Location: Hundreds of Locations
Johnson Stephens Consulting assisted our client, a $620MM furniture retailer operating 119 stores in 17 states, with the development of a logistics network strategy through network optimization. At the beginning of the project, the client’s logistics network was comprised of 49 local warehouses/delivery operations, and 4 regional warehouses. Our client faced a quandary with its base case logistics network: each time they built a new store or market, they had to construct a new local warehouse/delivery center to support the new business. This was capital intensive and resulted in increased operating expenses and transportation costs. The company had never quantified potential, alternative approaches to managing the supply chain including consolidating and operating a centralized type of network.
The resulting network provided an improvement of logistics network annual costs from $108MM to $90MM. Network savings were made up of $25MM annual operating expense savings, additional transportation cost of $7MM (inbound freight decreased, outbound linehaul to store delivery markets increased) for a net save of $18MM per year. The current state model would have required capital investment of $45MM to support the old network with new local warehouses vs. $60MM for the new network. Thus, an incremental capital investment vs. current state of $15MM produced an $18MM per year savings and customer delivery service standards were maintained to provide “delivery everywhere, everyday” home delivery to all markets. Logistics Network costs as a % of sales went from 9.21% to 8.17%.
How We Did It
After the network optimization effort was completed, the client implemented a 3 distribution center network. This entailed closing all 49 local warehouses, building a new 1 Million square foot eastern U. S. distribution center, a new 300,000 square foot Florida distribution center, and expanding its western regional distribution center from 200,000 square feet to 500,000 square feet. Deliveries mainly originate from each of the distribution centers using a demountable trailer concept with drops in store parking lots & drop lots, for local deliveries by drivers domiciled in the local markets. For remote stores, three delivery crossdock facilities were also constructed and opened. All options were compared using a net present value approach and balanced with an examination of achievable service levels for the furniture customer and stores.