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An iconic Automobile maker optimizes its Distribution Network

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.

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