CAN WE SAVE 20% OF OUR TOTAL COSTS?
The client is a $1 billion division of a global industrial company. It distributes locomotive spare parts to maintenance facilities across North America and around the world.
The client needed to decide on the optimal number and location of warehouses, with the objective of reducing total warehouse-related costs by 20%.
The data challenge was to detail transportation costs inbound and outbound to the DC’s, which were not documented in a consistent or convenient format. We constructed data tables and calculated costs using a range of base data sources, finding that the actual costs were significantly lower than expected.
We simulated the cost of the existing warehouse configuration using modeling software, to validate the model and the data. We then defined various scenarios and simulated their costs. The more promising alternatives were examined in more detail.
Our findings and recommendation were summarized in a report, and included:
- The key to savings was to maintain at least one DC in a tax-friendly state
- Inbound transportation costs were the most influenced by network design
- Customer delivery time was almost the same for a range of options
Our recommendation was to consolidate to one warehouse in Illinois and to select a city and site based on specific local advantages. When the solution is fully implemented, the client is expected to realize savings of 24% over current costs.