When a leading construction materials company firm acquired a large, global competitor, it inherited an overlapping mix of product lines. It also needed to address a welter of different transportation, sourcing, and order fulfillment approaches and strategies throughout the acquired firm’s numerous divisions.
The client turned to Chainalytics to explore the best strategies for integrating the acquired firm’s largest overlapping business unit into its existing supply chain infrastructure, as well as a go-forward network strategy for integrating the remaining businesses. This was a tall order: Chainalytics’ comprehensive supply chain network review and analysis would serve as the basis for seamlessly serving the client’s combined new customer base at the lowest total supply chain cost with improved service levels. But Chainalytics was prepared.
Chainalytics’ supply chain team began the engagement by developing a supply chain network model that combined both businesses’ networks and customers into a single integrated network model.
The Chainalytics team factored in not only key costs (inbound and outbound transportation, manufacturing, warehouse fixed and variable costs, inventory carrying costs, etc.) but key constraints like demand and supply, facility capacity or expandability, and lead times to customers to address:
- Best use of current network: Chainalytics looked at potential savings by distributing the combined firms’ similar products lines from the shared sites, determined which facilities should support which markets/customers with which products, and identified distribution center (DC) consolidation opportunities.
- Truckload consolidation: To gain operational and business benefits and efficiencies, the Chainalytics team explored load consolidation across combined product lines – particularly for customers that were common to both prior firms – looking for opportunities where a single larger shipment could replace multiple smaller deliveries. Along with more strategic transportation planning, Chainalytics advised, the client could incorporate more truckload freight vs. costly LTL freight.
- North American finishing optimization: Given long raw material shipping lead times from China and India, the client needed to settle on the best mix of U.S. and Asian locations to hold raw materials and produce finished goods, including the best placement of the acquired firm’s products within its DC locations–and in what volumes, and determine the optimal manufacturing, distribution and 3PL distribution footprint.
The “bought-in” strategy was confirmed as the lowest cost sourcing approach, with no cost-based financial benefit to increasing the total amount of product postponed in North America beyond the client meeting service requirements. Sub-assembly, Chainalytics advised, should be sourced from India as the current lowest-cost Asia source, while finishing in China or North America had higher costs. - Planning transformation: To ensure it could reconfigure its network when and where it is needed in the future, the client sought Chainalytics guidance in implementing more efficient inventory planning and deployment processes, including integrated demand and supply planning (IDSP).
Results
Chainalytics’ fact-based analysis provided multiple alternative network strategy scenarios. These scenarios helped the client weigh its options and select a comprehensive, integrated supply chain network strategy that optimized cost while considering service, manufacturing, and DC capacity and relevant risk factors, such as demand growth and currency fluctuations, across the combined operations.
The analysis showed that the client would benefit from:
- Retaining a port-centric network
- Optimizing locations, volumes, freight consolidation, and finishing between two North American locations
- Shifting distribution volumes to areas for better accessibility to customers, trucking lanes, rates, and labor
The client achieved its goals of reducing costs, improving service, and driving growth and increased profitability for the newly acquired business through a series of immediate, near, and longer-term network optimization initiatives. As a result, and with its optimized supply chain network, the combined entity is on track to realize a total savings opportunity of 6.1% of the total cost based on projected sales volume growth targets over the coming three years, including:
- 2.8% in near-term cost savings from optimizing the acquired company’s existing network, including consolidating freight from the less-than-truckload (LTL) mode to truckload (TL)
- 3.3% of total cost by prioritizing where to source and store finished products, driven by increasing Asia production and allocating more distribution volume to North American DCs with optimal port access
- And while the client decided to consolidate North American finishing locations, Chainalytics determined that there are even more savings associated with not finishing in North America at all, achievable by increasing global manufacturing capacity.
As demand growth continues, Chainalytics advised the client that the North American finishing strategy will need to be realigned with long-term capacity planning, given the implications on working capital. Additional investment in advanced planning technology and improved processes will enable the business to better navigate change, including nearshoring some manufacturing back to North America over time.
For more information on how Chainalytics can help you capture the maximum value from your supply chain, please Contact Us.
