Chainalytics partners with a leading health and beauty manufacturer to modify the business’ fulfillment operating model, implement mature planning practices, and deliver immediate results to reverse rapidly declining service levels.
A client in the Private Equity (PE) space recently engaged Chainalytics’ Supply Chain Operations (SCOPS) practice to discuss one of their recent partnerships in the Health and Beauty industry (H&B).
The PE firm disclosed that the H&B client was experiencing warehousing and distribution issues the previous year, causing them to leave sales on the table and miss their top and bottom line goals. Seeking to rectify the situation, the Chainalytics team performed a rigorous four-week assessment and quickly identified three major issues within distribution operations: the warehouse did not utilize a warehouse management system (WMS), it severely lacked sufficient space necessary to support the current business (certainly not the expected 25% YoY growth), and the warehouse team lacked the expertise and experience to manage other fulfillment operations.
Using the assessment findings, the Chainalytics team put together a business case for the client which compared the costs required to establish a highly functional fulfillment team and infrastructure against that of taking the business to a third party logistics company (3PL). The decision was clear; taking their distribution to a 3PL would provide the scalability required, as well as the technology and personnel most adept with warehousing at a lower cost and shorter timeframe.
Working alongside the H&B client’s leadership, the team set out to develop a RFP, present it to a carefully selected group of 3PL’s, and eventually narrow it down to three options before engaging in a rigorous final selection process. During this time, the team also worked on helping the current operations group implement a few lost-cost process improvements so the H&B client could improve and maintain increased output through their peak season, for the transition to a 3PL would occur once peak season was complete.
While the team was working through this phase of project, they diagnosed that although the H&B client was building inventory at a rapid pace, customers were experiencing rapidly declining service levels in the form of decreased order fill rates. Although out of scope for the current project, the team believed there were other gaps in planning and procurement that required improvements in order for the client to reach satisfactory fill rates. The team held discovery meetings with the client’s planning and purchasing teams and quickly realized that both teams were using sub-par practices (technology and processes). This, in turn, was leading to large builds of slow-moving inventory as well as colossal shortages in raw materials and packaging inventory required for planned production (approx. 200+ materials).
Knowing additional expertise was needed, Chainalytics added two teams to the fray: the Integrated Demand and Supply Planning (IDSP) team, as well as an additional operations team to improve the procurement processes. During the first week of assessing the planning and procurement processes, the team identified some major gaps: an inability to appropriately plan and prioritize production, incorrect safety stock levels for raw and packaging material, low inventory accuracy, and sub-par prioritization of purchase orders.
The team first identified the appropriate safety stock levels and built an excel-based MRP tool that used the current on-hand inventory, production plan, safety stocks levels, material lead times, etc. to alert the procurement team as to what material was to be ordered, in what quantity, and when it was to be delivered. Using this tool, the procurement team was able to prioritize their PO generation for raw materials, and within 6 weeks the total number of shortages were reduced by approximately 95%.
With raw and component inventory stabilized, the question became, with so many shortages and urgent customer needs, how should production and third party manufacturing be prioritized in order to improve service levels at key customers as quickly as possible? Using the IDSP team’s depth of knowledge of the space, the team rapidly implemented a planning tool that optimizes the production schedule based on prioritized customers requirements and capacity constraints internally and externally. This tool has enabled the organization’s planning group to easily identify their most critical needs and create optimized production and procurement schedules for both the short and long terms.
Having achieved the newly set inventory targets, the H&B client was ready to transition warehouse operations to the selected 3PL, complete with system integration. Prior to the transition, the organization was experiencing significant space constraints, for they were stifled by too much inventory in a limited environment. With the integration needing approximately two months to complete, the Chainalytics team managed the transition with a “ramp-up” plan that began with moving the top 40% of inventory needed to fulfill priority customer orders.
While the initial inventory transfer helped to alleviate the space issues, the client still faced the the challenge of having all the right inventory in the appropriate warehouse during the transition. Utilizing multiple warehouses at this time also created a temporary increase in transportation costs, as some orders were being picked in separate locations yet required consolidation in a single location prior to order shipment. However, the ramp-up plan was designed to alleviate this issue within a matter of weeks.
With all the inventory finally transferred to the 3PL, all space issues have been alleviated, and service level percentages in terms of fill rate reached the mid-90’s (approximately 10% higher than previous fill rates) within four months. The successful partnership between Chainalytics and the H&B manufacturer paved the way for the client organization to be acquired by one of the world’s largest producers of consumer packaged goods. Chainalytics has continued their work with the H&B manufacturer and the global CPG company to ensure continued operations performance and a smooth integration of systems and operational processes.
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