An iconic Automobile maker optimizes its Distribution Network

The Problem

The Customer, an iconic automobile manufacturer, was looking to reduce their distribution cost of Commercial Vehicles up to its 400+ Customers and requested Algorhythm to use its rhythm 2.0 Network Planner to achieve this objective.

Some of the key reasons for high cost of distribution were:

• High outbound distribution costs
• Sub-optimal locations of existing warehouses
• Sub-optimal Sourcing points and modes of transportation which were decided on operational basis

The existing network had to be revamped to not only deliver a lower landed cost but also a much better service level in terms of case-fill as well as distance from the customers.

Key Challenges

Some of the key results required to be delivered were:

• Warehouse Selection – Right number and location of warehouses based on the best trade-off between freight costs & fixed costs of warehouses.
• Right warehouse locations based on Demand Clusters.
• Optimal Linkage Selection – Identification of Best linkage for each product market combination from factory to warehouse to customer.
• Transportation Modes – Right mode of Transportation on Each Lane. Multi-modal Capability. Selection of the linkages based on mode wise cost and volume discounts.
• Optimal Inventory – Optimal Inventory (Safety and Cycle stocks) at all Locations and for all Products.
• Optimized Total Landed Costs – All costs like handling costs, freight costs between factory warehouses, customers etc. and non-linear costs like Inventory Costs, Warehouse rent, manpower costs had to be considered to minimize the total landed cost.
• Service levels – Substantial improvement in Service level in terms of case fill as well as distance from the customers. Each customer had to be within two days of a warehouse and case fill had to improve to 97% from existing 90%.

The problem was complicated because: a) only a given combination of products (commercial vehicles) could travel together in a larger mode; b) these commercial vehicles could be individually driven on road (using a jockey).

Solution

rhythm 2.0 Network Planner was used to optimize the Distribution Network. Some key results delivered were:

• Sourcing warehouse and factories were optimized for each product dealer combination based on the total freight. All direct dispatch opportunities were also identified.
• Mode of transportation was optimized on each lane.
• Warehouse locations were optimized based on demand distribution and all the cost drivers.
• Potential product mix at each Factory was also optimized based on total landed cost and factory constraints to produce closer to the markets.
• Right Inventory level at each distributor location for all products.

Key Results

• Demonstrated potential of over 30% savings in outbound transportation costs.
• This was achieved through (a) optimized linkage of movement; (b) Optimized warehouse locations; (c) Usage of Rail transportation mode; and (d) Optimized Product Mix at each Factory based on total landed cost and Production constraints at factories.
• Improved service in terms of distance to customers. Each customer could be serviced within a maximum of 2 days.