Logistics network redesign enables step-change cost reduction for a grocery retailer
Grocery retailing is characterized by high volume and low operating margins
Having the right supply chain setup can therefore significantly impact the bottom line
For one of our food retail clients, we defined a consolidated warehouse footprint strategy to structurally reduce logistics costs by up to 15%
We helped to secure a new plot, created a material handling strategy and led the overall effort to implement the new logistics footprint
At a glance:
Grocery retailing is a good example of a high volume business with low operating margins. To maximize revenue and create happy customers that keep coming back, shelves in the supermarket always need to be stocked with a wide range of fresh and relevant products. To achieve this, huge quantities of both perishable and non-perishable products from different suppliers need to be shipped in and out each day. There is very little room for error. This whole operation can best be described as ‘The Champion League of logistics’. With total costs often amounting to anywhere between 4-6% of total revenues, the right setup can potentially have a huge impact on the bottom line.
Knowing where to place the warehouses, in which form and function, with a carefully balanced inventory strategy and transportation setup is therefore crucial for food retailers to gain a competitive edge. However, one of our clients was facing increased cost pressure and capacity constraints. These factors put the client’s long-term top position in the food retail market at risk. We were requested to define a new logistics strategy and help realize the required warehouse network transformation.
Improving logistics performance through holistic analysis
To gain a better understanding of the current situation, IG&H began by assessing the company’s growth outlook, benchmarking current cost performance, and assessing bottlenecks and opportunities within its existing supply network.
Based on these insights, the IG&H team developed several warehouse footprint scenarios based on best practices, each with its own bottom-up business case. For transportation, a center of gravity study was done in which different delivery models were analyzed and simulated using state-of-the-art route optimization software. For the consolidated footprint scenarios, a high-level mechanized material handling concept was designed, together with the initial building and location specifications.
Finally, IG&H evaluated a potential new warehouse location, accounting for a variety of strategic factors, risks and unknowns. Throughout the project, IG&H facilitated a transparent and controlled decision-making process across multiple internal and external stakeholders.
Streamlining logistics costs
IG&H identified a value case that would enable an 11-15% reduction in logistics costs per year with an attractive payback period. The follow-up included a comprehensive international tender for the material handling solution and collaboration with real estate professionals to realize the new logistics site. IG&H also set up the program management infrastructure and lead the entire development and transformation effort.