forecast accuracy increased.

As shown in the diagram, the answer lies in finding the right balance for segmentation. Relevant information on products, customers and sales channels is included in the simulation to ultimately improve service level and generate the potential cost advantage for your own company.

“Segmentation made it possible to define various requirements for the supply chain depending on customer and product requirements – a basic prerequisite for calculating the necessary inventories.” COO of the company.

A differentiated view of the supply chain is therefore necessary, as not every customer always requires 48 hours lead time or wants to pay for premium services such as separate deliveries. The project succeeded in reducing the complexity of individual segments.

Future strategy was included in our simulation: Which customers in which countries are to be supplied at which time? What does the production footprint look like in the coming years? Which product groups are likely to develop and how? With this and other information, scenarios could be simulated with our own software and then tested for practical feasibility.

To select the most suitable future network (scenario), we should not lose sight of the original task of improving the OTIF delivery service level. The requirements of the factors influencing OTIF, such as forecast accuracy, safety stocks, production capacities and compliance and – last but not least – transport, had to be taken into account. The necessary changes in the individual influencing factors were made transparent and the costs for conversion were evaluated.

The requirements for future processes, organisation and IT landscape were also highlighted, as well as the possible implementation of the new network with own warehouses or by LSPs (Logistics Service Providers). This was the basis for the final scenarios, which led to a feasible business case with discounted cash flows.

In addition to mapping an efficient network, improving forecasting and integrated planning (as a joint plan) were also key levers for achieving the objectives. After the first rounds of the S&OP cycle, there was great astonishment when both sales and production department started talking about the same figures for the first time and came to the correct conclusions together. Fluctuations in capacity utilisation, incorrectly timed maintenance, storage bottlenecks and surpluses, and of course the most important key figures such as forecast accuracy, production compliance, working capital and OTIF, were constantly monitored and the correct measures to take were determined well in advance.

The success of the project is reflected in the key supply chain figures:

The new network helped to overcome problems stemming from national borders and promote corporate thinking within the group. The first-time segmentation of the supply chain according to customer requirements and the improved interaction between supply and demand have created a new corporate culture. The targets set for improving service levels and reducing inventory costs were exceeded.