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Cost Reduction Techniques
Mark Parker Food NW Supply Chain Project Manager
Director
UK Supply Chain Associates Ltd
Findings – Information Flow
Demand Management
Demand Management poor
Erratic information flow from the customer base
Poor demand forecasting by suppliers
High stock levels
Impacts operational efficiency
Root cause of waste
Dairy Sub-Sector “Field to Fork” Map
• .
Producers
of Dairy
Products
Farms
Packaging
Supplier
Secondary Processing
& Retail Packing
Operation
External
Store
Distribution
Centre
Internal
Store
S
u
p
p
l
i
e
r
s
O
E
M
C
u
s
t
o
m
e
r
s
Inbound
Logistics
Rework
Retail Customers
Dairy Sub-Sector “Field to Fork” Map
• .
Producers
of Dairy
Products
Farms
Packaging
Supplier
Secondary Processing
& Retail Packing
Operation
External
Store
Distribution
Centre
Internal
Store
S
u
p
p
l
i
e
r
s
O
E
M
C
u
s
t
o
m
e
r
s
Inbound
Logistics
Rework
Retail Customers
Landfill Sell as low
grade
Inbound
volume does
not align to
Production
Plan
Raw material
quality impacts
yield
20% Not
Right First
Time OEE 30-40%
Waste Packaging,
Energy
Impro
ve D
em
and M
anage
ment
Production
Plan does not
align to
demand
Information Mgt
Inefficient
Loading & Capacity
Planning poor
Little long term
visibility of demand
Customer
growth targets
not known
High stock levels to
cover erratic
customer demand
Dairy Sub-Sector “Field to Fork” Map
• .
Producers
of Dairy
Products
Farms
Packaging
Supplier
Secondary Processing
& Retail Packing
Operation
External
Store
Distribution
Centre
Internal
Store
S
u
p
p
l
i
e
r
s
O
E
M
C
u
s
t
o
m
e
r
s
Inbound
Logistics
Rework
Retail Customers
£190k
Yield
£250k
Productivity
£1m OEE
£122k
Waste
Landfill
Landfill Sell as low
grade
£500k
Inventory
£93k Avoid
Downgrading
Inbound
volume does
not align to
Production
Plan
Raw material
quality impacts
yield
20% Not
Right First
Time OEE 30-40%
Waste Packaging,
Energy
Impro
ve D
em
and M
anage
ment
Production
Plan does not
align to
demand
Information Mgt
Inefficient
Loading & Capacity
Planning poor
Little long term
visibility of demand
Customer
growth targets
not known
High stock levels to
cover erratic
customer demand
Demand Management
Information flow down the supply chain – customer forecasts need to be more accurate
Information flow – Suppliers need to be able to plan with the information (forecasts) provided and flow this information down the chain (this is a market failure).
Information flow – Suppliers need to understand their own capacity and measure loading (demand) against this capacity (this is a market failure).
Stock levels need to optimised to avoid downgrading and scrapping.
Demand Management
Customers need to share
long term growth plans
to aid
strategic business planning
down the supply chain
Our Solutions
Operational improvements – Remove waste and
reduce costs in each company
Demand Management & Planning Workshops –
bring together elements of the supply chain to improve
forecasting & information flow.
Supplier Forums - Hosted & Driven by the customer,
Attended by suppliers.
Supply Chain Mega-Trends
Increased transport costs and the challenges of
providing/delivering optimal service are mandating enhanced
collaboration with service providers.
Distribution networks are being redesigned to react to increased
freight costs and system bottlenecks; this will significantly change
the face of both UK & Global supply chain networks.
The cost of diesel fuel is continuing to rise, adversely affecting
supply chain costs.
European
Logistics Project
Case Study
Logistics Analysis Method
Current State Map
(Product & Information Flow)
Current State Costs
Remove Non-Value Added activity
Future State Map
(Product & Information Flow)
Future State Costs
European Distribution by Road
Multiple Warehouses
Widnes Holland
Germany
Italy France
Spain
Current State – Information Flow
EU customer ordered with local office
Order shipped from local warehouse
Local office replenishes stock via London
London office place orders with Widnes
production site.
Poor customer service
Lots of non-value added activity
European Distribution by Road
Multiple Warehouses
Widnes Holland
Germany
Italy France
Spain
Current State – Product Flow
Load at Widnes (order pattern dictated by in country offices)
Truck to Tilbury
Unload
Load on country specific vehicle (may only be one per week)
Unload at in-country warehouse
Load on local vehicle
Deliver to customer in-country
Current State - Issues
10 part-loaded vehicles per week out of Widnes
14 day lead time
5 warehouses holding.......
.......£2m of stock
10 EU Sales office staff
Lots of non-added value logistics
Frequent stock-outs
High level of customer complaints
Delivery on time 55%
Current State - Costs
£1.5 million – Logistics & EU Sales Offices
£2 million – Stock holding
European Distribution by Road
Multiple Warehouses
Widnes Holland
Germany
Italy France
Spain
Changes
New multi-linguistic customer service
team in Widnes
Set up hub in Rotterdam
Closed 5 sales offices & warehouses
Reduced headcount by 9
European Distribution by Road
Hub in Rotterdam
Widnes Holland
Germany
Italy France
Spain
Improvements
Orders direct to point of despatch – Widnes
Full loads out of Widnes
Only 1 EU warehouse - in Rotterdam
Remove non-value added activity
Reduced lead time to 7 days
Delivery on time 55% up to 98%
Customer complaints down by 60%
Cost Reduction
£800k – Logistics & EU Sales Offices
(£700k saving)
£1m - stock holding (1 months cover)
(£1m saving)
Deliver faster and at lower cost
Logistics
A simple process redesign
can generate
significant cost savings
Threats & Opportunities
Commodity prices are continuing to rise
Profit margins shrinking
Improve information flow into the supply chain
Drive cost out of the supply chain
The Aim
Create a long term, viable supply chain
capable of supporting current & future needs
What can you take away from today?
Understand different types of wastes
Why quantify waste
The financial impact of waste on a business
The value of accurate forecasts
Questions?
