Ongoing Franchise Growth Drives Need for Network Expansion
Recently, an Atlanta-based quick service restaurant distribution cooperative providing over 8,000 franchise restaurants with forecasting, purchasing, inventory planning, warehousing, transportation, and delivery services contracted with Chainalytics to perform a distribution network analysis for their U.S. operations.
At the time of the partnership, the distributor was experiencing significant (36% annual) growth of store locations, much of which was occurring outside the restaurant’s traditional core Northeast and East coast marketplace. As a result, the existing distribution centers (DCs) were no longer well-positioned to support continued store growth, and several of the DCs were at or near capacity, requiring operational work-arounds and significantly impacting the distributor’s operating efficiencies.
In addition to addressing these growth-related challenges, the distributor felt it was imperative to create a successful network design, both on time and within budget, to sustain ongoing support and credibility amongst the franchisees. Management of the distributor knew that a high degree of modeling confidence was required before the franchisee board would support expected future-state capital expenditures. The distributor knew that Chainalytics was the right firm for the project because it could accurately reflect private fleet operating characteristics in their approach, as well as provide a highly detailed roll-out strategy to support the allocated budget for each step of the process.
The project possessed a series of objectives for Chainalytics to address and develop solutions that would provide the optimal network layout. The Chainalytics team needed to determine what changes should be implemented to the overall distribution network, evaluate the number and role of existing DCs, and build in support for expected store growth over the next three to five years. The supply chain activities included in the scope involved transportation into and between DCs, in-store fleet deliveries, DC inventory, storage management, and handling requirements. Additionally, Chainalytics consultants evaluated product velocity and temperature requirements as they pertained to specific distribution centers.
In order to successfully complete the project, three separate, blended teams were established. The first was a Core Team responsible for the day-to-day activities of the project, the next team was a Steering Committee responsible for the overall project direction, and the final team consisted of subject matter experts who were responsible for reviewing key model inputs and assumptions. Once the teams were established, a series of sub-models, baseline models, future-state scenarios, sensitivity scenarios, and roll-out plans were developed in support of the overall strategy plan.
To ensure that the future state scenarios were accurate at a detailed level seperate sub-models were developed for inventory modeling, fleet delivery modeling, “for-hire” transportation modeling, and distribution cost and capacity modeling. Additionally future-state roll-out plans quantified the detailed saving opportunities, service impacts, and store assignment changes for up to 13 specific modifications to the distributor’s distribution network in support of developing business cases for each change. As a means to provide the highest level of confidence, all analysis were done in an iterative fashion throughout each stage of the analysis and decision making checkpoints.
Upon completion of the analysis, the findings revealed the need for an increased number of DCs, both in the established and emerging markets. This would allow for an annual operations cost reduction in the high single digits. The new network design would also decrease the DC to store distance by an average of 10% while witnessing an average DC volume decrease. With the findings Chainalytics identified, the supplier has expanded an existing DC, opened a new DC in the Midwest region and another in the Southeast region. The supplier’s partnership with Chainalytics provided the necessary components to move forward confidently with the network design and meet the needs of their expanding market and franchisees. Through a successful partnership and design implementation, the distributor can continue serving their customers with higher service levels at a lower cost.
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