Executive Summary
Our automotive accessories client was looking to evaluate their existing distribution center (DC) structure, assess its cost and performance and explore alternative structures for enhancing capabilities.
The project with the Firm’s Manufacturing, Distribution and Logistics (MD&L) group encompassed both retail and wholesale operations – seeking answers to questions about viability, cost advantages and associated risks with migrating to an alternate structure.
The Client
Our client is in the automotive accessories industry, operating a distribution network comprised of seven distribution centers. They support over 600,000 orders and generate over $400 million in annual revenue. Their business spans retail and wholesale segments fulfilling orders nationally and globally.
The Challenge
The company recently closed strategic acquisitions and the network grew significantly. They wanted to bring disparate systems together and create a unified structure across the manufacturing and distribution footprints.
The challenge was to evaluate the efficiency and effectiveness of the existing distribution network. This involved analyzing costs and performance metrics across multiple DCs, determining if an alternative structure could enhance capabilities and assessing potential risks associated with such a migration.
The Approach and Solution
Withum’s MD&L team kicked off a project involving a comprehensive assessment through facility walkthroughs, performance metric reviews, interviews, data collection, and analysis. Techniques like the Center of Gravity analysis aided in identifying ideal locations based on order patterns. External insights from transportation and location services organizations were also leveraged.
Further, using SKU dimensional data and cubic movement helped right-size the pick locations and identify automation improvements to reduce future operating costs and improve productivity significantly.
We identified multiple scenarios with high-level estimated costs and benefits, and the final recommended solution proposed a distribution network comprised a sizeable automated mega-center (more than 700,000 square feet) located in the United States, and five strategically placed satellite centers. The satellite DCs would exclusively handle short lead-time retail orders for their respective regions. At the same time, the mega-center would service not only short lead time retail orders within 750 miles, but also all long lead time wholesale orders.
The Results
Together, we implemented the proposed network structure. It yielded significant benefits, including:
- A $4 million reduction in operating costs in the first year of implementation.
- Transportation and labor savings of more than $20 million over 5 years due to hub-and-spoke model.
- A payback on investment of less than 3 years.
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